June 27, 2004

The influx of cheap imported electronic items is creating mixed results on the streets of Karachi

The introduction of cheap Chinese and Korean goods has virtually changed the buying habits as well as the market sentiments in the last one and a half years. The change is definitely proving consumer-friendly instead of industrial-friendly.

In a major shift of interest, the presence of Japanese products and a staunch consumer interest in their purchasing, has now become obsolete. Even the existing quality conscious consumers have to face problems in search of Japanese assembled products these days. And even if they manage to find these products, they prove too costly as compared to Chinese and Korean brands. Quality has indeed been replaced by price sensitivity.

Irrespective of the fact whether the new entrants have invested in Pakistan or their products are finding their way through distribution networks or illegal channels — it is a fact that domestic appliances and electronic items have never been so cheap in the country.

And then there are the financial institutions and their respective leasing schemes. Banks that are financing electronic products on zero mark-up and zero down-payment have encouraged consumers to buy products, just to give a facelift to their interior decors at a considerably low cost.

A random visit at the main Abdullah Haroon Road, Regal Chowk, Ilahi Centre, Sohrab Katrak Road, Hashoo Centre, Kohinoor Centre, Hashmi Centre, etc, the main centres of electronic good in the city, reveals a consumer frenzy to buy the latest Chinese or Korean offering. Price cuts are everywhere and gift schemes are a desperate attempt by the shop owners to cash in on the consumer interest. A good thing that has evolved from all this keen shopping experience is the disappearance of fake products from the shelves. Cheap products have translated into the consumer getting what he’s paying for.

At a time when the rules and regulations of the World Trade Organization (WTO) are due to be implement with full thrust from January 1, 2005 — markets have already faced a deluge of foreign and smuggled goods. Smelling an open price war and fierce competition, many seasoned players in the domestic appliances businesses have made a smart move. Makers of Dawlance, Waves and PEL have now become regular traders or distributors, rather than assemblers or manufacturers. These players are importing everyday household items like iron, vacuum-cleaner, microwave oven, toaster, sandwich-maker, split air-conditioners, citrus juicer etc from China and Korea and putting up their labels on these items.

Recently, Dawlance introduced a wide range of TVs at cheaper prices, labelling the products “Made in Europe”. The product is actually Made in Turkey, but since the manufacturing plant of the product is based in Istanbul, which falls in Europe, so the introducer of these products in Pakistan feels proud to claim the products as Made in Europe. When asked as to why the company has not set up any manufacturing facility in Pakistan despite huge market potential, an official in Dawlance said that the company is first checking the market response of the TV before making any decision on setting up a plant here.

In domestic appliances, clever shopkeepers are now fooling innocent buyers in the markets by giving an impression that the domestic appliances are being rolled out by the Pakistani companies.

By becoming distributors, the local companies must charge some extra money from the consumers as a profit margin on putting up their labels. If these products are procured with their original Chinese and Korean labels, then the cost must have been quite low. From a business point of view, it is a clever move on part of these old players at a time when every country has to open its borders under the WTO agreement in 2005. However, this move has some dark shades too as a sizable investment as well as job opportunity are lost in the country.

These companies have preferred to become trader or distribution houses instead of entering into joint ventures with Chinese and Korean companies for local assembly.

One of the leading domestic appliances makers feel that it will be a suicidal attempt to set up a plant in Pakistan for domestic production of say something like a toaster, iron, juicer/blender, vacuum cleaner, microwave oven etc. when cheap smuggled, under-invoiced, foreign goods virtually rule the markets. And anyway, the market scenario is bound to further liberalise after one year so “there is no harm of becoming a trader or distributor”.

He claims that “companies are importing only those items that they do not assemble in Pakistan.”

The huge influx of cheaper goods imported by leading home appliances makers has led to a ‘price war’ in the market between Korean and Chinese products. But of course, the ultimate beneficiary of this price war are the consumers who get items of their choice at more affordable rates.

A Chinese, one-ton split-AC, brand name SG is worth Rs17,900 as compared to Rs21,900 a year back while a Korean brand LG is available at Rs21,600 as against Rs27,900 since its assembly has started a two months back. In the two-ton category, the SG split-AC is now priced at Rs33,000 as compared to Rs38,000; Waves’ price is also the same at Rs33,000 as against Rs38,000 a year back. Pakistani assembled LG split-AC now carries a tag of Rs37,000 as compared to Rs49,000 a year back.

In 1.5-ton Chinese split-AC is selling at Rs24,900 as compared to Rs29,900 a year back while Waves’ is being retailed at Rs24,000 as against Rs28,900.

Refrigerator prices of both locally and Chinese assembled brands have also fallen by Rs4,000-5,000 in one year. A Waves 10 cubic feet fridge is now available at Rs15,900 as compared to Rs19,900 a year back.

A Chinese television has hit the market with amazing price tags. A 14-inch colour TV is being sold at Rs5,500-Rs6,000 as compared to Korean TV of Rs7,500-Rs8,000, while a 20-inch Chinese TV is priced at Rs9,000-10,000 as compared to Rs11,000-12,500 of Korean TV (locally manufactured).

