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SriLankaAEA 118614139938Sri Lanka Apparel Exporters Association (SLAEA) Chairman Yohan Lawrence said that as an industry, it apparel industry stakeholders should look at markets other than United States and the European Union, without losing the foothold on them.

"Whilst I firmly believe we should keep our foothold in these markets, we have to accept that if we want the industry to grow, but we have to start looking to markets outside of the US and the EU. Currently over 85% of our exports go to those markets and if we want to grow the industry and anything like the target of eight per cent the reality is that growth has to come from other countries. We should view the US and the EU as our stable baseline and look to grow in new areas."

He added that the industry looked forward to the free trade agreement (FTA) with China, which is anticipated to come through relatively quickly. "Apparel is included (in the FTAs) as an industry. This will help in two ways. Firstly we will have the opportunity to tap in to the growth in that market, particularly for branded products. The Chinese consumer is getting more and more affluent and is seeking out internationally branded products," he said.

"In areas like sportswear for example, we make for some of the finest brands in Sri Lanka. The FTAs will allow these products to be brought into China at lower duties than our competitors. This should have a knock on effect of the brands looking to increase their production in Sri Lanka," he said.

Q: Sri Lanka's total exports have declined in 2012 and also in the first half of 2013. What is the experience of the apparel industry being the number one apparel export performer?
The latest figures we have upto the end of August show that exports are US$ 2.6 billion against US$ 2.5 billion for the same period last year, so we are marginally up this year. Our total exports last year were US$ 3.8 billion and we are hopeful that we will reach the US$ four billion this year. As a reality check, it's important to remember that our primary markets are the US and the EU, and these markets are stagnant at best. Notwithstanding this, our exports to the US have actually picked up in the last few months – in the month of August we are some nine per cent ahead of the exports in August 2012. More importantly, Sri Lanka's share of that market has grown, so we are gaining this at the expense of other countries. The EU however, continues to remain flat against last year. All things considered, I think we are doing well in the conditions of the market.

Whilst I firmly believe we should keep our foothold in these markets, we have to accept that if we want the industry to grow, but we have to start looking to markets outside of the US and the EU. Currently over 85% of our exports go to those markets and if we want to grow the industry and anything like the target of eight per cent the reality is that growth has to come from other countries. We should view the US and the EU as our stable baseline and look to grow in new areas.

Q: Sri Lanka's exports are declining in relative and absolute terms. Currently, exports are only 50% of imports. If that issue is not addressed, there will be a serious balance of payment (BoP) issues. What are your thoughts on this as a key member of a key industry association and what are your thoughts on alerting the authorities in addressing this vexed issue?
Through the Joint Apparel Association Forum (JAAF), we work very closely with the Export Development Board (EDB) to build our volume of exports. This is a combination of building on the existing markets developing new ones.
As an industry we are looking forward to the FTA with China, which we understand will come through relatively quickly. Apparel is included as an industry. This will help in two ways. Firstly we will have the opportunity to tap in to the growth in that market, particularly for branded products. The Chinese consumer is getting more affluent and is seeking out internationally branded products. In areas like sportswear for example, we make for some of the finest brands in Sri Lanka. The FTA will allow these products to be brought into China at lower duties than our competitors. This should have a knock on effect of the brands looking to increase their production in Sri Lanka.

Secondly, with rising costs in China we are seeing interest in Chinese apparel companies setting up in Sri Lanka, to export back into their domestic market. This will also help grow our volumes.

In the longer term we also need to look at the other BRIC countries, as also Japan. Russia and Japan are two potential markets for Sri Lanka Apparel and we should tap into these as early as possible.

I also there's real potential in India. We've already seen Sri Lankan brands like Avirate and Amante gain market share in India. Sri Lankan brands are certainly growing and the Indian market is a key area for fostering the growth. We currently have an FTA with India but this is limited to eight million pieces per annum. If you took say a US$ 3 FOB, that's only a turnover of US$ 24 million which for India is very small. Through JAAF we are pushing to liberalize this as this will open up real potential to benefit from the scale of the Indian market. If we couple this to local brands, we then have a sustainable model for continued growth.

 

Q: When Sri Lanka lost the General Systems of Preferences+, which is known as the GSP Plus to the European Union, some were of the opinion that it will not impact Sri Lanka. What is your stand on this?
We are coming up to three years since the loss of GSP. It did affect the industry particularly in respect of the higher volume / lower value end of the business and there would have been a shift of trade which is based on preferences. However if you look at our exports since the loss of GSP, we've maintained our market share in the EU and overall exports have grown. Sri Lanka continues to be the home for higher value added product which would not have qualified for GSP plus under the rules of origin. Sri Lanka still enjoys GSP status into the EU so there is some preferential tariff applicable.

