Apparel: Sri Lanka’s next success story?

At the third edition of the Sri Lanka Design Festival’s South Asian Sourcing Forum, I was tasked with delivering a keynote address on the theme ‘Sri Lanka – The Next Success Story – Apparel?’ and the first thought that I expressed was that the apparel industry was a success story and why we had to mention it as the next success story. But then I understood why.

30 years

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

The tourism industry which was attracting 337,000 tourists way back in 1983 was able to bring in only 665,000 in 2010 when a country like Cambodia was able move the needle from 200,000 to 2.1 million in a 30-year horizon. Sri Lanka has lost over Rs. 6,000 million in income, which is the cost of the war on the economy.

The point I am making is that this was the focus of the country, to which I personally have been subject to, with two attacks by the LTTE on the aircraft that I was travelling in en route to Jaffna.

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 into 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 produce 2% of US apparel imports, be the 11th ranked apparel supplier to the US, fourth ranked bra supplier, eighth for briefs, ninth for cotton pants and tenth for night wear and be in the top three apparel companies amongst the world’s 50 most important suppliers, which 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 has now entered the realm of the knowledge industry.

I guess the country boasting the showcasing of the world’s first ‘Green Factory’ and having the first LEED Platinum certified garment factory is ample testimony to this development agenda and for Sri Lanka to have carved out a position globally as an ‘Ethical Sourcing Destination’.

Last two years

If we were to track back on the last two years, we see that Sri Lanka’s economy has bounced back with a strong growth of 7-8% and the country’s national competitiveness has improved from the rank of 79 to 52 as at this year 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 per cent plus growth and now set a new target of being the apparel hub for the region in the areas of research and development, design and 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.

Especially given that India cannot trade directly with Pakistan and Bangladesh having apprehensions of working with India too, this naturally makes Sri Lanka the hub for the South Asian region.

The magic

If I may take a thought from Unilever’s Global Vice President Marketing who said that the challenge is for companies to infuse magic into our business rather than focusing on logic, given the global economic fallout, I feel the apparel industry of Sri Lanka has already practiced 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%, reduce water consumption by 70% and make waste to landfills to zero, which led to a lean organisation.

On a separate note, 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 could be practiced, which happens to be the buzz word in today’s fashion business.

Hub: $ 1 billion?

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 organisations like the Academy of Design (AOD) coming into play, we see how the industry has already equipped itself to cater to the fallout of GSP+ to the EU and GSP last year to the US. I guess the 40 per cent plus growth seen in 2011 indicates the foresight of this industry and I guess it is a lesson for other industries to pick up.

Together with the logistical hub status coming into play aggressively from a policy and private sector perspective, the target set by the apparel industry will become more realistic. 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 are sourced from Sri Lanka, so apart from not only being the hub for design and innovation, even when it comes to talent Sri Lanka takes leadership in South Asia. I guess this is where the above theme comes to play: ‘Apparel – Sri Lanka’s Next Success Story’.

Budget 2012

Whilst being strongly positive on this industry, there are many challenges that have been highlighted, the biggest being the shortage of workers given that Sri Lanka’s unemployment is at 5.1%.

The question is, how can this industry target to be at US$ 4 billion from organic growth and US$ 1 billion from the hub services by 2015 with a worker gap in the country? Whilst the industry is grappling on this one, Budget 2012 is very encouraging:

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

2.Two-metre cut pieces fabric used by SMEs engaging in soft toys and handbags will be charged a tax of Rs. 25 per kg.

3.Companies which locally produce fabric to replace imports of fabric with an investment of US$ 5 million 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% of the production to the local market at all inclusive rate of Rs. 40 per kg.

At the time when I used to head the National Council for Economic Development, 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 in to cater to private sector business growth. In fact I now advocate this thinking to the many other industry boards on which I sit currently.

(The author was the eighth Chairman of the Sri Lanka Export Development Board and the first Executive Director of the National Council for Economic Development in the Presidential Secretariat. He was active engaged in building Jaffa’s private sector growth during the war and today he heads National Portfolio Development for the United Nations – UNOPS – for Sri Lanka and the Maldives. The thoughts are strictly his own ideas and not the views of the organisations he serves in Sri Lanka or internationally. Rohantha is a Board Director of the Sri Lanka Design Festival.)