- Indigenization Is Impossible Without Strengthening and Reforming Vendor Units
- The future of Pakistan’s auto industry depends on a balanced partnership between OEMs and vendors
Pakistan’s automobile industry has spent nearly five decades promising localization, yet it still largely assembles imported kits rather than manufacturing vehicles.
The reason is simple: while policy has continuously cushioned Original Equipment Manufacturers (OEMs), the vendor industry — responsible for producing local parts — has been left to struggle on its own. Without a strong vendor base, true indigenization is impossible. Yet, vendors themselves also suffer from technological stagnation and fragmented operations. Unless policy support and vendor reforms move together, Pakistan will remain trapped in an assembly culture — dependent on imports, vulnerable to currency shocks, and globally uncompetitive.
The auto industry is structurally divided into OEMs and vendor units. But incentives, tax exemptions, and regulatory protection have largely favored OEMs. They import CKD and SKD kits with duty exemptions, assemble vehicles, and sell them at high prices. Vendors, on the other hand, pay higher duties on raw materials, face delays in duty drawback refunds, and rarely receive financing support. To make matters worse, the import duty on Completely Built Units (CBUs) is almost the same as CKD/SKD kits — yet OEMs receive exemptions, further discouraging local parts manufacturing.
This skewed policy has resulted in a weak localization base. While OEMs continue to import engines, transmissions, electronic systems, and safety components, vendors are expected to localize low-volume parts without economies of scale or institutional support. No vendor can invest in precision molding, die casting, or automation when demand is uncertain, payments are delayed, and banks charge high interest rates.
However, vendor units are not free of blame. Many operate with outdated machinery, poor quality control, and no R&D culture. Most are small, family-owned workshops lacking formal financial systems, engineering talent, or documentation practices. Their production is often limited to simple components — sheet metal, seats, rubber parts, wiring, or plastic trims. In contrast, high-value components like ECU units, airbags, sensors, ignition systems, and hybrid technology are entirely imported. Without technological upgrades, vendors cannot meet OEM requirements for global standards or export opportunities.
The fragmented nature of the vendor ecosystem also weakens competitiveness. There are over 2,500 auto-part makers in Pakistan, but only a handful have global certifications or export capability. Technical collaborations with foreign firms are rare. Instead of forming alliances or joint ventures, vendors prefer short-term profits over long-term innovation. This mindset must evolve.
Meanwhile, vehicle sales remain stagnant. After years of economic stress, inflation, rupee depreciation, and high interest rates, sales have recovered slightly but still have not surpassed volumes seen almost twenty years ago. This demand stagnation means small production runs, making localization commercially unviable for many parts.
If Pakistan truly aims for indigenization, it must adopt a dual reform strategy: policy correction and vendor modernization.
Policy reforms should include:
Duty exemptions on raw materials and machinery for vendor units, similar to those available to OEMs.
Low-interest financing or credit lines to help vendors invest in CNC machines, automation, testing labs, and ISO/ TS certifications.
Introduction of fair pricing mechanisms, where OEMs are required to offer guaranteed volumes and timely payments to vendors.
Development of vendor clusters with shared testing facilities, tool rooms, training centers, and R&D labs.
Export incentives for parts manufacturers to enter regional markets, as achieved by Thailand, Turkey, and Indonesia.
Vendor units, in return, must:
Upgrade technology rather than relying on manual, outdated production techniques.
Adopt international quality systems, better documentation, and workforce training.
Improve financial management and gradually transition from informal family-run setups to professionally managed enterprises.
Explore joint ventures or technical collaborations to acquire design, engineering, and process expertise.
Diversify their customer base and reduce dependence on a single OEM.
Indigenization is not just about assembling vehicles within Pakistan; it is about building engineering capability, designing parts locally, and owning the manufacturing ecosystem. Without empowered and modernized vendors, the country will remain stuck in a semi-knockdown mindset, dependent on imports and vulnerable to global supply chain disruptions.
The future of Pakistan’s auto industry depends on a balanced partnership between OEMs and vendors — not dominance of one over the other. A strong vendor base will reduce imports, stabilize prices, create skilled jobs, boost exports, and finally make “Made in Pakistan” a reality rather than a slogan.