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Digital printing plant for textiles. |
Sri Lanka has a robust, vertically integrated garment industry with strong niche sectors in lingerie, swimwear and active wear. Hong Kong companies are taking advantage of opportunities to set up wholly-owned or joint venture operations there.
The Sri Lankan Government's Board of Investment (BOI) says there are 32 Hong Kong companies operating garment-related businesses in the island nation, of which 16 are wholly-owned ventures and 16 are joint ventures. Total Hong Kong investment in December 2009 was over US$100 million.
In addition to ready-to-wear, several Hong Kong companies have set up factories for knitted and woven fabrics as well as accessories including elastics and other specialist components.
Hong Kong fabric manufacturer, Fountain Set (Holdings) Limited started operations in Sri Lanka when it saw great business potential. A joint venture, Ocean Lanka was set up in 1996 and has enjoyed good growth since then, despite the armed conflict from that time that has now ceased.
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| Fabric laser printing. |
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Managing Director of Ocean Lanka, Lawrence Lau said: "when we established, the garment industry was flourishing but a significant portion of knit fabric requirements were imported."
Ocean Lanka's factory now has 1,670 workers and produces a range of weft knitted fabrics, with or without Lycra and with single jersey, rib, interlock and fleece structures made of cotton, polyester/cotton, viscose and nylon fibres.
Production has increased by about 25% each year, Lau said. "Initially we produced basic knitted fabric but we soon ventured into stretched, striped, regenerated and printed fabric as there is good demand for these. Now average annual production is over 11 million kg, valued at about US$83 million and over 95% is supplied to the local industry. All raw materials are imported."
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Skilled, trainable labour. |
Lau said the main advantages of manufacturing in Sri Lanka were:
- access to a mature and well-established apparel market with good demand for knit fabrics;
- availability of skilled and easy-to-train labour ("Sri Lanka has an excellent education system that makes training of labour very easy");
- labour costs are somewhat lower compared to China;
- relatively less regulations in terms of international trade and foreign exchange;
- an efficient port and strong logistical support.
However Lau says there are some disadvantages and difficulties too:
- a less developed infrastructure including roads;
- high utility costs;
- haphazard introduction of new taxes, charges and levies affecting foreign investment;
- some politically-motivated trade union activities.
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| Emphasis on design. |
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A spokesperson for one large Hong Kong clothing manufacturer that refused to be named said costs are rising in Sri Lanka and although wages are still lower than in China, productivity in China is greater. "To stay competitive in Sri Lanka we are using more automatic machines, moving to high-end products with a strong design input and staying focused on quality."
Others too see the benefit of strong design. To increase competitiveness at the end of the quota regime three smaller companies clustered and set up a design house, Orient Design.
With 12 designers, of whom one is from the London School of Fashion, the design centre has proved a great boon for the companies, which together now have 3,000 workers and produce six million items of clothing a year for brands such as Next, Tommy Hilfiger, Timberland, Tesco and more recently Burberry.
CEO and Creative Director of Orient Design, Gihan Nanayakkara said: "our niche is to create complex products and a sophisticated level of service that is not available in our competitor markets such as Bangladesh. We design and engineer products to suit the different market niches of our customers."
Rising projected returns from ready-to-wear
Sri Lanka's total exports of ready-to-wear in 2008 were worth US$3.3 billion and exports up to November 2009 amounted to US$2.8 billion, according to figures from the Sri Lanka Apparel Exporters Association (SLAEA).
Production of knitted and woven fabrics and other accessories is estimated at about US$1 billion. About 300 factories including facilities for fabric and accessory production are operating across the country and employ about 275,000 people, mainly women, directly and about one million indirectly.
Despite the growth in fabric production, the value of imported fabrics is still high - US$1.1 billion in 2008 while accessory imports were worth US$176 million in the same year.
Industry experts say there is huge opportunity to invest in fabric and accessory production as well as for Hong Kong brands and other ready-to-wear suppliers to use Sri Lanka as a one-stop hub to design, produce and distribute from the island.
In addition to BOI incentives including duty free imports and tax holidays, the biggest draw is the EU GSP+ status held by Sri Lanka since 2005 that provides duty exemptions on exports. The standard import duty for garments into the EU is 12%.
Focusing on green and sustainable production
Even prior to the first round of GSP + negotiations the industry was looking at ways to stay competitive when the WTO's multi fibre agreement and the quota systems ended in March 2005. "We hired AC Nielsen to survey our buyers in the US and this confirmed our industry strengths - superior manufacturing capability and ethical, responsible practices," said Kumar Mirchandani, Chairman of SLAEA and Managing Director of Favourite Group.
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| Green factory a world's "first". |
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Purpose-built facility. |
"It was clear right from the start that we cannot compete on price with countries with large, low-cost labour pools such as China and Bangladesh. Instead we decided to focus on technical innovation, design development, higher value and more complex products and most importantly on green and sustainable production."
International brands and buyers too are pushing the green agenda. The result is Sri Lanka has the first three "green" garment factories in the world, two are purpose-built and one is a conversion.
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Mirchandani: demand for eco-friendly factories. |
"We are already seeing demand increasing for products from eco-friendly factories," Mirchandani said. One of his own factories, which is 18 years old, is being converted into a green factory with waste management, natural light from skylights and rain water harvesting.
Head of a large international buying office in Colombo said: "over the past two years ethical and eco-friendly products have become the order of the day and we look for labour compliance and eco-friendly processes when we source from suppliers."
Among international brands leading the green drive in Sri Lanka is Marks and Spencer (M&S) of the UK which spearheaded the green factories' project.
Drive for more investment
Both government and industry are trying to attract more overseas brands to produce on the island. The end of the war too saw a new investment push, particularly in the liberated north and east. "There is a lot of post-war optimism - unfortunately the global recession hit at the same time."
"Recently orders have started to pick up and we expect factories to open in these areas. Already the large exporter, Brandix Group, has set up a factory in the east," Mirchandani said.
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| MAS Institute of Management and Technology. |
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Brandix casualwear factory. |
The key to growth in the sector has been strategic joint ventures and the industry is looking for more of the same.
Sri Lanka's dream is to be to India what Hong Kong is to the Chinese mainland - a design, service and innovation hub with some offshore manufacturing in India as well as a centre for brand creation of products that will serve the growing consumer middle class in India.
Now the future seems to be nanotechnology. Both substantial local players MAS Holdings and Brandix are investors in the new Sri Lanka Institute of Nanotechnology (SLINTEC).
from special correspondent Jennifer Henricus, Colombo
