Manipulation through E-commerce Transactions in Automobile Industry

Muhammad Furqan Iqbal (8106) Muhammad Ahmed Ilyas (8668) Saquib Anwar (7521)

12/30/2011

Table of Contents
Abstract ................................................................................................................................................... 2 Keywords................................................................................................................................................. 2 Introduction ............................................................................................................................................ 3 Daily auction catalogue ........................................................................................................................ 3 Auto Auctions' Stock ............................................................................................................................ 3 AS Members' Stock .............................................................................................................................. 3 Selected Bargain Cars from AS Members' stock.................................................................................... 3 AS Overseas (one price) ....................................................................................................................... 4 Problem statement .................................................................................................................................. 5 Objective ................................................................................................................................................. 5 Literature review ..................................................................................................................................... 6 Consignment Application ..................................................................................................................... 6 Consignment Application ..................................................................................................................... 6 Image & Data Input .............................................................................................................................. 6 Catalog Editing..................................................................................................................................... 6 Catalog Transmission ........................................................................................................................... 6 Preview by Dealers. ............................................................................................................................. 6 Electronic Auction ................................................................................................................................ 6 Post-Auction Administration ................................................................................................................ 7 Primary Research..................................................................................................................................... 8 QUESTIONNAIRE ...................................................................................................................................... 9 Results obtained .................................................................................................................................... 11 Conclusion ............................................................................................................................................. 13 Recommendations................................................................................................................................. 14 Appendix ............................................................................................................................................... 15

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Abstract
The report is based on the manipulation in the import automobile sector of Pakistan where the issue is focused on problems that costumers face due to inefficiencies in the e-commerce transaction of imported cars as a result of poor government regulation, administration and implementation. For this research secondary research method is used to determine and evaluate the facts and figures of the current market scenario and primary research was conducted through interviews and questionnaire from different car dealers. Through evaluation of the data gathered by primary and secondary research , it was found that intermediaries have been taking advantage of the loopholes in the government regulations, due to which artificial demand is created to increase the price of cars. On the other hand the so called local automobile industry cannot be called as the industry as it does manufacture cars, it rather imports the already manufactured parts and assembles it locally. So, keeping in mind the above findings it was concluded that government is poorly administrating the ecommerce transaction of imported automobile industry, and the government regulations are inflexible. Moreover, the demand of locally assembled car is low due to high prices. These high prices are due to many factors that include instable local currency, no manufacturing facility or infrastructure and other government regulations that are not business friendly.

Keywords
y y y y y E-auction Automobile Market manipulation Local Industry Government regulations

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Introduction
The website that we have chosen is ASNET (auto server net) that is carrying its electronic business through the website autoserver.co.jp. ASNET has a high influence in the auto market of Pakistan as far as import of used Japanese cars is concerned. This website depicts the activities that take place in the field of electronic commerce. This website is a market place for the trading of used cars that are imported from Japan to different parts of the world. ASNET is the largest dealer in the Pakistani market and for listing stocks from Japanese auto auctions and dealer wholesale stock where you can Find millions of cars for sale on Moreover, trading activities can only be done by the AS (auto server) members, where the membership is provided by the company to the selected number of vendors on the criteria set by ASNET. The dealing of cars takes place into the following categories:

Daily auction catalogue

ASNET covers the most of Auto Action Houses in Japan including USS, JU, HAA and others. From this server, member can view the complete Auction date and the time slot of auction as the auction takes place within a particular period of time mentioned. In this daily auction, more than 7,000,000 cars are traded every through this category of auction from Japan every year as claimed by ASNET Management.

Auto Auctions' Stock

Through the auto auction stock, the buyer does not need to wait for the next auction held as auctions are held in a given timeslot. From this option you can buy fresh stock at fixed wholesale prices. So this option provides the buyer to choose cars that are placed at fixed prices. Stock of over 5,000 cars is placed weekly to be traded from different parts of Japan.

