The Home Appliance Industry of Pakistan was set up in 1980’s on the basis of fiscal parameters, which were offered by the Government of Pakistan. There has been a significant upward rise in the production of domestic appliances such as refrigerators, smartphones, TVs, watches and other small electronic appliances over the past few years. Moreover, 95 per cent of domestic market is occupied by the home appliances sector. Middle East, South Asia and Africa are the regions for our potential exports. Haier being one of the leading brands of Pakistan is exporting air conditioners to 32 countries and regions, including the United States, Italy, France, Russia and India. Other major companies are Dawlance, PEL and Orient, which are also participating in exports of Pakistan.
Extremely diversified range of home appliances is being manufactured in Pakistan like:-
- Air conditioners
- Refrigerators, freezers
- Kitchen appliances (microwave oven, cooking ranges, water dispensers etc.)
- Domestic appliances (sewing machines, washing machines etc.).
A home appliance, also referred to as a domestic appliance, an electric appliance and a household appliance, is a machine which assists in household functions, such as cooking, cleaning and food preservation.
Home appliance and electronic goods are the main integral component of our daily life. A frequent use of electronic goods and home appliances has resulted into the emergence of an important industry named as electronics goods & home appliances. It needs to be handled with velvet gloves by the government and the proper strategies should be devised. Policies should be formulated and implemented at the state level.
Consumption of home appliance in our homes has not only made our lives easier but it has enhanced the productivity of human beings and has improved the work life balance of many by sparing more hours to spend with our loved ones and focus on our health. Home appliances have been categorised into three types as white goods, black goods and gray market of small appliances.
White goods consists of heavy consumer durables like air conditioners, refrigerators, washing machines, sewing machines, vacuum cleaners, dish washers, deep freezers, microwave ovens, kitchen stoves, trash compacts, drying cabinets, cookers, electric and gas ovens switch gears, energy meters, transformers, clothes dryers, geysers, water heaters, electric kettles etc.
White goods were typically painted or enameled white, and many of them still are so these durable home appliances are called white goods. The other name of white appliances are major appliances. These are designed for housekeeping tasks.
Consumer electronics and home electronics are electronics both (digital and analog) equipment designed internationally, for everyday use, typically in our private homes. Consumer electronics include devices used for entertainment, communications and recreation. These are brown in colour to distinguish them from white goods, which are made for “housekeeping task’. Black goods contain relatively light electronic durables such as TVs, radios, computers, tablets, camcorders, digital cameras, VCRs, DVD players, still cameras, clocks, alarm clocks, video games consoles, HIFI and home cinema, telephones and answering machines.
Small appliances is the third category they are typically small household electrical machines used in the kitchen. We may call these machines as kitchen helpers. These machines are used as tools for house wives in the kitchen and make their work easy and cooking comfortable. These machines include juicers, electric mixers, meat grinders, coffee grinders, deep fryers, food processors, electric kettles, waffle irons, coffee makers, blenders and dough blenders, vacuum cleaners, grills, roasters, electric shavers, electric hair clippers, Electric hair removing appliances, electric hair dryers, other hair dressing equipment, rice cookers, toasters and exhaust goods etc. Brown goods specifically require high technical knowledge and skills (which get more complex with time), while white goods may need more practical skills and force to manipulate the devices and heavy tools required to repair them.
Gray market goods are manufactured abroad but are imported in the country without permission from the trade holder. Gray market goods are not counterfeits, but these are different from the original products of the primary producers. Some of these differences are variation in warranty time as per regulatory requirement of the country. The result of this practice of parallel system is that same product is being sold at variable prices. This market exists mainly because of smuggling. Pakistan is a lucrative place for gray markets we have easy smuggling routes and high consumer acceptance. Another feature of gray market is that it is not taxed and these products are cheaper than legal products. In Pakistan major gray market components are computers and mobile phones.
In Pakistan white goods market is more formal, more regularised and more legal as compared to black goods market. Most of the companies dealing with the manufacturing of white goods have their formal offices and plants in Pakistan e.g. TV and mobile phones. This sector is informal.
The ADB’s Asian Development Outlook supplemented (December, 2020) has highlighted improvement in mobility and economic activities in Asia and the Pacific region despite the persistent challenge of Covid-19. The report has revised the growth projections from -6.8 to -6.1 per cent.
While commending Pakistan’s performance, the report said that Pakistan’s economy is recovering particularly in the manufacturing and construction sector, supported by the government emergency relief measures. The robust momentum of economy recovery is evident from production increase in cement, textile, automobile and home appliances in the first five months of current fiscal year.
This revival of industrial growth has witnessed huge employment opportunities and foreign direct investment from 150 per cent YoY increase in October 2020 from $126 million in October, 2019 to $317 million in October 2020. During first five months of the current fiscal year 2021, worker’s remittances have reached an unprecedented level of $11.77 billion, 26.9 per cent higher than the same period last year.
