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| Wednesday, 11 February 2004 |
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Widening our manufacturing horizons by Krishantha Prasad Cooray With the expansion of world trade and the ever increasing global trade pacts that improve access to larger markets for products of both developing and developed countries, the smaller Asian countries must take a long hard look at their capabilities and markets. Countries like Bangladesh have already joined the World Trade Organisation in the hope of reaping the benefits of tariff free cross border sales. The speed at which China with its cheap labour and enormous inputs of foreign investment, is capturing markets all over the world must surely provide a pointer to countries like Sri Lanka that the only way to grow is 'outward'. We have neither the natural resources to compete with global giants nor is there any longer a vast pool of cheap labour that can give us a competitive advantage over much larger South Asian and Far Eastern countries. If Sri Lanka is to graduate to the next tier of economic development, it needs local companies to go multinational. This is crucial given the relatively small scale of our consumer market and factor markets. The country will not be competitive in the marketplace of tomorrow. With the prospective termination of the Multi Fibre Agreement and the abolition of quotas for the entry into the US of garments manufactured in Sri Lanka we shall have to compete against other garment manufacturing countries that have joined the WTO and thus have free access to the US market. Our production costs are rising out of proportion to the selling prices and our ability to attract the investment needed to upgrade our factories and equipment is decreasing. With a growing population and a weakening currency how much longer can we hope to compete in the context of increasing labour and land costs? Hence the difficulty facing our declining textile industry. The only way out seems to be is to take Sri Lanka to the world. This is no simple task; it is only local firms with a strong local financial base, high quality management, and proven ability to produce goods that can compete in international markets both on price and quality that stand a chance. Competing in first world markets requires world class skills. It also involves substantial up front costs to establish a beachhead in business networks. Fortunately, Sri Lanka has a diaspora capable of pioneering the country's move from local to global. Like many other societies at various stages in history, the success of this globalisation effort is at least partially dependent on integrating this valuable advantage of local and foreign capital and skills. What does a local company need to go global ? First, it requires a quality product. The demands of the global market place are a much more stringent than a local one. It is no use relying on cheap pricing to enter and sustain one's presence in a foreign market; particularly when the competition is gearing up to face the demands of the world's largest markets which are Europe and the US. Often, quite often a company may not be large but it could have a technological advantage in terms of a unique product or technique that gives the company an edge over other producers in the same business. Advantages based on natural resource endowments are a thing of the past. Primary producers are no longer secure in a rapidly expanding market where procurement of raw material is getting easier and movement of materials and labour is facilitated by improvements in transportation, packaging and communications. Second,a company needs to respond and adapt to the rapidly shifting fashions and demands of the target market. It needs to feel the pulse of the retailer and to respond speedily and proactively. Third, it needs the wherewithal to manage and diversify financial risks and resources using an ever-burgeoning arsenal of financial instruments. At present Sri Lanka is short of all of the above categories of capital. Our business style and character is still very relationship-driven and experience based. The problem with 'relationship' is that it is inherently local and the problem with 'experience' is that it is inherently backward looking. Both local and backward looking are regressive modes of thought. Till Sri Lanka trains its potentially capable human resources, we can either outsource (at a huge expense that includes exorbitant relocation fees for foreign consultants) or canvas our diaspora for their services. They will come at a discount given that some may have non-monetary stakes in the development of the country; even if this is asking too much from expatriate Lankans they may still have earn interest in exploiting, on a partnership basis, the competitive advantages that are still available to this country. The best example of this type of partnership between locals and expatriates money and talent is India. This is not the time to sit and ponder. The opportunity is staring us in the face. It is high time we abandoned our parochialism and began to exploit our advantages by looking outwards and not inwards. No longer can we rely on the cost elements that kept our products competitive while Tariff barriers and quotas cushioned us against the raging tide of worldwide competition. Our advantage is a well educated and skilled labour force and an external resource of technically competent persons interested in joining hands with Sri Lanka based entities. The opportunity lies in synthesising their skills and capital with our production base. This is one way and perhaps the only way for businesses in this country to go forward. |
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