AS Members' Stock
This option provides the members of ASNET to post the cars that they want to sell from different parts of Japan. Over 36000 members are given an opportunity to trade in cars. Moreover, stocks of 10,000 cars at wholesale price are posted by Japanese dealers, wholesalers and exporters. The website claims that One Price stock won't let you miss your business chance as according to the website, this segment of car trade provide the opportunity to the members to built stronger relationship with in the industry and gain benefit through trading from this platform.

Selected Bargain Cars from AS Members' stock

This portion of car trading provides an opportunity to the ASNET members to trade in special and mint cars. ASNET selects Bargain Cars from AS Members' Stock to provide value added services to its loyal and esteemed members. You will find the best deals in cars at special price. These cars are traded on first come, First Served bases. This section is liked by those customers who want to buy cars for their private use. 3|P a ge

AS Overseas (one price)

This section provides an opportunity to import One Price stock from Overseas Quality used cars including Left hand Drive consigned from outside Japan. Members can import directly from the third country. Lastly, this server or website provides a very good platform to the ASNET members to connect through the world and have a pure E-COMMERCE transaction with a minimal of effort.

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Problem statement
Can prevailing inefficiencies in the e-commerce transactions of imported automobile be reduced or eliminated through better government regulations and implementation?

Objective
In our report we have gathered details on how cars are imported through Ecommerce: y y y y y Defining the process ecommerce transaction and evaluation of the process Why is there a preference of imported car on locally manufactured car by the costumers Reasons why local automobile industry is competitive enough with imported cars. Evaluation of the government regulations that are currently prevailing in the country. Find better ways using e commerce to stop intermediaries from manipulating prices and supply of cars in imported car industry.

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Literature review
The above literature talks about the electronic intermediation of used car transactions that takes place in Japan. Aucnet is a reliable electronic intermediary since 1989 by an entrepreneur named as Mataska fujisaki. The goal of this late entrepreneur was to establish an auto auction business by utilizing computers and other advanced communication technology to buy and sell in the wholesale market of automobile The following process chart shows the transaction theme of AUCNET.

Consignment Application
It begins with consignment application where used cars are ordered to be applied for auction by the sellers. So, to begin with, sellers have to apply for their consignment to be released and sent to AUCNET.

Consignment Application
Once the application is accepted by AUCNET the vehicle is sent to the company where complete inspection is taken place. It consists of both physical inspections of car and also of the documents that are necessary.

Image & Data Input

When the car is inspected, it is then taken by the company to its warehouse where image of the car is taken and data input necessary from the buyer s point of view is taken care of.

Catalog Editing
In order to put the car in the catalogue it is sorted out according to its make, manufacturing year etc so that buyers of the car have access to all the necessary information.

Catalog Transmission
These data inputs are then put in the catalogue after the details are edited according to needs and preferences of the buyers. After which the details are transmitted to the catalogue.

Preview by Dealers.
It is then open to be previewed by the dealers or intermediaries at any time of the day simply by accessing the website or electronic means.

Electronic Auction
This is when the business activity takes place. Electronic auction takes place on Tuesday Thursday and Saturday at the given period of time.

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Post-Auction Administration
Lastly, in post auction administration, when the car is sold, the intermediary i.e AUCNET takes the fees both from buyers and seller of the car. And that is the service charge. The fees is 7000 for each car sold. The problem that persist in the automobile industry of Pakistan is that according to some experts, it cannot be called as the Industry as companies like Honda, Toyota are only assembling the parts that are imported from abroad. So they can be called a s the assemblers. On the other hand, this exercise leads to cost increment as the local currency is devaluating consistently. So, when the parts are imported from abroad to be assembled it automatically increases the cost. For this, if local manufacturers/assemblers start manufacturing the car it will automatically decrease the cost of car and people will move towards the local cars rather than buying imported cars. While according to stats of Pakistan automobile manufacturers association. Total production of cars that were increased from 2004-5 to 2007-08, has now been decreased by 30percent over the last two years.
1

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 42,679 66,432 103,662 133,722 170,487 176,01 164,710 44,378 66,315 101,848 134,550 165,965 180,834 64,650 84,308 82,844 121,647 133,972 123,957 127,944

