Degree
Master of Business Administration
Faculty / School
Faculty of Business Administration (FBA)
Advisor
Dr. Muhammad Ayaz
Committee Member 1
Dr. Muhammad Ayaz, Assistant Professor, Institute of Business Administration (IBA), Karac
Project Type
MBA Research Project
Keywords
https://ir.iba.edu.pk/do/search/?q=LED%20light%20industry&start=0&context=8598587&facet=">LED light industry, B2B, Value addition, Original Equipment Manufacturers, Value chain
Abstract / Summary
Signify has been struggling in Pakistan in terms of achieving revenue target. Globally, Signify has 70:30 market segment in favor of B2B. However, in Pakistan the ratio is vice versa. One of the possible solutions to this is direct sales to OEM’s.
In order to evaluate this option, this study intends to explore LED light industry through Global Value Chain Framework and identify possible opportunities for Signify PK. The local industry can be divided into 3 tiers; companies falling under tier 1 have their own production facility globally and have a competitive advantage due to exceptional R&D capabilities. Tier 2 includes local firms that import components, add value to them locally and sell them at higher profit margins. Lastly, tier 3 consists of companies that import finished products and sell them locally without adding much value.
Local firms in tier 2 are currently highest contributor in terms of value addition. These firms add value by assembling imported components, marketing and distribution. The government policies are encouraging such business model by exempting custom duty and sales tax. Whereas firms importing finished goods are levied with 52% of total custom duty along with 20% of GST. Consequently, local assemblers have distinctive advantage in terms of getting higher margins at lower selling price. Signify PK is currently importing 70% finished goods from its mother factories in China, while 30% of goods are assembled through local co-makers. Signify PK doesn’t own any assembly or production unit in Pakistan. Hence, it doesn’t get rebate from government policies and it is obliged to pay full custom duty and sales tax on imported finished goods.
In contrast, OEMs such as Butterfly LED and Crest LED are assembling all their products in Pakistan. In fact, Butterfly LED is also manufacturing housings for LED products in Pakistan. In such scenario, these OEMs can produce LED products of same quality, with lower lead time and at lower price than Signify PK. Therefore, under current circumstances, it is impossible for Signify to remain price competitive in a market that is not brand loyal and extremely price conscious. It is imperative for Signify PK to take formidable actions to compete in local market in terms of price and lead time. It must invest in local assembly unit to get exemption from duties and taxes.
Moreover, it should look at the opportunity of assembling components in Pakistan. This will help in direct sales to OEMs along with local warranty. Lastly, Signify PK can leverage these options to form strategic alliance with OEMs.
Recommended Citation
Tahir, A., Jamil, A., Haq, F., Siddiqui, H. F., Soban, M. S., & Rizvi, T. H. (2020). LED lighting OEM study (Unpublished graduate research project). Institute of Business Administration, Pakistan. Retrieved from https://ir.iba.edu.pk/research-projects-mba/13
