A key strength: A focus on niche products and apparel manufacturing exports has reached a new level of intensity

An apex industry and the largest foreign exchange earner, Sri Lanka’s apparel manufacturing sector stands as one of the country’s greatest strengths. A focus on quality and value addition over volume and cheap production has seen the industry record years of growth in exports and revenues, particularly in the lingerie, swimwear and sportswear segments, while a reputation for maintaining stringent ethical and environmental standards makes the country a preferred source market for a host of major brands.

Although the industry was hurt by suspension of critical trade concessions with the EU in 2010, it remains on track to meet its ambitious target of $8.5bn in export revenues by 2020, as a result of rising US demand, an upcoming free trade agreement with China and the impending reinstatement of its EU trade concessions. This presents a number of new opportunities to apparel investors, particularly in the upstream milling segment, with fabric production, a lack of raw materials and availability of labour some of the most significant challenges to future growth.

Recent Growth

The apparel manufacturing industry has long stood as an economic pillar for the country, withstanding multiple political upheavals to remain a major strength and significant export earner. According to an April 2015 report published by the Hong Kong Trade Development Council (HKTDC), apparel manufacturing is Sri Lanka’s highest foreign exchange earner, comprising over 40% of the country’s total export values, and recording robust annual growth since the end of the civil war in 2009.

Apparel exports rose from $2.7bn in 2005 to hit $4.5bn in 2015, according to the Sri Lanka’s Export Development Board (EDB), just short of the industry’s $5bn target, but an increase of 13% over $3.8bn in 2012. The long-term export revenue goal is set at $8.5bn by 2020. “This target is achievable. The industry has not stopped growing since the removal of a global quota system for textiles and clothing in 2005,” Tuli Cooray, secretary-general of the Joint Apparel Association Forum (JAAF), told OBG. “In the good old days we were qualified tailors. After 2005 the entire industry shifted. Our only competition now, in terms of quality, comes from within the country.”

Major Players

Manufacturers in Sri Lanka provide a range of services spanning design, marketing and material innovation, with the industry’s growing sophistication enabling it to out-compete regional competitors focused solely on production processes.

JAAF reported that there are an estimated 800 apparel companies and 300 manufacturers in operation in the country. The industry is dominated by major players including Brandix Lanka, the country’s largest apparel exporter, which operates 42 separate facilities on the island, and employs over 47,000 people across Sri Lanka, India and Bangladesh. Brandix Lanka supplies to many brands, including GAP, Victoria’s Secret and Marks & Spencer.

MAS Holdings produced 160m pieces in 2014 for brands including La Senza, H&M, Calvin Klein, Spanx, Athleta, Victoria’s Secret, Marks & Spencer and GAP. MAS operates in a fabric park outside of Colombo in Thulhiriya, which was inaugurated in 2007.

Competitive Advantage

The HKTDC reported that garment workers performed well on detailed work processes, including colour management and quality assurance, which has allowed the country to focus on niche product manufacturing. Although it does not compete regionally in terms of volume and low-cost production, the country’s competitive advantage can be found in high levels of value addition. The lingerie, swimwear and sportswear segments, which require a high degree of skill and utilisation of advanced technical fabrics for manufacture, stand as Sri Lanka’s main apparel strengths.

“It is also about speed,” Sriyan de Silva Wijeyeratne, managing director and CEO of Textured Jersey, told OBG. “Brands are now moving towards fast and reactive fashion models. Where lead times were six months a few years ago, they are now six weeks. This makes supply chains much more compressed, and hence the challenge to be nimble.”


On top of high-quality products and a sophisticated, vertically integrated value chain, Sri Lanka’s garment industry benefits from its reputation for high ethical and environmental standards. Since 2006 the industry has marketed its products through an ethical clothing campaign it launched called Garments Without Guilt. (Valium) “The objectives [of the campaign] haven’t changed since we started,” Ajai Vir Singh, founder and president of Colombo Fashion Week, told OBG. “The best way to differentiate Sri Lanka from regional competitors is through Garments Without Guilt. Workers are treated well, working conditions are good, and although this has increased the cost of production, we have a reputation in the industry, which is becoming increasingly important in our main export markets.”

The industry is also known for its high standards of environmental protection, with several of the major manufacturers improving efficiency and reducing environmental impact at energy-intensive facilities. In August 2015, for example, MAS Holdings signed the world’s first chemical leasing agreement on waste water treatment, which will revamp its current waste water management system as part of its strategy to remove all toxic chemicals from its products by 2020.

Several Sri Lankan manufacturers, including Brandix, MAS and Hirdaramani Group, have improved their facilities under the US Green Building Council’s LEED Green Building Rating System, which awards certifications based on energy consumption, water conservation, waste management and low carbon emissions. “It costs 20% extra to build a LEED Gold-certified factory, and we didn’t know what the payback would be initially; it was hard to gauge. However, we have since witnessed significant social and economic benefits. Maintaining ethical and environmental standards makes it easier to hire, and has also helped to improve our reputation with farmers,” Sid Hirdaramani, a director of the Hirdaramani Group, told OBG. GSP+ LOSS: Rapid apparel growth has not been without challenges, the most significant of which is related to the country’s civil conflict, which concluded in 2009. As a result of purported human rights violations committed during the war, member states of the EU voted in February 2010 to suspend trade concessions granted to Sri Lanka under the Generalised System of Preferences Plus (GSP+), which offers preferential, duty-free access to EU markets in exchange for upholding international conventions on human rights, labour standards, sustainability and good governance. At the time, the system allowed the country to retain an estimated $150m annually as a result of preferential tariffs, with the apparel industry the main beneficiary of the scheme.

Although Sri Lanka continues to enjoy GSP benefits, textiles and garments have been subject to tariffs of 5-9% since August 2010. With half of Sri Lankan apparel exports sent to the EU, the industry has felt the effects. “Our exports to the EU were $1bn in 2005 under GSP+. They reached $1.7bn in 2010, and after a few bad years, climbed to $2bn in 2014. What we saw was an annual growth rate of between 13% and 14% in EU exports between 2005 and 2010, and since then it has slipped to about 7% annually. We estimate that the suspension costs the industry roughly $350m-400m annually,” Cooray told OBG.

Fabric Opportunities

However, efforts to restore GSP+ have regained momentum, and Cooray anticipates that following a meeting between Sri Lankan and EU stakeholders, GSP+ will be reinstated in 2016. In July 2015 the US also moved to restore its GSP scheme with Sri Lanka, although benefits do not apply to apparel exports. Coupled with an upcoming free trade agreement with China, expected in the coming years, the industry is poised to see growth surge into the double digits over the medium term.

The EU’s GSP+ scheme mandates that apparel exports be manufactured using regionally sourced fabrics, meaning Sri Lankan garments made with fabric from major source markets in East Asia will not benefit from GSP+. Euromonitor reported that domestic textiles production stood at $850m in 2014, while textiles imports reached $2.2bn in the same year, with Hong Kong and China accounting for over 40% of the import total. This presents new opportunities for investment in the upstream milling segment.

The country already supports four main fabric mills, with companies like Textured Jersey – a subsidiary of Brandix – having expanded regionally in recent years. “We import a lot from China and Taiwan, so we will need to counter-source our fabrics to benefit from GSP+ savings, which we anticipate will reach 12.5% for our customers. We don’t have a strong local raw materials base in the country, and although it’s a capital-intensive industry, there is a lot of space in the market for new milling operations,” Hirdaramani said.