A number of smartphone companies, including Samsung, have set up assembly plants in Pakistan in the past year. But this nascent industry is facing local challenges.
Along a dusty pot-holed road in Korangi industrial estate, one of Karachi’s designated factory zones, sewage runs in open drains, rag pickers collect plastic bottles, and car mechanics sweat at makeshift workshops.
It’s a June day with a temperature topping 35 degrees Celsius. Tempers flare up easily. Trucks loaded with textiles and chemicals zoom past, leaving a cloud of dust in their wake.
Incessant and prolonged electricity breakdowns mean many factory workers are sleep-deprived. Few can afford to lose daily wages in Pakistan, where the government struggles to bring in much-needed foreign investment to stabilise its fragile economy.
But amid this chaos, men and women donning blue and pink coats and special slippers walk through a passageway of one of the factories where a ventilation system blows dust specks off their clothes before they enter a long corridor flanked by different workstations. This is where Premier Code, a Pakistani company, manufactures smartphones.
“We need to be very careful about the environment in which we work. Karachi’s weather is different. There’s a lot of dust. So we make sure everything is clean. Our workers are not even allowed to bring water bottles where the phones are assembled,” says Nauman Amjad, the factory manager.
“We import parts from China and then assemble them here. But we have our own SOPs (Standard Operating Procedures), which employees follow to put the components together,” he tells TRT World.
Workers skillfully attach charging jacks and cameras to the motherboard as the phones — known as Dcode in the market — move along the assembly line. Plumes of cold air seep out of air humidifiers placed at various workstations.
Just a few years back, all mobile phones in Pakistan were imported. That changed two years ago when the then-government introduced a policy incentivising local assembly of the phones via tax rebates and other measures.
In 2021, local manufacturers produced 24.66 million handsets and imports drastically decreased, according to the Pakistan Telecommunication Authority (PTA), the industry regulator.
Samsung, the world’s largest smartphone maker, now assembles all its top brands, except for the foldable Z-Series, locally.
Local manufacturing and contract assembly mean Islamabad can slow the drain on its foreign exchange reserves. Pakistanis spent more than $2 billion on importing cell phones last year.
A high import bill and debt repayments have depleted official coffers and forced policymakers to try and negotiate a loan with the IMF.
With more than 114 million 3G and 4G subscribers, Pakistan has a large young population hooked on apps like TikTok and PUBG, which has increased the demand for smartphones.
Imposition of high tax on the import of mobile phone sets and tax rebates for local assembly has encouraged investment, according to industry professionals.
The PTA has issued licences to more than two dozen companies to assemble phones for the domestic market.
Contract manufacturing, wherein large brands such China’s Xiaomi outsource the assembly of phones to companies in countries like Vietnam, is not new.
Vietnam has emerged as one of the leading countries in the assembly and export of smartphones and other tech products in the past decade.
Apple recently moved part of its iPad manufacturing to Vietnam from China, where Covid lockdowns have disrupted supply chains.
In Pakistan, Samsung’s local outsourcing contractor is Lucky Motors, which assembles KIA cars and is part of a large business conglomerate.
“It’s only in the last five to seven years that the smartphone business has mushroomed in developing countries like ours,” says Quentin D’Silva, the head of Lucky's smartphone division, adding that smartphone usage has surged in the country following the introduction of 3G and 4G cellular services in 2014.
A matter of training
When D’Silva was helping set up the assembly unit in Bin Qasim, a special economic zone on the fringes of Karachi, he and his team had to follow Samsung's strict guidelines to uphold its manufacturing standards.
“My production manager, who worked for Reckitt Benckiser, visited a Samsung facility in Indonesia and he tells me they run it like a pharmaceutical company,” where extreme hygiene and cleanliness standards are maintained, he says.
A smartphone like Samsung’s S22 comprises thousands of intricate components such as chipsets designed and manufactured at sophisticated facilities in South Korea and a handful of other countries.
Putting the components together is the relatively easy part. Workers can be trained over a few weeks to follow the SOPs of Apple or Samsung correctly. Motor skills and speed are built gradually over time.
A bigger challenge in a country like Pakistan was changing the mindset of the nearly 700 people the company employs, says D’Silva.
“I’m not going to oversimplify the assembly part. But the training starts off with the concept of quality,” he asserts.
