Sri Lanka is regarded as one of the best locations for clothing manufacturing in the Asia-Pacific region, driven by its proximity to major textile importing countries and the availability of cheap labour. The clothing industry also has a substantial presence, accounting for 30% of total employment within the manufacturing segment, and over one-third of industrial output annually, with more than 1000 garment factories nationwide. A number of Sri Lanka’s “green” garment factories have been recognised for their environmental design and practices, while others have been working to adapt to technological innovations, which are now more than ever a key determinant of market competitiveness, along with the previously predominant factors of price and quality.
In an effort to capture more international market share the Sri Lankan Apparel Exporters’ Association has set a target of reaching $8bn in annual exported products by 2022, from over $4.8bn in 2017 and in excess of $5.1bn in 2018, which was an all time high. As a significant economic contributor – with exports to the US alone totalling $2.1bn in 2017 and $2.3bn in 2018, or around 2.5% of GDP in both years – the segment has received legislative support from officials, such as a September 2018 move to reduce the value-added tax on fabric imports from approximately 15% to 5%.
While there has been significant investments towards industrial innovation and value chain dynamics, there are concerns that more needs to be done to maintain the country’s sharp competitive edge. “Regional competition is increasing, and Sri Lanka is losing out due to higher labour costs and lower output,” Prabhash Subasinghe, managing director at Global Rubber Industries, told OBG. “Companies are looking into automation, among other new technologies, to reduce human dependency.”
In an effort to promote competitiveness, leading local firms have invested in new technologies and processes. One such example is MAS Holdings, the largest apparel manufacturer in South Asia, which has created an autonomation division to optimise production processes. While developments in advanced robotics are disrupting manufacturing processes around the globe, their role in augmenting the workforce in Sri Lanka’s apparel industry is less pronounced. “Given the variance in flexibility of fabric, there are thousands of little adjustments a human can make during the stitching process,” Yusuf Saleem, CEO of autonomation at MAS Holdings, told OBG. “Therefore, making people more productive is key to staying competitive,” he said.
A factor in the apparel industry’s global competitiveness will be the ability of manufacturers to adapt to rapidly evolving consumer behaviour. “Product complexity and global trends will play a major role in the direction of the industry,” Ranil Vitarana, chief innovation officer at MAS Holdings, told OBG. “The ability of manufacturers to adapt to product personalisation demands will be a key measure of success.” On the macroeconomic front, regulatory efforts such as stable inflation rates guided by the flexible inflation targeting framework set to begin by the end of the first quarter of 2019 (see Economy chapter), as well as continuing trade agreements and promotion, should assist in attracting investment into the manufacturing segment.
Meanwhile, with Chinese exports threatened by a trade dispute with the US, and Sri Lanka’s focus on the diversification of its manufacturing towards highvalue, technology-focused sectors, an opportunity for substantial growth may present itself as companies look for alternative textiles production bases in Asia. However, one challenge might be to find enough skilled labour. “While Sri Lanka is well positioned to serve as a strategic value chain partner to international brands, more needs to be done to support the upskilling of the workforce,” Vitarana told OBG.