Apparel Sri Lanka’s next success story

Rohantha Athukorala

At the third edition of the Sri Lanka Design Festival’s South Asian Sourcing Forum, I was tasked to deliver a key note on the theme Sri Lanka - the next success story - Apparel and the first thought that I expressed was that the apparel industry is a success story and why did we have to mention it as the next success story. But then I understood why.

If we look back at the last 30 years of Sri Lanka’s economic development landscape from a $20 billion GDP in the 1990s we have become a $40 billion plus country even though the country was waging war.

Development

The Tourism industry which was attracting 337 thousand tourists way back in 1983 was able to bring in only a 665 thousand in 2010 when a country like Cambodia was able move the needle from a 200 thousand to 2.1 million in a 30 year horizon. Sri Lanka has lost over a 6000 million rupees in income which is the cost of the war on the economy.

Whilst all this was happening, the Apparel industry of Sri Lanka which was just a $0.2 billion industry in the 1980s has been developed to be a $3.4 billion dollar business for the country which demonstrates the absolute focus and ruthless passion of this industry that has made the country to be 2 percent of the US Apparel imports, 11th rank apparel supplier to the US, fourth ranked bra supplier, eighth for briefs, ninth for cotton pants and 10th for night wear and happens to be in the top three apparel companies amongst the world’s 50 most important suppliers that tell us the character of the industry.

From a qualitative, perspective the industry has been developed from being a mere tailor in the 80s to become a specialist in sourcing to supply chain management and then take the high ground of social accountability and now have entered the relm of the Knowledge Industry. I guess the country to boast the showcasing of the World’s first green factory and to be the first leed platinum certified garment factory is an ample testimony to this development agenda and for Sri Lanka to have carved out a position globally to be the ethical sourcing destination globally.

Last two years

Last two years Sri Lanka’s economy has bounced back with a strong growth of 7-8 percent and the country’s national competitiveness improving from a 79 rank to be 52 as at this years as per the World Economic Forum. The Apparel industry has also upped the game to the changing landscape by being able to register a commanding 40 percent plus growth and now set a new target of being the Apparel Hub for the region in the areas of Research & development, design, innovation and I would add the supply of senior management talent.

I strongly believe that the new challenge that the Apparel industry has set itself works well with the overall thinking of the country, of being the hub for logistics by 2015 and endorsed by the logistics professionals of the industry at the post budget Daily FT forum last week.

The Magic

If I may take a thought from the Unilever’s global vice president marketing who said that the challenge is for companies to infuse magic into our business than focusing on logic, given the global economic fallout, I feel the Apparel industry of Sri Lanka has already practised this ethos and showed the real meaning of the world ‘magic’.

The industry took the high ground of going green and this forced a company to cut energy consumption by 50 percent, reduce water consumption by 70 percent and make waste to landfills to zero which led to a lean organisation. On a separate stance, the industry also focused on ethical employment and empowering workers which has resulted in the industry being able to retail talent and develop focused expertise whereby fast fashion was able to be practised which happens to be the buzz word in today’s fashion business.

The move to become the hub in South Asia is very interesting especially in the area of innovation(R&D) and design which stems from the fact that the Industry engaged the government some time back and introduced ‘design’ as a subject to the University of Moratuwa. With this backward integration coming to reality and organizations like Academy of Design (AOD) coming to play, we see how the industry has already equipped itself to cater to the fall out of GSP+ to the EU and GSP last year into US.

I guess the 40 percent plus growth seen in 2011, indicates the foresight of this industry and I guess a lesson for other industries to pick up.

Together with the Logistical hub status coming into play aggressive from a policy and private sector perspective the target set by the apparel industry will become a reality. I would add the human resource angle into the regional hub status even though it is not a gain for Sri Lanka.

The reality is that most apparel companies’ top management talent in India, Pakistan and Bangladesh is sourced from Sri Lanka so apart from not one being the hub for design and innovation even for talent Sri Lanka takes leadership in South Asia. I guess this is where the above theme comes to play in making apparels, Sri Lanka’s next success story.

Budget 2012

Whilst being strongly positive on this industry there are many challenges that has been highlighted. The biggest being the shortage of workers given that Sri Lanka’s unemployment is at 5.1 percent. The question is how can this industry target to be 4 billion dollar from organic growth and a 1 billion dollars from the Hub services by 2015 with a worker gap in the country. Whilst the industry is grappling on this one the budget 2012 are very encouraging:

1) Imported fabric for domestic consumption at an all inclusive tax of Rs 75 per kg.

2) 2-meter cut pieces fabric used by SME’s engaging in soft toys and handbags will be charged a tax of Rs 25 per kg.

3) Companies who locally produce fabric to replace imports of fabric with an investment of US $5 min will get special income tax exemptions and concessions.

4) Free from all taxes on all yarn(excluding sewing thread and vegetable fibre) to facilitate handloom/fabric manufacturing.

5) Textile exporters will be permitted to sell 25 percent of the production to the local market at all inclusive rate of Rs 40 per kg.

A quality that the industry must be commended for is the manner in which it engaged the government and how with a strong working relationship the policy changes were driven to cater to private sector business growth. In fact I now advocate this thinking to the many other industry boards that sit currently.