The competition has forced the Korean TV assemblers to reduce prices and cut their profit margin that was too high. Many shopkeepers have also become importers by bringing in cheaper TV kits and other parts from China (without picture tube) and started assembling TV after installing old picture tubes of TV and computers. As a result of this, dealers are selling a 14-inch colour TV at Rs3,200-Rs3,500.

This practice has now partially subsided as the government has levied a 25 per cent import duty on old monitors from zero per cent recently, to discourage this menace. As a result of this, price of the so called 14-inch Chinese TV has surged to Rs4,200 that was previously priced at Rs3,200-3,500. But consumers aren’t happy with the quality of the TVs that are coming with old picture tubes, though it comes with the option of 250 channels.

A local TV assembler links the phenomenal decline in Chinese TV prices to smuggling and under-invoicing practices. The influx of Chinese TV has forced the local TV makers to revise prices in order to remain competitive in the local market otherwise cheap TV arrivals from China will eat away the local industry. Already sales of locally assembled TVs are down due to these factors.

The industry enjoyed a boom period of 2002-2003 when 10 local assemblers rolled out 764,612 TV sets as compared to 450,000 in 2001-2002.

Somehow, the government has finally rescued the TV industry by fixing a 25 per cent import duty on used picture tube from zero per cent besides taking some other measures on import of TV components.

However, the business of using old picture tubes in making new TV sets is still thriving but not at the same fervour that used to prevail a few months back. Many parties are still bringing huge lots in containers because of cheaper rates in China. On the other hand, there is hardly any scarcity of old computers available in the market and people, engaged in assembling colour TV from old picture tube, have many sources to acquire old computers and make use of old picture tube.

Like TVs, Chinese VCD players are also causing sleepless nights to the existing Korean companies that are engaged in distribution business. A Chinese VCD player can now be purchased at Rs1,700-Rs2,200 depending on the designs and quality as compared to Rs4,500-Rs5,000 of Korean models, that used to be Rs6,000-Rs7,000 two years back. A low quality of Chinese VCD player has also arrived in the market that is available at an astonishing, at Rs1,000-1,400.

Similar tough competition also exists in the DVD section. A Chinese DVD player is being sold at Rs3,000-Rs4,000 as compared to Rs6,000 of Korean product. Japanese items (assembled in Malaysia) carry prices of Rs6,500-8,000.

The microwave oven, introduced and distributed by local domestic appliances makers, costs Rs2,800-3,000 as compared to Korea’s Rs3,200-4,200. A vacuum cleaner of is now priced at Rs2,800 as against Korea’s Rs3,500-4,200. A toaster sells at Rs1,000 as compared to Rs1,500 of Korean brand. In real terms, these consumers’ products introduced by the local industry, originally belong to China and these companies are distributing them by placing their local brand names instead of Chinese companies.

Shopkeepers say that China produces three qualities of consumer durables — A, B and C. It is up to the parties that give orders as per their countries’ requirement. They say that currently the consumers are using the B quality products of China that is quite affordable. The A quality Chinese products are being used in America and the Europe.

Many local assemblers, after every three to six months, come out with a consumers friendly scheme — buy one big product and get a small one free, price cuts, discount and gift schemes and easy monthly instalments packages.

“I think the buying power of consumers has increased by 40 per cent due to the advent of Chinese goods in the markets,” a dealer says.

Consumers could not have dreamed of having a colour TV of this kind as well as Chinese TV at much affordable rates as in yesteryear, it was really hard to own a black and white at this price, he says.

Market influence

There is a general belief that low priced products lack quality and durability and this sparks doubts in the minds of general consumers before their purchase. But here in the electrical and electronic markets, the trend is now changing and consumers do not seem bothered about it.

People, having liquidity crunch, are not interested in the quality of the products. They are more interested in meeting their requirements in their limited resources. They know that the item, they are purchasing, cannot compete with the high priced item which they are ready to compromise.

A sizable number of people are bringing Chinese electronic items and other foreign brands to their homes irrespective of their quality because they cannot dream of procuring high quality products due to the price difference ranging between 50-100 per cent.

In case of televisions the market is now flooded with three types of TVs. One variety carries old computer monitors, refitted with new kits and parts; the other are complete Chinese assembled sets while the third variety is being rolled out by the local assemblers in collaboration with Korean assemblers.

Shopkeepers are now displaying banners in front of their shops carrying price tags of TV sets fitted with picture tubes of old computer.

In these three TV varieties, customers are getting five year picture tube guarantee and one year parts service in Chinese and Korean models, while computer monitors turned TV sets do not carry such warranties.

But despite the absence of such guarantees, consumers are still putting up their minor investment to buy 14 and 17-inch computer monitor fitted TV sets at prices of Rs4,200-4,500 and Rs4,660-5,000. However, fewer customers bring back these TV sets with problems, like burning of transistors due to voltage fluctuation and faults in the picture tube.

“Only one to two per cent people complain of faults in these TVs while majority of them are satisfied with the picture and quality,”the owner of a shop at Regal, Saddar, Haji Tariq Mehmood said, adding that only two to three persons came with the troubled TV sets as against the 500 sets that were sold in last two to three months by him.