 

Q: How do you see the future of the industry where Sri Lankan apparel manufacturers cannot get the high prices that it envisages along with the high costs of production with issues such as high labour costs, surging power tariffs and with the stiff competition from neighbouring countries who could be more competitive?
There's no question that each year tends to throw up more and more challenges. Costs of production will continue to rise both in Sri Lanka and our competitor countries. What we have to ensure is that the package that we offer the customer will be attractive to ensure that he stays in Sri Lanka- that includes both macro and micro factors. At the macro level Sri Lanka continues to be an easy place to do business, has good shipping opportunities etc. At the micro level we are known for our reliability, the quality of product, compliance to ethical and environmental practices and generally having a very lean manufacturing process. We are now able to add things like design and product development, so we differentiate ourselves based on the total offer.

 

Q: Can we compete with countries such as Bangladesh which still has the GSP Plus and which has also low labour costs unlike Sri Lanka?
In the higher volume, lower margin business this is difficult. However as I've mentioned we offer a much bigger package than being the cheap place to make basic product. That ship has sailed.

Q: There is also a school of thought pushing for backward integration saying that accessories should be made in Sri Lanka where the value addition will be higher. What do you think?
On the lingerie side we have a number of very good suppliers in the country. These are both locally and internationally-owned. Products like lace, elastic, bra wires, hooks and eyes etc are all made locally. We also have products like molded bra cups being made locally for all the major buyers. Similarly on the packaging side we have a number of international and local operators in the market making product for all the major buyers.

Q: Talking of manufacturing accessories for value addition, there is also a school of thought that the accessories manufacturers do not have the capability to meet the local demands in the industry, through the concept is good in principle. Your comments?
I would disagree. We have a very sophisticated supply chain for accessories and this is an important part in the reliability of the industry.

 

Q: How would you see a situation when multinationals such as GAP want specifications changed all of a sudden where it says that a buyers want a two holed button instead of a four holed button in the product ? Can a manufacturer suddenly change his machinery to suit the new specifications?
With the bigger buyers things like this tend to be discussed and agreed in advance with the particular factory. It does happen, and generally factories will need to have a pool of machinery that they can call on. With the larger manufacturers this is less of an issue. In the SME sector most of our factories have been in existence for a number of years and have in that period acquired a range of machines so they can meet the requirements of the buyer. There is a growing rental industry locally which does help out, and also for items like attachments and folders there's a number of local sources for these items.

Q: Similarly, there could also be a situation that a buyer will want the zippers only from a specific manufacturer such as YKK and not just anyone. What will be the situation then?
This happens quite a lot now from buyers agreeing prices for fabric and trims. Generally if the supply source is an established supplier, there's no major issue. Our customers have full visibility of the supply chain and are very aware of not only product specification but prices, and terms of trade.

Q: What are your thoughts in the current context (i.e. Nipayum Sri Lanka 300 Enterprise Programme) where there will be opportunities of moving the industry to the peripheries similar to the 200 Garment Factories Programme which was initiated by President Ranasinghe Premadasa?
I think there is potential for this. The Colombo and Gampaha districts house a disproportionately large number of factories. A number of these are from the SME sector and they will find it difficult to relocate unless there is some package of assistance available. With the growth in the country's infrastructure the country is now much more accessible, and a number of the larger manufacturers are already seizing the opportunity to relocate into areas where this a larger pool of resident labour.

Q: How do you see industry sentiments of moving to the North where unemployment is rampant but where for instance where your transit times to get the raw materials to Colombo to the Port and to the Airport will be critical and also in terms of bad roads and bad haulage with high fuel costs?
As I mentioned we have already seen a number of businesses set up quite large plants in the North and the East. There are number of benefits to doing this, and as with most things in life comes with its share of challenges.

Q: How do you see the effectiveness of the supply chain management with raw materials coming from Singapore, Taiwan, Hong Kong, India and Pakistan and readymade garments being sent to markets such as the US and the EU?
One of the benefits of doing business in Sri Lanka is the ease of logistics. We have efficient shipping opportunities in all directions and an advanced logistics industry to support this.