Government of Pakistan in 2017 imposed Regulatory Duty vide SRO 1035 (1)/2017 on several items. This decision was criticised by the then chairman PEMA, Muhammad Farooq Hassan and requested its withdrawal since duty imposed on parts, components and materials of products required by this industry has resulted into price hike and malpractices of under invoicing, smuggling and other illegal practices and net result is visible decline in revenue.
Electronics and home appliances are not classified as ‘luxury’ items globally rather these products are termed as ‘consumer durables’, a necessity in context of modern life style irrespective of urban or rural. Since these products are sold throughout Pakistan, from the upper market urban high streets for the elites to the small towns and villages, catering to the masses. Hence inclusion of these products in the list of ‘luxury items’ is incorrect and erroneous.”
Since these industries are contributing in the economy significantly by paying huge taxes and generating large scale employment opportunities so imposition of Regulatory Duty on components, parts and materials is complete negation to the Industrial policy of the country and such measures shall make the industry unviable.
Group wise growth of large scale manufacturing (LSM) during the period of July-March 2021 versus July-March FY 2020 has shown that the electronics exhibited lackluster performance and plunged to 2077 per cent against 15.58 per cent slump in corresponding period. Electric motors, bearing the highest weight in this segment, have so far been responsible for overall electronic dip. During the period under review, electric motors dived by 31.8 per cent and dragged down the whole electronics industry. Electric fans, TV sets and deep freezers also witnessed decline as pandemic has affected the spending patterns and majority is focusing on essentials.
| Production of selected industrial items of large scale manufacturing | |||||||
|---|---|---|---|---|---|---|---|
| Sr. No | Items | Units | Weights | July | March | % Change | % part contribution |
| 1 | Refrigerators | (Nos) | 0.2394 | 672, 659 | 928, 170 | 37.99 | 0.10 |
| 2 | Deep Freezers | (Nos) | 0.1622 | 72, 819 | 68,947 | -5.32 | 0.00 |
| 3 | Tablets | (000 Nos) | 1.9143 | 20,666,548 | 20,380,940 | -1.38 | -0.05 |
| Source: Pakistan Economic Survey 2020 – 2021 | |||||||
There are number of units which are engaged in production and assembling of wide range of home appliances like air conditioners, washing machines, TVs, deep freezers, refrigerators, split ACs, sewing machines, water dispensers etc. Pakistan has diversified share of market for the production of consumer durables. The no of units exported during (2019-2020) with their values are listed as below:
| Major Products | Exports (2019-2020) | |
|---|---|---|
| Quantity (No of Units) | Value (Rupee’ 000) | |
| Refrigerators | 3,986 | 127, 278 |
| Deep freezers | 1380 | 48, 688 |
| Air conditioners | 816 | 34,665 |
| Washing Machines | 6,895 | 78,736 |
| Sewing Machines | 67 | 360 |
| Source: Pakistan Bureau of Statistics | ||
If we compare trade of home appliances of Pakistan with global home appliances then we have figures listed in the table below:
| Pakistan vs global trade statistics (US$ million 2015) | |||
|---|---|---|---|
| Pakistan | Global | ||
| Exports | Imports | Exports | Imports |
| 5-6 | 389.2 | 258,333 | 257, 145 |
| Source: Trade Map | |||
All the major local players manufacturing Home Appliances are Haier (Pvt), Pak Elektron Limited (PEL), Dawlance (Pvt), Orient Electronics (Pvt) and Super Asia Pakistan and they are working as joint ventures, Investors and FTA’s / PTA’S. Home appliance players have their association as Pakistan Electronics Manufacturers Association(PEMA). The global market is fragmented with a large number of big players which are contributing their fair share to the global revenue. These companies along with their country of origin are listed as follows:
| Household appliances/global industry | |
|---|---|
| Company | Origin |
| Samsung | South Korea |
| Whirlpool Corporation | USA |
| Haier | China |
| LG Electronics | South Korea |
| Bosch | Germany |
| Sony | Japan |
| Philips | Netherlands |
| Panasonic | Japan |
| Changhong Ruba | China |
| Source: Google | |
If we see in geographical perspective, Asia Pacific holds (two fifth) of the global revenue of the household appliance market. Major contributors are China, Japan, Malaysia and India.
Among producing countries, China and Japan are the leading manufacturers of a variety of household appliances. China is leading consumer market and adding significantly in big capacity usage and comfortable lifestyle.
Household appliance market is a sub-segment “Electronics” of Large Scale Manufacturing (LSM) and the weightage of 1,963 on the LSM index.
