By Shirendra Lawrence
The emergence of clothing and textiles as a major contributor to Sri Lanka’s economy began after independence in 1948, when a few pioneering industrialists saw opportunities in its domestic market. After the liberalization of the economy in the late 1970s, the industry ventured into exporting, bringing in much-needed foreign exchange, and before long established Sri Lanka’s reputation as a manufacturer of quality products.
During the 1990s, facilitated by the 200 Garment Factories program, manufacturing that until then was located in free zones expanded across Sri Lanka. This has played a key role in the growth of the country’s rural economies.
The last decade has seen a new evolution, focused on end-to-end partnerships and complete customer solutions. However, a thorough assessment of the strengths and skills of the sector indicates that its full potential is not yet fully exploited.
With the pandemic causing significant disruption to Sri Lanka’s economy, our vision to elevate the country to a US $ 8 billion global apparel hub by 2025 is now perhaps more critical than ever. . This growth is envisioned through added value and further evolution from contract clothing manufacturing for buying offices to end-to-end solutions for leading global brands and retailers, ranging from innovation on delivery on the last mile.
With the gradual decline of the pandemic, players in the clothing sector have renewed their collaborative efforts to achieve these objectives.
Actual status
Before the 2019 pandemic, the value of global clothing exports was estimated at $ 492 billion. Most would agree that with Sri Lanka’s contribution representing just 1% of that amount, to $ 5.3 billion, the industry’s aspiration to increase it to $ 8 billion is not unreasonably ambitious.
Sri Lanka enjoys a reputation as a trusted partner in the supply chains of some of the world’s leading brands and retailers. The country’s clothing industry includes a few large groups, supported by a strong ecosystem of Small and Medium Enterprises (SMEs). It is a symbiotic system; the largest players have developed significant customer partnerships, while SMEs have created niches, in particular by helping large groups meet the requirements of their supply chain.
Despite its smaller scale and Sri Lanka’s garment sector having relatively higher labor costs than some of its regional competitors, as well as less preferential access to export markets, it has when even progressed by leveraging other sources of competitive advantage. Sri Lanka ranks among the best in terms of reliability and product quality, which has raised the reputation and overall positioning of the country. This is best reflected in the impressive list of global brands and retailers served by Sri Lankan manufacturers including Victoria’s Secret, Marks & Spencer, Boss, NIKE, Calvin Klein, GAP, Levi’s, Ralph Lauren, lululemon, Calzedonia, Intimissimi and Tommy Hilfiger.
This high positioning also extends to the attractiveness of talent, with the country’s clothing sector attracting top professional talent, unlike some of our regional counterparts. India is a good example, where professionals often find other sectors such as automotive, electronics and IT to be more attractive. In addition, the island benefits from its strategic geographical location along the main sea routes as a regional logistics hub.
From an infrastructure perspective, fabric manufacturers, which need process water, have established their factories in BOI-facilitated free trade zones, which include advanced water treatment processes, while whereas those in the labor-intensive clothing manufacturing have settled in the rural areas of the country. , providing direct and indirect jobs to these communities, accelerating the development of these areas.
Take advantage of business changes
While all of this progress has been well invested, for the country to realize the true potential of its apparel sector, it is essential to take full advantage of these strengths while understanding and aligning with the ongoing trade changes. .
Studies indicate that the impact of growing political and economic tensions between the Far East and the West will result in the movement of significant amounts of trade from China. While these movements appeared to have started before the pandemic, customers in Western markets delayed this process, unwilling to add additional risk dimensions to the challenges brought about by the pandemic. However, the change is expected to accelerate in 2022 and beyond.
In addition to direct trade migration, the opportunities would include potential FDI inflows from Far Eastern companies seeking to augment their existing bases by establishing manufacturing sites in South Asia to mitigate their risk of losing business. clients. Industry and policy makers are aware of the potential opportunities that could result. The leadership of Sri Lankan apparel companies, with the support of the industry’s umbrella organization, the Joint Apparel Association Forum (JAAF), and its constituent associations, including the Sri Lanka Apparel Exporters Association (SLAEA), are reinventing the future of the sector. These stakeholders develop strategic plans to facilitate the process of achieving the vision for the sector.
Maintain a competitive advantage
“Doing the right thing” was the driving philosophy of Sri Lanka’s garment industry, and it was essential in attracting reputable brands and private label retailers to Sri Lanka in the 1980s and 1990s. Marks & Spencer , in particular, viewed Sri Lanka as a credible alternative for migrating from its western industrial bases at this time. This catalyzed the alignment of Sri Lankan manufacturers with the expectations of the Ethical Trading Initiative (ETI), Worldwide Responsible Accredited Production (WRAP) and other organizations and standards focused on social responsibility and differentiated us from our competitors.
Today, what were competitive advantages have now become “hygiene factors”. Sri Lankan manufacturers have maintained their reputation for ethical manufacturing through environmentally responsible production, strong links with existing and emerging organizations such as the Sustainable Apparel Coalition (SAC), and investments to reduce their carbon footprint. Important strategic initiatives include the conversion of fossil fuel boilers to biomass and the introduction of other environmentally friendly energy sources such as solar power. It also aligns well with the industry with the government’s efforts to increase renewable energy to 70% of Sri Lanka’s total needs by 2030.
Sri Lankan clothing groups have also grown their businesses through geographic diversification. These efforts are aimed at minimizing customer concerns about single-country sourcing, leveraging bilateral and multilateral trade agreements, and expanding Asian manufacturing sites with capacity closer to markets.
Improving access to trade is vital
Better preferential access to existing and identified key export markets would significantly boost Sri Lanka’s clothing exports. However, it is essential to keep the existing concessions under the EU and UK’s Generalized System of Preferences (GSP) Plus while guaranteeing tariff reductions to other countries. Given our success in entering key markets such as the United States, where tariffs for apparel exports are up to, and in some cases even over 30%, there is a significant opportunity to be seized if the industry benefited from tariff exemptions or even reductions.
Substantial opportunities also exist in large developing countries. Sri Lanka needs to increase its export quota by 8 million garments per year to India, one of the fastest growing regional economies. The Chinese market also has great potential.
Need for favorable policies
While recent initiatives to modernize trade facilitation, including the digitization of customs clearance processes and the administration of payments through online gateways, are welcome, much more policy reform is needed. For example, if Sri Lanka is to evolve as an innovative clothing hub, a safe environment conducive to innovation is needed. This is only possible if intellectual property and data protection laws take priority. Likewise, reforming colonial-era labor laws to reflect the very different world we live in today is essential.
Supportive policies and incentives should be provided for investments related to backward integration and automation. The Eravur Tissue Processing Park is an important development in this regard, and the industry recognizes the contributions of several state agencies to this initiative.
In conclusion, the evolution of the garment industry in Sri Lanka will undoubtedly continue to bring benefits to the country – both directly and indirectly – by increasing FDI, employment opportunities and revenues. export while improving inputs of innovation and technology.
With all stakeholders working together, the vision of making Sri Lanka a full-fledged apparel hub is well within the grasp of the country.
(Shirendra Lawrence is a veteran of the garment industry and is the vice president of the Sri Lanka Garment Exporters Association. He is also the executive director of MAS Holdings. Shirendra holds a degree in Mechanical Engineering ( with Distinction) from Imperial College, University of London and is a Chartered Mechanical Engineer with over 35 years of experience in manufacturing, business development and organizational leadership in the UK and Sri Lanka. )