Open for Business
Despite suffering from a three-decade long civil war, Sri Lanka shows great promise in its apparel export business, promising to revitalize the economics of this war-torn country.
Sri Lanka’s apparel export industry is the most significant and dynamic contributor to the country’s economy. Over the last three decades, the sector has shown exponential growth and has become the number one foreign exchange earner and the largest single employer in the manufacturing industry. The industry provides direct employment to over 300,000 and indirectly employs close to 600,000 people, including a substantial number of women.
The Sri Lankan ready-made export history can be traced over 40 years back to the 1960s. Interestingly, the first garment exports from Sri Lanka did not make their way into US or European markets but rather found a strong consumer base in Russia. The textile and garment industry has been Sri Lanka’s largest gross earner since 1986 and accounted for 40% of total exports in 2012. Another major export is tea, which accounts for 17% of the total exports. Other prominent export goods include spices, gems, coconut powder, rubber and fish with the main export partners being the United States, the United Kingdom, Germany, Belgium and Italy.
Sri Lanka’s apparel sector has progressed from being an ODM (Original
Design Manufacturer) to a global leading international OEM (Original Equipment Manufacturer) supplier. This is mainly due to the encouragement from the world’s third largest retailer, TESCO’s direct sourcing as well as recent backing from the Government of India, which duly enhanced market access for Sri Lanka’s apparel exports.
Today, the garment industry occupies a pre-eminent position in Sri Lanka, producing high quality garments for leading international brands such as Victoria’s Secret, Tommy Hilfiger, Nike, Gap, Next and Marks & Spencer’s, etc.
Sri Lanka’s many competitive advantages promise continuing growth. The country boasts of a 92% literacy rate, an achievement astounding for a South Asian country that is only recent- ly emerging from a three-decade long civil war. Every year, 38,000 students graduate from nine universities with more than 50% specializing in technical and business disciplines, providing Sri Lanka with a literate and trainable workforce. The Lloyd’s register ranks Colombo the number one port in South Asia and 26th in the world. The national airline has been privatized with Emirates selected as its strategic partner. Internationally experienced cargo and courier operators such as DHL and Evergreen have set up operations throughout the country. Over 20 foreign banks have established branch offices in Sri Lanka. The success of the Sri Lankan textile and apparel industry can be attributed partly to the government’s policy of attracting foreign investment by offering a number of special incentives including special industrial zones, tax holidays and import duty exemptions.
It is commendable that Sri Lanka has been at par with developed countries in its adoption and compliance of the best labor, trade and environmental laws and practices in the region. It does not subsidize or provide export rebate and there have been no complaints of anti dumping or countervailing. It also has an excellent reputation for abiding by the regulations of the World Trade organization (WTO).
Sri Lanka’s textile industry is fast becoming a socially responsible and preferred destination for apparel sourcing. The country pays fair wages to its workers while discouraging sweatshops and child labor in its businesses, making the “Made in Sri Lanka” label synonymous with quality, reliability, social and environmental accountability. On environmental issues, Sri Lanka supports many initiatives focused on minimizing its impact on nature. Efforts to manufacture with sustainability issue standards in view have buoyed Sri Lanka’s textile and apparel exports recently. Sustainable production is an industrial process that transforms natural resources into products in ways that minimise resources and energy. Brandix Group, Sri Lanka’s largest apparel manufacturer, has cut its carbon footprint by 30% since 2008 and plans to reduce it by a further 20% between 2013 and 2020. At the same time, their sales have increased significantly and the company hopes to increase its turnover from US$600 million in 2011 to US$1 billion in the next five years.
Sustainable production is seen by Sri Lankan textile and apparel manufacturers as an attractive selling point when competing for orders from Western buyers. Although companies have not been able to charge significantly higher prices for sustainable manufactured goods, sustainable production has helped them to cut costs and maintain prices at a much more stable level over the past few years, despite sharp increases in production costs. As a result, it has helped them attract more orders.
In the European market, the average price of clothing imports from all sources increased by 24% over a period of four and a half years, whereas the average price of imports from Sri Lanka increased by just 13.8%. Illustrating the slowest rise among major Asian suppliers, Sri Lanka compared favorably with price increases (over the same period) of 186% in the case of imports from Vietnam, 51.1% in Bangladesh, 36% in Pakistan, 35.6% in India and 28.1% in China.
In the future, Sri Lanka aims to compete with Bangladesh on prices by setting up basic low-cost manufacturing units in the rural parts of the country. Labor costs in the north and east regions of Sri Lanka are amongst the lowest in the country and these areas, in particular, are targeted for investment, following the end of the ethnic conflict between the government and the Tamil Tigers.