41,550 40,310

Note: The figures do not include the production / sale of companies who are not members of the Association.

http://www.pama.org.pk/images/stories/pdf/historical-data.pdf

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Primary Research
The primary research conducted was based on qualitative data as we used questionnaires to conduct personal interviews as our research methodology. These interviews were conducted with 5 different car dealers who deal with sale of both local and imported cars. The reasons why we targeted car dealers here was because they were effectively involved in ecommerce transaction in their business and they provided us with much related information that proved effective as it served our research objectives. Sample size: 5 personal interviews Target Segment: Automobile dealers Data collection method: Questionnaire based Interviews

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QUESTIONNAIRE
1) Do you prefer conducting business via ecommerce? y Yes y No 2) If yes, then what medium of ecommerce do you use? Please specify ___________________________________________________________

3) Considering ALL transactions, what is the proportion of ecommerce transactions in your business? y Less than 10% y 11-25% y 26-50% y Over 50% 4) How Do you think import restriction of 5 years old car affects your business? Please specify ___________________________________________________

5) Do you feel secure conducting business online? y Yes y No 6) y y y If no, what is the major risk working online? Fraud Hacking/takeover of website Data theft

7) Why do you think people prefer imported cars? y Late delivery of locally assembled cars y Better quality of imported cars y Price of local cars 9|P a ge

8) Do you think intermediaries are playing a role in price hikes? (taking advantage of improper regulations) y Yes y No y Not sure

9) y y y

Do you think intermediaries should be eliminated? Yes No Not sure

10) y y y y

How do you think manipulation can be reduced or eliminated? proper regulation Price ceiling/price flooring Revealing auction reports Conversion from b2b2c to b2c

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Results obtained
As it is mentioned before that the primary research was done on questionnaire based interviews from 5 different dealers of automobile. Through the interviews different perspectives were observed, but we summed it up by taking out the crux of the research so that we don t deviate from the objective of our research. And following results were obtained. It was found that dealers are indulged in ecommerce business as in today s world internet has provided a much easier way to communicate globally. It s necessary as well to use e commerce transactions as they cannot wait for months in getting control of documents. Thus, in order to get soft copies and thoroughly checking of documents through internet makes business decision faster and easier. As you know in business time is money you cannot waste it. They usually use websites such as auto server as there communication medium. Moreover, use of emails and Skype for communication is also a necessity. E-commerce facility is also used to track shipments. The ratio business nowadays is 80 percent based on ecommerce as the cars are to be monitored and inspected on internet through pictures that dealers in Japan have mailed. There is online auctions for which internet is again necessary. For instance you cannot rely on your suppliers as to how they describe the car and how it comes. It will be assured only when they see the video of the car or picture of the car and then place the order if they find it according to their need. It was also found out that these days, local industry is making huge profits by providing cars which are not of very good in terms of quality and price. For this reason locally manufactured cars are not preferred by the consumers. On the contrary, quality of imported cars is excellent in terms of fuel efficiency, luxury as well as money. As compared to local cars Japanese car has long life and their performance is the unique selling point. Local cars are also delivered in a longer time as for those who wants car urgently can get a car in a month from the day of order. Whereas, the local car take s around minimum of six months. Every car is auctioned according to its grade. Thus a consumer who prefers a car with highest grade can easily get it and at a price which is quite affordable and in comparing local car with a high grade car there is a huge difference in performance as well as looks of the car.

Keeping in mind the above advantage of the imported cars, there are also some disadvantages that exits wile transacting through e-commerce. There are some frauds in e commerce transactions as for instance, there may be rust in the car which is not shown in the picture and details of the car and when it comes here consumer usually don t prefer to buy a car which has rust. These types of fraud are common.

