It is a two-pronged situation or more like a dual sim phone; the only difference is that both the perspectives in this question are applicable simultaneously. With all the seducing sales number and ever increasing sustainable demand graphs, Pakistan is a very promising market; therefore, anyone with serious stakes in the handset industry can enjoy serious benefits by putting up mobile phone manufacturing facility here. On the other hand, everyday changes in economic policies and duty structure are a significant threat to any business entity with a long-term vision.
During my 12 years exposure to the mobile phone industry in Pakistan and overseas, I have never seen a more fragile retail infrastructure. I have seen giants emerging and vanishing into thin air and becoming part of history just because of the uncertainty and the delicate ways of business. On the other hand, I have also seen intelligent brands coming into the limelight because of their capability to survive in a changing climate. I have also witnessed global brands getting collapsed here because of their blindness towards the native market trends. The market has also created giants, such as QMobile, for their talent to appreciate and use the appetite of the local consumer.
Pakistan entered the 3G era much after the entire world due to various unfortunate reasons. This resulted in a technology slowdown for the handset brands as they could not keep up with the global pace, but as soon as we turned into a 3G and 4G enabled market, things began to change. It is a painful realization that the service providers and the handset brands have never been aligned strategically in this part of the world.
There seems to be a lack of vision and sustainability in the handset sector, especially. Every stakeholder appears to live by the day, and every brand is trying to survive the thin product line. Every new model is crucial to the well-being and even the market existence of almost all the respected handset brands. Bollywood powered promises create short term demands and propel the brands to new challenges. Our handset industry has exhausted the celebrity pool already since there is nothing else that seems to work for the masterminds of these brands.
We have seen the rise and fall of industries like home appliances, textiles, and cement. We will notice certain similarities behind their instant success and nosedive, unsustainable governmental support that lacks strategy, followed by unreasonable and unjustified government demands. Pakistan consumes an impressive 20-25 million mobile handsets per annum. This figure points out that Pakistan has more than enough potential to become a production hub for various handset brands and our geographic supremacy can help us export these units to smaller markets in our neighbor while generating valuable foreign exchange, employment, and several other, opportunities.
Consumer economies like Pakistan always act as the lucrative markets, but what bars them from standing in the list of producer nations. Perhaps, the case of mobile manufacturing proves to be ideal to answer this question.
We have very interesting and encouraging statistical data that support the demand and market for mobile phones in Pakistan. The actual teledensity stands at 55%, which proves that there is further potential to grow. Almost 30 million mobiles are imported each year, but not even a single handset is manufactured locally. In recent years, a 20% shortfall in mobiles imports is witnessed owing to government’s unstable tax structure which doubles every year.
Despite the strict tax policies, market size has increased, and this is because cellular operators keep introducing new services. For example, Telenor has brought the 4G service to Pakistan. Similarly, the merger of Mobilink and Warid is also significant. Such mergers usually decrease the operating costs giving operators a chance to enhance the service quality.
Unsuitable government policies such as the high tax on imports are making it difficult for the service providers to get advantage from the opportunity. One can witness the SKD (Semi- Knocked Down) Policy of India. According to Economics Times of India, the SKD device import in India rose to the 54 percent in the second quarter of 2015. This is because manufacturers like Micromax and Intex were able to import SKD mobile phones due to importer friendly trade policies.
As discussed earlier, manufacturing of mobile phones in Pakistan will not only allow us to cater the needs of the local market, but it will also offer our products to the adjoining smaller markets of the region. For example, China recovered from the 43% decline in exports only due to the collaboration of more than 27 mobile manufacturers that are creating mobile phones in the country.
Such export boost can be witnessed in Pakistan as well if we could create an encouraging atmosphere for investors through supportive policies. What we fail to understand is that investing in a volatile country like Pakistan is indeed a challenge for big corporations.
We talk about inviting Foxconn to invest in PCBA (Printed Circuit Board Assembly), which is not possible at the early stage. Foxconn is working in countries like Brazil, China, and India but conditions for its functioning are not favorable in Pakistan.
So how can we manufacture mobile phones?