Customer satisfaction is a top priority for the South Korean tech giant and that means workers need to make sure the finished product is packed neatly without even a bubble of air or a speck of dust on its wrapping, he notes.
Samsung started production in Pakistan late last year and between January and May, 2022, it produced 1.2 million smartphones, including the S22 Ultra, the latest in the series.
Depending on the model, it takes workers between 13 and 18 seconds to put together a Samsung phone as it moves along an assembly line, according to D’Silva
"Our production drops if, for instance, our workers go for lunch and are 10 minutes late. That’s where the discipline comes in.”
Mobile phone assembly in Pakistan picked up its pace two years ago when the government increased taxes on smartphone imports. Simultaneously, the local industry was encouraged to import spare parts and assemble them domestically for the local market.
More recently, mobile phone imports have been banned as Islamabad tries to halt the rupee depreciation — one of the consequences of imports outweighing the revenue from exports.
Contract manufacturing generates employment and cuts down imports. But some local companies want to create brands and design their own products in the long run.
Premier Code says it’s investing approximately two to four percent of its revenue on research and development to gear up for the future.
“It’s not possible to localise production of all the components. Only a handful of companies make LCDs (the screens). Chipset manufacturing is primarily done in Taiwan, South Korea, Japan, the US and to a lesser extent in China,” says Muhammad Naqi, Premier Code’s CEO.
His company focuses on the design side of things, such as the layout of the printed circuit boards (PCBs), investing in proprietary software and the exterior look of the phones.
At the company’s factory, Dcode mobiles are subject to strict testing. Random samples are picked from each finished batch to undergo a durability test, which includes dropping spherical metal balls onto the phone’s screen and then dropping the device on the marble floor.
Naqi says his company is not a contract manufacturer. “We want to develop our own brand and products at the same time” — even if the components are shipped from elsewhere.
Pakistani companies have been building PCBs — the green-coloured boards on which chips and resistors are mounted — for years for appliances such as televisions and air conditioners.
“But you need to understand that their layout is really big. When it comes to smartphones, it's a very small layout, which requires precision engineering. Our machines are not able to do that,” says Naqi.
High-tech machines used for making PCBs for mobile phones will mean higher capital costs and a thin factory workforce — undermining a vital goal of the government's policy, which is to create employment.
Nevertheless, a few tech companies are trying to challenge that view. One of them is located not far from Premier Code’s facility.
All about small steps
Elite Lighting manufactures parts for LED lights. Their products are nowhere close to the technologically advanced components that smartphone manufacturing requires.
But Yousuf Farooq, a young director at the company, has big dreams.
“Pakistan imports 100 million LED lights annually. It’s a huge market that we can capture,” he says.
Founded in November 2020, the company designs and fabricates PCBs for things like LED lights, watches and circuits that go into petrol pump dispensers.
“People were importing LED parts and putting them together here. We said, “Why don’t we build them here?”
At his 50-employee factory, workers place blue and black cylindrical components on the PCBs and solder them together. Known as ‘through-hole components’ such as resistors and capacitors, they are mostly imported from China.
But Farooq says his company can make them locally as the company grows and more orders come in.
“We started off by placing 9,000 components an hour on the PCBs. Now we can place 25,000 components. Almost all our workers were unskilled. We trained them over a period of 6 months.”
The Pakistani rupee’s depreciation, which has involved a 30 percent loss against the US dollar since July 2021, has made it feasible for local manufacturers to compete with importers.
LED light sellers pay their Chinese suppliers 60 to 90 days before the shipments arrive, says Farooq.
“Imagine if we can supply the same product in 15 days and we deal in cash on delivery. So what has happened is that it improves the cash cycle of our customers.”
“Our customer can also just walk into my office and talk to me if something goes wrong. He doesn’t have to worry about learning Chinese,” he chuckles.
Rising wages in China have also made local manufacturers competitive. On average, Lucky and Premier pay between Rs30,00 and Rs35,000 (around $165) a month to their workers.
But the nascent industry is already facing a crisis. In recent weeks, banks have refused to extend credit which companies need to import components. That’s because of the fast-depleting foreign currency reserves that Islamabad is trying to preserve.
Lucky Motors, Samsung’s contract assembler, hasn’t been able to manufacture a single phone in almost a month.
“To say that Samsung people are upset is going to be an understatement,” says D’Silva, the CEO.