The Global Household market was valued at $442 billion in CY-2020 ($524 billion in CY-2019), a decline due to period of outbreak of pandemic Covid-19. The major appliances add largest segment of revenue in the household appliance market, which is 60 per cent of the market’s total revenue, but less than 20 per cent of the volume sales. On the other hand small appliances are making big contribution in the volume sales but are adding less share in market revenue. Kitchen Appliance is Sub – Segment of Small Appliances.
The estimated size of domestic appliance market for Pakistan had been recovered as Rs152 billion in CY-2019 ($1.1 billion). Due to outbreak of pandemic Covid-19 and its rippling impact on other sectors of the economy, the market has contracted by -14 per cent in CY-2020 clocking in at Rs130 billion.
If value is compared then refrigerators, deep freezers and air conditioners have weather related demand and which is enhanced in the extreme summers, the products occupy more than 50 per cent of the total revenue, which accounts for approximately 49 per cent of the small appliance revenue.
When we take global economic overview, the world has transformed substantially during 2020 due to pandemic Covid-19; which has paralysed the continents and has disrupted the supply chain in addition to the loss of human loss. International Monetary Fund (IMF) has become the reason of decline in global GDP from negative 3.0 per cent to negative 4.9 per cent in 2020 as compared to 2.8 per cent growth rate in 2019. Global economy has shown subdued recovery of negative 3.5 per cent by IMF since situation would continue to be fragile in the short run due pandemic Covid-19. Similarly, commodity prices are recovering but are still below Bloomberg Composite Monthly Index.
Global economy is recovering slowly from one of its deepest recession after the crisis caused by the Covid-19. Pakistan’s economy is also showing signs of recovery with the expected target of 2 per cent of GDP in FY 2021. On the other front, the mounting inflation has increased the food prices, Upsurge in petrol prices and devaluation of exchange rate pressures are assumed to last for short time and inflation is expected to fall below 8 per cent for FY-21. Revenue collection of Rs 1.7 trillion during 5MFFY21 is slightly higher than the target set for the period.
Market restraints and risks of global and local household appliances market are represented by a flow chart as follows:
Product wise details from google:
Refrigerator, being a prime product of the company, contributed 60 per cent of the appliance division’s revenues and 40 per cent towards overall revenues during the year 2020. There was a considerable decline in disposable incomes during the year; so, refrigerator revenues are down by 6.86 per cent. Product cost increase due to massive local currency depreciation and energy price hike could not be passed on to customers in full due to overall economic vulnerabilities.
Air conditioner (AC) split ACs business showed resilience despite of unprecedented Covid-19 miseries. The company’s 1.5 ton split ACs with bigger 1137mm indoor unit with improved features of long air panels making the environment pleasant even at 52°C and low voltage startup on 140V even at 43°C. Company’s energy efficient with improved esthetics air conditioners of basic series ACE, APEX, Arctic, FIT Series, Fit White, Fit Black, Fit Chrome’ and Full Series Jumbo DC, Turbo DC always remained consumers preferred choice. Product development is fueled by the concept of energy efficient and 4-star rating inverter technologies to meet the customer satisfaction and market competition.
Deep freezer remained challenging due to present Covid-19 oriented economic slowdown. Decline in disposable incomes and economic down turn, lead to an overall rescinded demand both at institutional and general consumer levels. Company customised products are highly competitive due to use of ‘O-Zone Friendly Refrigerants’ as per UN Montreal Protocol and are reliable choice for MNCs in the corporate sector. Company customised product satisfies the demand of Ice cream and beverage companies; and has earned strong brand equity. New energy efficient ‘Inverter ON’ series with improved aesthetics start ability of 100V, compatible to run on UPS and ‘Crystal Series’ with elegant glass door designs, received a warm market response. PEL deep freezers has become the preferred choice of corporate institutions like Coca Cola Pakistan, Unilever, Friesland Campina Engro Pakistan Limited (Engro Foods), Lotte Akhtar Beverages (Pepsi), Sukkur Beverages (Pepsi) Pakistan Fruit Juice Company and Pakistan Dairies (Igloo) who are the major customers of PEL’s deep freezers.
During the year microwave oven registered a revenue growth 37.71 per cent over preceding year despite Covid-19 and related economic slowdown. Company microwave ovens with improved product features offer a unique cooking experience. Inspired by user’s need, both solo and grill models have been launched. PEL microwave ovens are equipped with manual as well as digital interface depending on customers’ needs. During the year, four new models in ‘Classic plus Series’, ‘Sliver line Series’ and ‘Glamour Series’ introduced well received by market. These products are well-designed and recommended for space- saving, they also offer customised cooking experience.
