A blue ocean strategy can save Sri Lanka exports

Marketer and Business personality Rohantha Athukorala currently serving the country as the Director Economic Affairs of the Government's Peace Secretariat addressing the Sri Lanka Institute of Marketing's Asia Pacific Marketers Alumni said given the credit crunch in the key markets where Sri Lankan exports are targeted, the way forward is to develop sector specific Government-Government pacts so that Sri Lanka can protect Sri Lanka exports.

He cited the testing of this concept can be a probable trade pact between Sri Lanka-Iran or Sri Lanka and China for Tea so and there after extend this strategy to the rest of the sectors so that we protect Sri Lanka exports.

However, Athukorala said these trade pacts must be based on a pricing strategy to just cover the costs and keep the home fires burning so that there is a continuity of the industry where by jobs are secured and not making a hit for short term profit gain.

These pacts can also be used to get rid of stock pile ups like what has happened to the tea industry that first to get hit due to global financial turmoil. May be then one can use the variable costing basis so that the net loss is not great Athukorala suggested.

The speaker said different countries are getting the impact of the global financial crisis in different ways. For instance in India a credit squeeze has led to Sri Lankan spice exporters kept waiting to receive almost two million dollars from Indian buyers.

In some countries when a LC is opened the bank stipulates that a hundred per cent deposit needs to be made while in some countries it is mandatory that all export proceeds have to be brought back to the home country if not a penalty is imposed, which are all safe guards infused in to the system by their Central Banks to brace one self from a financial crisis hitting a home country.

Athukorala said Sri Lanka too is practising some of these measures to protect the country which is a very prudent move.

The speaker clearly mentioned that depreciating the currency to the level of Rs.123/- odd is not the correct strategy and the export community must not even recommend same, given that a more macro national perspective must be thought, than only from a export competitive perspective.

Athukorala being a Former Chairman of the Sri Lanka Export Development Board welcomed the 2 per cent odd depreciation of the currency that came into effect last week given that it gave relief even partially to an exporter.

Athukorala urged the private sector to work out a game plan fast where for each sector a high powered team is identified that consist of the private and public sector so that the idea of a govt-govt trade pact can be in place to secure priority orders from key export markets. In the event things become really rough, it can be secured by the Government.

Apparently in the word of business a new concept has been developed called Blue Ocean Strategy by two scientists called Chan Kim and Ranee Mauborgne states that one way to win in the entrenched competitive market place of today is by creating an uncontested market place and making competition irrelevant. May be the "Govt -Govt Trade Pact" strategy is one way out to create a Blue Ocean Strategy in the short term said Athukorala but emphasised that a more sustainable strategy should be developed on a sectoral basis.

Blue Ocean Strategy - apparel, tea and tourism

For the apparel sector,the use of Nano technology can be a one way to cut away from competition and create an uncontested space that Sri Lanka can command a leadership even in a cash trapped global market. On Tea since Sri Lanka is the only country in the world to be awarded the Ozone Friendly status label may be we can highlight this by moving to manufacturing high quality teas and drive towards value addition in 2009 where we can make 75 per cent of the teas that are exported value added.

May be the tea packets can be termed value added in the 2009 budget and tax breaks given.

Funding to build five more new tea brands should be pursued. On Tourism Athukorala said the way forward is the positioning of Sri Lanka as the "Ethically right clean country positioning". The logic being that the pollution level in Sri Lanka is only 11.5 mt of carbon dioxide as against the 3156 and 5012 in countries like India and China.

Consumer spending shrinks - Apparel?

From a more fundamental point of view Athukorala said that one of Sri Lanka's key markets the United States consumer spending is mainly borrowed.

With the housing bubble bursting, the overall asset prices had started declining. As soon as the asset prices dropped so did the liquidity and hence shrinks the consumer spending said the speaker.

Current estimates are that spending will decline by 3-5 per cent in an overall sense. However sector wise volumes can drop by almost 15 per cent depending on the product range and the impact on the basket of goods on US household as in September alone 156,000 people lost their jobs noted Athukorala.

Apparently economic analysts have forecasted the third quarter in the US the GDP growth to around 1.5 per cent and register a zero to negative growth in the 1st quarter of 2009 which is why local garment manufacturer are commenting that 2009 will be very tough year for the industry.

Exports have already slowed down in the key markets for the Apparel sector and the top buyers are under pressure Athukorala said ideally the 700 billion economic bail out given in the United States should have been activated with a roll out of economic and financial reforms so that the real impact could have hit the US household quicker and impact to world economies lesser.

But this is not that happened and hence the world will have to play a wait and see game. Now the situation is like the heart is pumping the blood but it is not going to the veins in the body, hence the different parts of the body is getting life less. Last month the share of exports to the US has dropped 48 percent as per the data of JAFF.

However, the proactive stance taken by the EU must be commented as it given confidence to the investors and avoids the media creating speculations that hurt market momentum quipped Athukorala.

SL-India FTA - 10 sectors

The speaker urged the private sector to forget the issues that Sri Lanka have with India on the FTA and start a fresh. May be once again A private - Public task force can be put together to identify 10 categories and ruthlessly target India and within 6 months make a mark in the market place.

The task of the public sector from India and Sri Lanka is to work together and clear any non tariff barriers that emerge in the Indian ports so that with this success may be seriously look at the Comprehensive Trade Agreement or better known as CEPA. However, a point to note is that let each country want the CEPA agreement and lets not just force the trade deal to the private sector. In fact it should Demand driven than supply driven cautioned Athukorala.

Tea industry - moment of truth

Athukorala urged the tea industry to face to the reality of the commodity market slump due to the crisis. His thought was that Sri Lankan Tea was out priced in the market in the recent past and it was bound to have a market correction. It has happened now and we have to accept it.

There is no point holding on to stocks and not supplying the market assuming that the prices will improve in the near future. May be take a short term hit on the profit and get rid of the stocks so that additional stock holding cost will reduce.

What is required is to re look at the business model and reduce the cost of manufacture whilst making a quality tea. Its all about equilibrium right now said Athukorala and he went to say that the Industry must make use of the opportunity and inform the union on the new reality so that one cannot push for wage increases that is unreasonable and unreasonable.

Sometimes I feel it's a blessing in disguise quipped Athukorala but said that the situation needs to be carefully monitored and a bail out package be prepared for the small timers and bought leaf manufacturers in the event the market does not stabilise.

Another option he recommended was to use the strong links we have with Iran and China and ask for priority orders on a government to government basis so that we can clear the backlog.

Thereafter drive the producers to make high quality teas which have not got hit due to the crisis.

On the other hand we must develop the value added tea sector with strategic incentives to the Industry and may be the next budget must allocate the required moneys to the Sri Lanka Tea Board was mentioned by Athukorala

IPL spirit to business

The speaker said marketers need to be creative and keep innovating so that a Blue Ocean Strategy can emerge. The best case in point is HSBC who made the competition irrelevant by launching E Banking where all transaction can be done on the internet wherever one is housed in the country.

At a macro sense too innovation must take place so that Sri Lanka will emerge as a nation that is progressive and aggressive and not wait for the world to unfold and create calmer waters.