He said problems occur in TV sets whenever a picture tube of a computer monitor is fitted after charging. In such case,the picture tube develops fault within 24-48 hours of purchasing and consumers have to return the sets. Some makers are now installing new computer picture tube in TV to avoid humiliation later on.

Actually these kinds of TV sets, carrying computer picture tubes, have provided an option to buyers who previously used to take a costly ride by purchasing black and white TV sets at price hovering between Rs3,800-4,000 few years back. Now the same consumers have got ample options to buy colour TV, with computer picture tube carrying 256 channels.

“We usually redress the problem in cases where consumers complain about any trouble in the TVs with computer picture tubes,” Tariq said.

In case of Chinese assembled TV sets, no such complaints about the malfunction of TV sets have arrived and in case of any problem,a five year picture tube guarantee and one part service are enough to satisfy the consumers.

Another seller of Chinese sets at main Regal, Pervaiz Alam Khan also offered the same views, saying no problems had cropped up so far in selling TV sets carrying computer picture tubes. Besides, the Chinese assembled TV sets are also luring buyers due to price tags ranging between Rs5,700-5,800 for 14-inch and Rs8,800-9,500 for 21-inch sets.

In mobile phones, people generally complain about sub-standard batteries fitted in refurbished models. Many customers bring mobile phones back to the shop with battery leakage problems. Customers have to face hardships as battery replacement offer is not included in the one-year guarantee of refurbished mobiles.

Consumers of refurbished mobile sets also complain about the phones ‘hanging’ problems, which the shopkeepers redress under the guarantee. Many consumers are not aware that the battery, being used in refurbished mobile phones, is not original and is, as they are called, no.2 and made in China. Shopkeepers sell these mobiles without informing the buyers. Ultimately buyers have to come back to the dealers but battery replacement does not include in the guarantee package.

“We usually give guarantee for the mobile set and not for the battery,” a dealer of refurbished mobile phone said. — ASK

Talk unlimited

The entry of refurbished mobile phones at low rates has been warmly welcomed by the general consumers who, previously, could not afford to buy branded and costly mobile phones.

The prices of these cheap mobile sets now range between Rs1,000 to Rs3,000 while the highest price goes to Rs5,000-7,000 depending on the model. In comparison, the price of new, branded mobile phones starts initially from Rs4,000 to Rs 35,000-40,000.

Companies engaged in the distribution of branded mobile phones, are now worried over the erosion of their market share due to the penetration of cheap sets. One of the distributors says that refurbished mobile phones are finding their way into the markets mainly from Hong Kong under the baggage scheme or through imports in huge lots.

People can buy refurbished mobile phones from any where as no authorised distribution network exists. Shopkeepers are also giving warranty on these sets, he says.

As no customs duty exist on the import of mobile phones, the question of heavy smuggling of mobile phones is ruled out.

“The share of refurbished mobile phones in GSM now stands at around five per cent, while in AMS category — second hand mobiles rule the markets by 50-60 per cent share,” president of Pakistan Mobile Phone Dealers Association (PMBD), Intikhab Alam Suri says.

Out of the total estimated sales of 40,000 mobile phones of AMS per month in Pakistan — the share of refurbished or rejected sets range between 24,000-25,000 per month. Used mobile phones have been catering to the customers’ needs for the last eight months, he says.

Customers currently do not feel hesitant to own refurbished mobile phones but face one common problem after the purchase, that over the fake accessories like batteries, chargers and hands-free kits that frequently cause trouble to the end users since these products are not genuine. Otherwise,the public is quite happy to procure used mobiles nowadays instead of new ones, he adds.

In this scenario, how can a customer feel satisfied in buying a branded mobile phone as a “genuine one”? For example a mobile phone, stating “Made by Nokia” or “Made as Nokia” is definitely not an original product as it should read as “Made in Finland.”

Suri says that the entire market scenario of the mobile phone in Pakistan is expected to change in favour of the general public following the advent of two new service providers this year. The government has issued cellular phone licences to Warid Telecom of the UAE, Syrian based Space Telecom and Norway’s Telenor Mobile Communications. These companies will have to bring a total investment of $1 billion within two to three years for the infrastructure development.

The new companies will compete with four existing mobile phone operators in Pakistan namely Mobilink, Ufone, Paktel and Instaphone.

Mobilink has over 2.8 million customer base followed by 400,000 of Instaphone, 250,000 of Paktel and 700,000 of Ufone. Around 3.5-4.0 million people are now currently using the mobile phones in which Nokia’s share stands at over two million.

“I think customer base will increase by five times from the current level in the next two years,” Suri says adding that Pakistan’s market potential of mobile phones is projected at 35 million customers by the end of 2008. If the current pace of purchasing mobile phones continues, then the total mobile phone customers by the end of 2004 will reach eight million from the current 3.5-4.0 million customers.

He says that Ufone is targeting its customer base to expand it to three million users followed by 2.5 million of Mobilink and two million of Paktel. —ASK

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