It does. Actually, it did.
Back in the 90s, when technology started to make inroads into the professional space and there grew a need for computers, there were more than a few companies which realized it and were quick to setup the required infrastructure to fulfill that need. However, not many survived the test of time and fell victim to government negligence and lack of local industry support. Locally assembled computers went kaput.
In early 2000s there were more than 20 local manufacturers of computer hardware — including Viper, Inbox, Optimum Technology, Raffles just to name a few. However, unfavorable government policies and lack of local support proved fatal for this sector, choking it badly before it could actually shaped up into a proper industry.
Viper Technologies was one company that has somehow survived the test of time, and continues to struggle. Viper CEO, Khushnood Aftab, confirms the depressed state of the industry “This was a very vibrant, competitive industry with a lot of players. But most of them are now gone while some have changed their focus.” Did the industry die because Pakistan wasn’t a suitable market for computers? Not at all Enter 2001, Pakistan was one of those emerging markets that was big on computerization across every imaginable vertical. The companies simply could not survive because there wasn’t enough business for them.
Pakistan hosts a multi-million dollar market for computer hardware but the need is usually fulfilled by the low-priced, used PCs dumped by the European countries. This is termed ‘electronic waste’. This e-waste reportedly provides for 60 percent of the local hardware need, while the remaining demand is fulfilled by the international brands capturing major market share in the country.
“Pakistan has huge demand but we have only been able to tap 1% of this market,” Aftab said. The question remains as to what factors barred the local manufacturers from reaping the benefits from this otherwise quite flourishing industry. That’s what we explore through this article.
Over the years both Pakistani and international PC brands have struggled to compete in retail markets, which are dominated by ridiculously cheap PCs that make it through the grey market.
Governmental assistance plays a major role in the development and sustainability of any commercial sector or industry, and the IT hardware sector is no different. Unfortunately, the government has so far neglected the cultivation of local businesses and favored the international brands over local. On the other hand, international brands breathed a sigh of relief when the government announced tax exemption on the import of computers and laptops.
The Federal Board of Revenue (FBR) granted the exemption in the 2016-17 budget to promote genuine imports and render informal and illegal imports as non-competitive; however, the parts/component assembled inside the computers remained subject to 17% sales tax. Tax on the import of computer parts, including hard drive, CPU and some other components, led to 20% rise in the prices of locally assembled systems.
This has created a serious distortion in the system and actual benefit of the concession has not been available to the computer vendors. “This policy is directly hurting and hindering the progress of IT hardware production sector in Pakistan,” says Aftab.
In addition to this, the government itself prefers international brands over local when it comes to fulfilling its requirements. According to Aftab, the government clearly mentions the name of international brands when it opens tenders for procurement, thus not even providing local manufacturers with the level playing field by disqualifying them before the competition.
“We don’t seek any extra favors or incentives, however we do call for equal support as extended by the government to the software sector,” asserts Aftab. Amid current taxation laws and industry behavior, it is a cumbersome job to setup a local IT hardware manufacturing company. The government has thus far been unable to allot any special economic zones for this developing industry.
Current Market Scope and Negligible Local Share
Stats regarding the import and export of computers and peripherals in Pakistan reveal that the country exports absolutely nothing in terms of computer hardware, however it did import $420.67 million worth of computer hardware during 2016-17.
The total magnitude of IT hardware consumption is worth $422.29 million of which only $1.62 million is met by local manufacturers while $55.2 million worth hardware is imported from the United States alone. With virtually no domestic production, the country completely relies on imports. Major US brands such as Dell, HP, Apple and Cisco have established a strong presence in Pakistan.
With So Much Scope, What Went Wrong?
Local companies died out because they could not compete with the ridiculously low prices at which imported e-waste were available in the market. While competing with international branded PCs was also difficult because one it was an established brand preferred by most as compared to the newly arrived local brands on the bloc. And secondly again because of the price issue, as imported PCs were favored by tax exemption while the local manufacturer was paying taxes on import of components.
So the only visible option left was adding value to the localized brand and that’s what Viper did to survive so long, as it kept seeing its competitors falling like flies. “Healthy competition encourages you to grow. In our case, however, it also helps us to be recognized as an industry,” says Aftab. “We can’t be called an industry with one company working, but with 20 or more we would have been. We want the competition to come back so we can be an industry. The more there are of us, the greater the chances are that our concerns will be heard by the government.”
Experts predict that in the coming years the demand of computers and PDAs will further increase in Pakistan, due to the increase in quality and availability, and decreasing prices of internet connectivity.
Learning From Other Countries
It is pertinent to mention the example of Brazil here, which has a ban imposed on the import of IT products. It didn’t even allow Samsung to enter the local market until it opened an assembly plant in Brazil. Now components are imported from abroad but Samsung phones are assembled in Brazil.
Neighboring India, which now boosts of unmatched technological and trade development, once had a complete ban on imports of furnished items. This policy encouraged and helped the local manufacturing industry. Initially locally assembled products lacked appeal, as was the case of cars and trucks, Indian products now compete globally in terms of quality, design and endurance — Much of this is attributed to the government’s vision and support.
Pakistan has an import-based economy from needles to heavy duty vehicles and even the food that the agro-based economy exports. Even that which can be easily developed and produced locally, is imported in their obsolete versions from abroad — and computer hardware is just one category.
Is a Local Hardware Manufacturer Really Needed?
In addition to being cost friendly, the local brands have the advantage of offering after-sale support which is otherwise missing in the case of many international brands. Repair or warranty claims often need to be shipped to Dubai, which is a costly and time-consuming process.
Moreover, products developed by the local manufacturers are more relevant to the needs of citizens. For example the All-in-One PC designed by Viper supports a built-in UPS in it which provides backup power for up to an hour in case of load-shedding — a very common phenomenon in Pakistani scenario.
“This has been our recipe of survival – having the facility to customize hardware to suit local requirements. This value addition is our hallmark,” says Viper CEO Khushnood Aftab. “We have targeted the education and health sector, identified their needs, studied their demands and then provided them with customized equipment to suit their organizational requirements.”
A Way Forward
After so many years and having spoken to so many people, the general way forward seems to be this: if the government were to leverage assistance to the IT hardware sector in the same manner as it facilitates the software sector, there would be growth. Like actual, tangible, measurable growth. Offer the same tax exemption on the import of components as that on assembled computers, PDAs and international box PCs. Growth in the sector means new revenue, a more diversely skilled HR, a few more jobs, and a trickle down impact onto the training institutes and online stores.
As with other manufacturing and production sectors, go ahead and set benchmarks and enforce standards so locally manufactured machines can compete with the multinational boxes. But do something. The general focus of the industry at-large has been software specific both in terms of trade policies and human resource development. With the shift towards artificial intelligence — less humans and more gadgets — there will soon be a rampant need of hardware. Just as even the virtual machines need to reside on a physical host, for the industry to move ahead as a cohesive force, the local computer hardware sector must grow.