To meet consistent market demand, company launched locally manufactured water dispensers in 2017. Warm market reception and growing market demand is quite encouraging as this business segment showed resilience despite of overall challenging environment. We are quite confident as current situation which is slowing down will settle soon, again immense demand of water dispensers will arise. The continuous research and development activities are on the way to improve product quality & esthetics. During the year company has launched esthetically improved ‘Curved Glass Doors’ series in various colors and a new basic model ‘PWD 115 Pearl’ with hot and cold water along with a storage cabinet.
During the year under review, revenues of this business sharply declined by 43.45 per cent due to lower production of panels due to Covid-19. Panel manufacturers could not feed demand levels at a large globally. Due to shortage of panels lead time of kit prolonged from 60 days to 150 days resulting reduction in our production and sales volumes, despite growing market demand. Company targeting enhanced local value addition by setting up LED TVs panel assembly line during the period under review. Business fundamentals of LED Business are intact and its revenues level will reverse as overall business environment moves to its normal. Company with its strong commitment will continue its ongoing R&D in place to introduce quality product with latest features to maintain its market presence and share.
Washing machines after its launch, since its commercial production in July 2019, is well received in the market. Despite of prevailing economic slow due to Covid-19, washing machine business attained a multiple growth 336.8 per cent year on year growth. Product quality and attractive designs are behind this growth. After successful launch of semi-automatic and fully automatic machines, this year company added ‘Twin Tub’ washing machines by maintaining good quality and performance. As a first move, company has introduced smart touch washing machine fully automatic variant which comprises of a capacitive panel. Low product penetration and rapid urbanisation are growth drivers. As current prevailing slow down settles, there is a great growth potential in washing machine business.
The demand for household appliances market is directly correlated to the disposable incomes which are necessary to lead a comfortable and improving lifestyle and getting things easier for household day-to-day chores.
As it is evident from the chart, Pakistan’s per capita income dropped down from $1,643 in FY18 to $1,439 in FY-19 due to unfavorable macroeconomic conditions. The situation further got triggered due to the outbreak of pandemic Covid-19 and per capita incomes declined to $1,355 in FY20. Due to this LSM also fell by 10 per cent in FY19 and further by 13 per cent in FY20. Electronics segment also contracted by14 per cent in FY20. Demand constraints due to Covid-19 are short lived but inflation, devaluation of Pakistani rupee and increase in imports prices are the major problems to be focused. Due to these issues people are moving in the replacement/second hand markets to buy household appliances.
Major appliances account for roughly 60 per cent of the household appliance market revenue. Refrigerators are the highest contributing item in the terms of revenue for the major appliance market. In small appliance market food processors, blenders, cookers, toasters and ovens are making up most of the market share.
Average prices of major household appliances have shown an upward trend in the prices over the years. Prices of refrigerators, ACs, deep freezers have increased. This increase in price was slowed down in CY20, due to Covid-19 as the demand for these major appliances was reduced so prices were stable till 2Q CY20
There are local and international players in the household appliance market of Pakistan like PEL, Arcelik (Dawlance), Orientation, Haier, Waves, Singers, Gree, SamSung. They are working in an organised manner and have international sponsorships, which strengthens their presence in the local industry. Local players like PEL, Waves and Singer are also organized.
The household appliance market is a ‘brand’ driven market. Different needs of the consumers demands that through branding unique functions of the products should be shared.
Localisation levels are low in major appliances for their components such as evaporators and condensers in refrigerators, freezers and fan blades in split air conditioners are imported into the country and then assembled locally. Localisation levels are low in small appliance markets too. Competition in kitchen appliances due to large number of players is higher as compared to major appliances. Some of the players are Geepas, Kenwood, Super Asia, Homage etc.
Overall production levels of the major appliances market had a sharp decline in CY20, particularly during the peak demand season when nationwide lockdown slowed down the overall economic activity and uncertainty relating to employment and monthly disposable incomes prevailed.
Production of deep freezers and air conditioners fell by roughly 73 per cent and 54 per cent respectively in CY20 as compared to CY-19 for the same period. Meanwhile television sets and refrigerator is declined by about 43 per cent and 27 per cent respectively.
SWOT analysis of household appliance industry:
Pakistan’s economy has started CY21 with a positive outlook reflected by decent growth prospects and improved business sentiments. The extent of recovery in the world economy depends on the widespread use of vaccines. Moreover, State Bank Pakistan (SBP) measures for example gradual revival of exports and upward trend in remittances will keep supporting external account together with private and official expected flows should keep Pakistan’s external position stable in FY21. On the other hand, once IMF programme restarts, austerity measures may limit government’s ability to expand fiscal support and spending. The above situation calls for development of time-sensitive plans and formulation of an effective mechanism to support the domestic recovery. As the economic activity normalises and effects of the pandemic subside, the country is projected to experience a broad based recovery which will provide stimulus to home appliances and power division products as well due to revival of local industry and growth in agriculture sector.