 

Q: During times of yore, there were numerous constraints in the industry for instance you cannot be laying the fabric on the cutting table manually. But automatic systems have now turned out to be of paramount importance. But, no apparel manufacturer of the small and medium scale could afford them, though the big players could do so. How do you see this?
It is becoming more and more difficult for the small independent factory to be competitive from that perspective. We've seen a number of these companies tie up with larger units in order to overcome this type of issue. The cost of finance is very high and unless there is access to some form of low cost funding or development finance this part of the sector will struggle. A solution here could be part of the assistance to relocate. The small independent manufacturer has been a critical part of the industry historically and we should try and keep this going.

Q: There is also a drawback in the local apparel industry where there is a dearth of internationally-rated designers. For instance, there could be a global apparel buyer who could want a ladies dress with a cowl neck or a neckline with a flared skirt. Some feel that there is not a single designer who could understand these specifications, nor provide innovative ideas on styling. Some say that we are just having glorified tailoring shops. How do you see these challenges?
Whilst this is a long process, we are seeing an increasing amount of local design coming through. Through institutions like the Sri Lanka Institute of Textile and Apparel, the Moratuwa University, Academy of Design and LIFT there are now a number of people coming through the system with design flair. The industry is much more than a glorified tailor shop. We now have cutting edge design and product development to offer the customer, and we are slowly seeing this being picked up. The designer does need to be close to the market however to predict trends etc, but in a number of cases the work is actually done locally though the Product Development Centres that exist in a number of factories.

 

Q: How do you see the future of the industry in the light of the big players such as Brandix, MAS, Hidramani are having tentacles overseas as well? Do you see a mass exodus of local investors moving out?
Not really. I do see them building on a well-established base in Sri Lanka and this will remain the core part of their operations.

Q: It has been stated in the media time and again that there have been at least 30,000 vacancies left in the apparel sector. Is finding the right labour a challenge for the industry with the new generation opting out of the apparel sector due to low wages?
I don't think it's the wage. As the country develops there are new opportunities available to the employee. New sectors are coming up in and around the country which means that people have more option available. The industry need to be competitive on the package that's on offer, and that includes a lot more than just salary. Working conditions, the way we treat people, the benefits we offer etc all make up a package that we have to ensure is attractive to the employer.

Q: On labour issues, there are the set of archaic labour laws something that the Employers Federation of Ceylon Director General Ravi Peiris also stressed in a previous interview to this column (From the Boardrooms- 'Labour laws are yet archaic from colonial times' 16 September 2013. Click http://www.ceylontoday.lk/22-42753-news-detail-labour-laws-are-yet-archaic-from-colonial-times.html ). Also in that light, the apparel industry also has restrictions where the employees are not allowed to work on a piece rate basis, where the employees are on the Wages Board Ordinance. Is that wage livable with the soaring costs of living?
I agree that our labour laws need to be more flexible to allow us to compete with our neighbours. There's a number of proposals being discussed but this is an area we struggle to make any headway in. A couple of specifics – we can only work 45.5 hours a week. Between local law and buyers codes, the maximum number of hours of overtime we can work is 12 hours, so that a maximum of 57.5 hours. Bangladesh works 60, and Vietnam can work up to 65. We also have Sunday as the fixed holiday for the garment manufacturing trade whereas other trades have a movable weekly holiday. If we had this we could then work upto a full 24 hour, seven day week so we get the maximum utilization from your machinery. You talked of cutting equipment earlier, this would be much more affordable if that section could work an 24/7 shift. Similarly the CEB is encouraging factories to work at night in order to level off the demand on electricity through the day. This is not practical with the existing labour laws.

Q: What are the measures you will advocate in terms of staff welfare for employees?
As I mentioned earlier attracting and retaining employees is more than being about salary. Companies do a number of activities in this sphere including meals, medical facilities, transport etc. We need to create an environment where people feel valued, and have the opportunity to develop their own creativity – whether that's sports or some other skills that they have.

Q: How would the apparel sector view CSR or corporate social responsibility?
The industry has an exceptional track record in this area. This comes from a foundation that is well beyond philanthropy. Businesses will evaluate CSR projects against measurable benefits to the society, often linked to a corporate strategy. It's part of the DNA of our industry and happens across the spectrum of the industry.

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JAAF 

Sri Lanka Garments

SLAEA Magazine Front Cover 2Journal & Directory of the Sri Lanka Apparel Exporters Association, containing valuable information with regard to the apparel industry.
Issue No. 90

 

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Sri Lanka Apparel Exporters Association,
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