To start mobile phones manufacturing, we need to start supporting local mobile companies that are already working in many countries. For this purpose, a group of local mobile companies of likes Haier, Qmobile and Huawei should be provided with tax friendly policies. A mix of manufacturing companies will stimulate competition and then produce the high-quality products.
For example, China does not allow any producer to create a monopoly, it sets an atmosphere for competition in term of price and also quality. The primary reason of battles among provinces in China is the right policies.
It does not need the genius to set up PCBA factories in Pakistan. The example of successful manufacturing units can be seen in the form of industries like textile. Pakistan government introduced policies that favored the import, export, and production of textile products. As a result of it not only our textile goods left a benchmark in the international market but also contributed to the economic boost in the country by generating revenue and employing labor.
Today our shopping malls are proud to open the shops with signs of Gul Ahmad, Nishat, Khaadi, Bareeze, and other clothing brands. Such moments of success can also be experienced in handset industry too with right policy framework.
Apart from the efforts on behalf of the government, there is a need to invest in the infrastructure. There are such fields that are prospering with very little infrastructure; IT is one of them.
Almost, 8,000 to 10,000 I.T Professionals are produced in Pakistan every year who are innovating something. It is very common to observe new apps getting developed by these software engineers.
Further, many multinational I.T companies invest in Pakistan. The fact can be attributed to low investment cost and the less infrastructural requirement for the establishment of software houses. As far as the talent is concerned, availability of software houses has proven that our country is rich in it.
To accept the talent and give room to the innovations, one has to be flexible enough. Apple was all about a software idea, but it needed its integration into hardware. Founder of Apple, Steve Jobs, first went to the Intel but the company refused this idea. However, it was perceived well by the Foxconn, and now the company is an exporter of hardware for the world’s most popular Smartphone brand.
There is no shortage of opportunity and talent, but limitations of infrastructural development and unfriendly government policies are obstacles in the way of mobile phones production in Pakistan. For making it happen, the government needs to work on three things; Import Policy, Export Policy, and the Ecosystem.
All three factors are very significant and guarantee the result oriented and stable entry of Pakistan in Mobile SKD leading to CKD.
Among these factors, the ecosystem is much important since a product has to penetrate and survive in the market after production based on its quality.
For this purpose the example of PTA can be seen, the high standards for quality of service and product set by the Pakistan’s Telecom Authority make it difficult for the new entrants with poor service quality to sustain. Tough criteria to meet these standards also increase the competition among existing players.
The unfriendly attitude of government seems to be a mere hesitation. As far as electronics are concerned, Pakistan is already making tech equipment. Air conditioners, washing machines, refrigerators and other such products also require a complex mechanical investment, but they are being produced within the country.
The famous automobile brand Audi is making its mark for Pakistani customers. Investor friendly policies of the government have encouraged the auto dealers to produce spare parts for the cars. This has made the market to exit from an old monopoly of Suzuki, Honda, and Toyota. In the country like India, there are more than 50 options for the buyers in term of automobile brands which not only caters to the wide range of market regarding diversity but also increases the business opportunities for the locals.
Any product simply does not mean that once it is completed and offered for use, it will not require any further investment in terms of manufacturing. There are very less BMW owners in Pakistan; this does not mean that all the people who can afford and want to buy a BMW have owned this car, the reason is that they do not see any outlet that will provide them spare parts when needed; here is an opportunity for the investors. They can consider building spare part manufacturing plants as Audi is seriously considering.
Even, the home appliances seem to be very small when production of heavy machinery for defense equipment such as JF-Thunder is considered. Pakistan, often labeled as “defense economy” is very quick in making conditions feasible for manufacturing air crafts. There are many joint ventures with China, which are making us self-sufficient in defense. Same level of collaboration can be extended to promote the entry of PCBA companies in China.
A road map designed intuitively and cautiously with the help of leading investors, market analysts and the Governments can be powerful enough to create the opportunity even when it does not exist. In Pakistan we have the opportunity in the form of lucrative market, all we need is the road map, and we can own Silicon Valley.