Indus Motor Company and its export: Pakistan needs to do a lot more

Recently, it was reported that Indus Motor Company – the assembler of Toyota-brand vehicles and parts manufacturer in Pakistan – is exporting a certain part to Egypt after an agreement with the foreign entity.

The CEO, Ali Asghar Jamali, said at the time if Toyota Egypt’s confidence is built, “we may be asked to export more parts”.

However, the development drew the criticism of many within and outside the industry. Many said Pakistan’s auto industry ‘lacks innovation and has not developed’ in the many years it has operated despite getting ‘favours’ from the government in the form of high duties on imported vehicles.

There were questions as to why it took an automobile company 30 years to begin exports.

Here, it is important to understand the structure of the auto sector companies operating in Pakistan.

Let us start with IMC. It is a joint venture between a few companies – the House of Habib in Pakistan, Japan’s Toyota Motor Corporation (TMC) and Toyota Tsusho Corporation – and was incorporated in 1989. However, it was not until May 1993 that it first started commercial production.

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Other major players in Pakistan are similarly structured – the shareholding pattern may be different. They are not completely indigenous, but are anchored by a strong foreign parent company.

The business model is pretty simple. Make and/or procure cheap parts wherever possible and then sell them to the consumer.

Their success is determined by their bottom-line figure. Indus Motor, for example, posted a profit-after-tax of Rs13.7 billion in 2019 (year ended June 30), Rs5 billion in 2020, Rs12.8 billion in 2021, and then hit Rs15.8 billion in 2022. Just for humour – its profit in 2014 was Rs3.8 billion.

No one will question if the company’s done better with blips here and there. The year 2023 will probably not be the one it will look forward to.

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So what?

It depends on a company’s strategy at a given point in time what they wish to do – offer low-priced products compared to competition and penetrate the market or offer a product at a premium and hope the ‘superior’ quality would get enough customers.

This DNA or business model of the parent company is inevitably passed on to it’s ‘baby’ companies.

However, in countries like Pakistan with timid governments, zero to no enforcement of legislation, the business model is not the only thing to worry about.

For any auto company in the country, it becomes difficult for them to push/convince their parent that Pakistan deserves heavy investment.

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This begs the question then, why make large investments in machinery when the same product can be made more cost-effectively somewhere else?

This makes perfect economic sense.

But this argument misses one key part of the equation – the country’s own interests.

And here is where Pakistan has suffered. Here is where one needs people who have a strong will and an understanding of what would drive these companies to localise and eventually export. This aim needs years to complete, and immense consistency. It needs vision, and the country’s interest at heart.

Over the years, governments have failed to monitor the purely-capitalistic business model of Pakistan’s automobile and other sectors. Everyone has looked out for their personal interest, and the government has turned a blind eye.

In cricket terms, if you bowl a lousy full-toss, they will take you to the cleaners. This is the nature of the game.

Companies like these have qualified professionals. They know the game inside out and work to benefit their own companies. In developed countries, however, so does the opposition. Their regulators counter the moves.

In Pakistan, the opposition, incumbent government and the authorities aren’t either equipped with the knowledge and if they are, tend to give in by bowling big ‘no-balls’.

So what did Pakistan do? It opted for the easiest way out.

Become an import-happy nation, keep the dollar steady and tamed, and let the companies do what they want to maximise their profit. It came at a heavy cost for the country, though.

When its easy to import, why bother trying to produce at home?

For instance, despite being one of the biggest producers of milk, we have imported high-value products such as cheese.

This is where the role of regulators and the government comes in. They need to keep a check over these businesses, and implement policies that look for a balance between importing what is needed, and producing locally what is required.

It may take years, but a start has to be made.

However, it doesn’t seem like anyone’s ready to take that first step — everyone wants to just join the race without changing the rules, rules that go firmly against Pakistan’s long-term interests.

The article does not necessarily reflect the opinion of Business Recorder or its owners