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Since these intermediaries are helping in making the car reach to dealers in Pakistan, they charge a commission which is not bad. But the point is that the huge distribution channel adds to price of the car and by the time it reaches Pakistan the cost automatically gets high. Improper regulations have also lead to increase in prices manipulation this is because what happens is that the dealers here see opportunity in a car and they then quote higher prices in the auction. There are dealers that sit in the auction from all over the world that quote prices starting from lower bids. Dealers from Pakistan directly bid high prices and this leads to increase in cost there. Here dealers know how to sell their cars at higher prices due to no check and balance at consumer level and thus they gain profits even by getting car at higher cost. The questioned was posed to the dealers that if the intermediaries should be eliminated to stop the manipulation, the responses were negative; because the dealers said that there work would be reduced as they themselves are intermediaries. We analyzed and talked to experts as well and they said that intermediaries cannot be eliminated but there can be a reduction in the way they manipulate the prices if government imposes proper regulation and have transparency in the ecommerce transaction.

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Conclusion
To conclude our research on manipulation in ecommerce transaction of automobile industry, it has been understood that in a country like Pakistan where government does not focus regulating its administrative affairs and where there are loopholes are present in rules and regulations, businesses either take advantage of the loopholes or many other businesses suffer due to lack of regulations and commitment by the government. In case of e-transactions of imported automobile sector of Pakistan, same is observed. As, intermediaries take advantage of the government regulations like ban on import of cars more than 5 year old, corruption in the clearance and documentation procedure by excise, high cost of locally manufactured cars due to factors like devaluating currency, inability to manufacture automobile parts locally and other government regulations. This all leads to give added advantage to the importers of automobile through e-commerce. Where these intermediaries create false or fake demand of cars that are about to be banned due to import restriction of cars more than 5 year old by keeping them in stock and also by not proving the grade report that shows the condition, grading and mileage of cars. It helps the intermediaries to exercise inappropriate conduct by reducing the original mileage, refurbishing the car that includes scrapping and then repainting it all over again to look just like new and doing other illegal and unethical acts that leads to increase the prices of car and give the intermediaries undue benefits. According to our research and the input from the dealers , it was found out that due to customer s preferences of imported cars, car importers have taken undue advantage and m any times created false demands and bought the cars at high prices keeping in mind the need of the customers. Although when asked if the costumers should directly buy from the auction? The reply of all the interviewers was that by doing this, there business will hugely suffer. So rather than eliminating the intermediaries the government should intervene and make such regulations that there is full transparency in the transactions and then government should be flexible in decision making by revising the regulations according to prevailing industry and global status so that industry should neither suffer nor take undue advantage.

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Recommendations
The government should review its current policy by increasing the restrictions of imported cars from 5 years to 10 years; the reason for doing so is the depreciating value of our currency and falling purchasing power of the local customers. The above step will help in reducing the manipulation by the intermediaries as when the import restriction would be eased from 5 years to 10 years, the intermediaries will not be able to take advantage. For instance, cars that are more than 5 year old are stocked by dealers in Pakistan, and then artificial demand is created which results in price hikes. Option of price ceiling and price flooring should be introduced on the basis of car grades in order to stop price hikes and other manipulation that plays role in price hike. The transactions should properly regularized through E-fbr (electronic federal board of road revenue and PACCS (Pakistan customs computerized systems). Auction report should be provided online so that it can be verified by the PAMA(Pakistan automobile manufacturing association) There should be a system whereby customers can directly deal with the dealers in Japan. This system can transformed from B2B to B2C Government should give incentive to the local manufacturing Industry by proving them infrastructure so that parts are manufactured locally, this step will result in low production cost . Government should have flexibility in its regulation by reviewing it over a period of time and revising according to prevailing market needs so that neither this business suffer nor intermediaries are able to take advantage of the existing loopholes

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Appendix
http://www.electronicmarkets.org/articles/issues/volume-7/volume-7-issue-4/v7n3_lee0.pdf http://www.pama.org.pk/images/stories/pdf/historical-data.pdf http://scholar.googleusercontent.com/scholar?q=cache:O2KerdPkZMJ:scholar.google.com/+automobile+and+pricing+in+pakistan&hl=en&as_sdt=0,5 http://www.jstor.org/pss/20079840 http://www.jstor.org/stable/2555410?seq=1 http://eprints.hec.gov.pk/2325/1/2179.htm

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