Fan industry eyes potential $100 million Indian market

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LAHORE: Pakistanís electric fan manufacturers could generate revenues of up to $ 100 million annually by focusing on the Indian market, a study conducted by the European Unionís Pakistan related International Trade Centre (ITC).

Pakistan has exported $38 million fans during 2010-11 which is not is not significant this but the export growth has been quite substantial over the last decade. During 2000-01, the export was a mere $3.9 million and it has grown almost tenfold since then.

The ITCís study Ė titled Trade of Industrial Goods with India: Opportunities and Challenges for Pakistan Ė called for the reduction of custom duty on import of raw material of the fan industry including electric steel sheets, enamelled copper wire, steel rods. It also pointed out that Pakistan has never attempted to explore the Indian Fan market properly while exporting almost 0.8 million fans to different countries in Africa and the Middle East.

Pakistanís fan industry has been operating on a seasonal manufacturing cycle which results in a semi-specialized labor force and plenty of unutilized capacity. Opening up trade with India would drive up investments in technology and labor training by Pakistani manufacturers. It may also lead to industry consolidation as a way to build an economy of scale.

At the moment, a majority of sales are made to the local market, where the demand only exists from January to early July. As such many factories are closed in the remaining months. Thus their capacity is underutilized and many workers are not willing to specialize in the fan industry because of these cyclical job prospects. A few firms do manage to keep employees engaged throughout the year by shifting production into related industries. Therefore, if additional export markets become available, the capacity can be easily doubled without significant additional financial expense.

Pakistanís fan industry is well placed to benefit from normalization of trade with India. There are 450 manufacturing units with an estimated production capacity between 9.5 to 10 million fans. On average approximately 8 million fans are produced annually of which 90 per cent are for domestic use and 10 per cent export.

The construction boom in India means demand for fans are growing at more than 10 per cent annually. At present, its market is quite large and is estimated to be at 30 million fans per year. In 2010, in addition to its own domestic production, India imported fans worth US $71 million. China has the majority share of exports to India, followed by Vietnam.

Pakistan has not yet been able to make any inroads into the Indian market although it has a significant price advantage. For example, a ceiling fan sized 56Ē is available for retail sale in Pakistan at US$25 (Pak Rs 2370) whereas the same size Indian-made fan is available in the Indian market for US $40 (Indian Rs 2149). Since the poorer segment of the society normally uses fans, this difference in price provides substantial incentive for India to preferably purchase Pakistan made fans.

Pakistanís main competitors in the Indian market would be Chinese and Indian manufactures. However, it should be able to effectively compete and win a large share of the market from Chinese and Indian manufactures on the basis of better quality and competitive prices.

Pakistani manufacturers also have an advantage of lower freight costs. Being located close to the Indian border, their export cost is much less than their competitors.

Another advantage for the local manufacturing units is that the vast majority of them are located in a cluster around Gujranwala and Gujrat. Therefore, they have easy access to trained labor, raw materials and well-developed infrastructure. A number of technical institutes are providing training in the vicinity, and several export facilitation agencies and banking facilities are also available locally.

But to achieve this export target, Pakistan needs to negotiate with India for the removal of tariffs under the SAFTA framework, make local skill development centres more efficient, and provide funding for Research and Development. The government also needs to assist local manufacturers, particularly small and medium enterprises, in design making, extend financial support for meeting one-time costs of various certifications, improve facilities for material testing and enforce quality standards through a public-private sector bodies.

The role of the Trade Development Authority of Pakistan (TDAP) will be crucial in this entire scheme The TDAP should organize trade fare in India focusing on light engineering goods such as fans and surgical goods. TDAP should also facilitate participation of Pakistani manufacturers in Indian industrial exhibitions.

Courtesy: †The News

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