Value-addition as a key to local business vibrancy

Lynn Ockersz

Hayleys Limited has transformed dynamically over the years from being mainly a commodity exporter to a major value-adding manufacturer of the most diversified kind. Today it could boast of even having globalised its manufacturing operations in response to the demands of the times.

Hayleys' value-added product range extends - at a quick glance - from fibre-based floor-covering, brushware, bedding and cushioning to rubber-based industrial gloves, activated carbon-based purification products, pickled Gherkins and flower seeds - all based on local raw material inputs and mostly Lankan expertise.

There's more than meets the eye, apparently, as Hayleys' Chairman and Chief Executive, Ranjan Yatawara reveals in this interview. He believes that although Hayleys is doing all that this country needs in terms of value-creation within the country, as opposed to merely importing and trading, "current economic polices are favouring trading activity and the services sector."

Q: Hayleys is one of those old established firms which gives the impression of being constantly vibrant and growing. What's the secret of your success?

A: This particular firm is 128 years old. Our success has been from the late seventies up to recent times. We have evolved from being mainly commodity exporters to value-adding manufacturers.

We are adding value to agriculture-based material for export or import substitution. So we have virtually metamorphosed from traders to manufacturers and in most cases we have pioneered these products, sometimes in most of the East and we have globalised our operations.

We have been hampered in recent years and yet emerged successful although our success is not to my satisfaction or to that of our shareholders. Because the return to shareholders has been poor. But the turnover has improved, numbers employed have increased dramatically and we are doing all that we think this country needs in terms of value-creation within the country as opposed to mere importing and trading.

Unfortunately economic policies have been favouring trading activity and the services sector and not the actual manufacturing sector.

Specially since inflation is not being controlled, running at 15 and 16 percent, and we have a large work force both executive and labour, and whether unions demand wage increases or not, we have to meet their living cost increases.

On the other hand, our earnings are static. The rupee was 104 against the dollar before the tsunami, then it was 98 and now it's 102. Whether this inflation is manipulated or not, we are virtually frozen on the income side, whereas exposed towards expenditure increases.

The standard demanded by the Government is increased productivity. Yes, we have done that over the years, but there is a point; we cannot increase productivity over 20 percent every year. Moreover, over the 80s, 90s and even upto recent years our bottom line growth has been dramatic.

Q: What are your main product lines?

A: Products are profit centres, but we now have services also. For export, we manufacture activated carbon. We have two factories here and one each in Thailand and Malaysia.

Hayleys has been a quoted company since 1952. It is owned by three to four thousand shareholders, including the public and institutions and there is no family rule.

No family group owns more than two percent. So its a broad-based company. Directors don't inherit any shares.

The second product is gloves. We export industrial gloves, for which we are the pioneers in Sri Lanka. We have our own marketing arm in Italy. We have also a manufacturing facility in Thailand which makes medical gloves. So, here too have globalised our operations. We have evolved from this country and depended a lot on our scientists and engineers.

The third area is fibre which has been one of our traditional products. But from the days of merely exporting fibre we went into mats, and are having probably the third largest mat industry in the East. We make mats, from things like rubbers, timber synthetic materials etc. Similarly with brushes.

When we started off we were a big brush manufacturer, a fibre glass manufacturer and building and upholstery manufacturer.

We are also to an extent an exporter of pickled Gherkins. We are the only exporter of Gherkins at the moment although many were in the business.

We export it not only in bulk but in bottled form and packs and supply the whole of Mcdonalds in Japan and several other countries in the East.

We also export flower seeds - four, five varieties of flower seeds. We grow the flowers in 45,000 square metres of Green Houses in Boralanda. We have about 400 to 450 girls doing the actual pollination of flowers based on the instructions given by our partners to match the colours of the season.

The girls go about pollinating with a paint brush, taking the pollen from under. Then plucking the seed with the right hand, grading it, sorting it for germination. And packing it and exporting it.

On the domestic front, we are very big in agriculture, very close to farmers. We import agricultural equipment from China, we provide seed to Indian companies. We are also setting up a fertiliser bagging and blending plant.

We have also invested in power generation equipment. We have done a few power projects in the Maldive Islands.

We are heavily into the transportation sector, such as ship owning. We have the largest number of shipping agencies, both Indian and European and Japanese. We have a State-of-the Art warehouse for logistics solutions, for big companies here and in India and the largest container yard. So we aim to grow in that field.

We have two plantation companies - Kelani Valley and Talawakelle. They have been performing well. But the return one gets from tea plantations is hardly substantial to justify the investment.

Q: Would you consider Sri Lanka as having the correct climate for business success?

A: Inflation has been going up, and there is a lot of corruption around. Tender business and construction industry prevail.

There is a lot of commercial activity which doesn't produce anything. That also tends to fuel inflation.

There is a lot of money hanging around with little or no production base. So to that extent I don't think Government has been helpful in terms of policies towards production.

Tax evaders are trying to make profits instead of paying taxes. Most fiscal policies are politically directed in these politically uncertain times.