Apparel Industry: Eyes The World As Its Market

    Tuli Cooray
    Textile and apparel sector surpasses US$ 5b mark

    The country’s apparel industry is heading in the right direction and the use of advanced technology will play a vital role for it to capture the global market. It’s track record of ethical businesses, dependability and long lasting relationships have given it an edge, veteran apparel industrialist and Secretary General Joint Apparel Association Forum, Tuli Cooray said.The country’s apparel industry is heading in the right direction and the use of advanced technology will play a vital role for it to capture the global market. It’s track record of ethical businesses, dependability and long lasting relationships have given it an edge, veteran apparel industrialist and Secretary General Joint Apparel Association Forum, Tuli Cooray said.

    However, the industry which is no longer enjoying lower cost advantage due to dynamics of the current labour market and the lack of preferential market access other than GSP+ of EU, is required to ensure that it is effectively present on the world apparel sourcing map by changing the pattern of business in catering to demand. The industry desires to reach a US$ 5 billion target on apparel exports in 2018 and by 2025 US $ 8 billion, provided the envisaged market access programs through Regional, Multi-lateral, or Bi-lateral trade arrangements are put in place, Cooray said in an interview with Sunday Observer Business.

    Excerpts :
    The textile and apparel industry in Sri Lanka surpassed the US$ 5b mark for the first time in history accounting 40% of the total exports or 58.9% of manufactured exports contributing largely to the increase in industrial exports. Despite the decline recorded in the 1st half of 2017, on a cumulative basis the earnings of this industry increased to US$ 5,032 million in 2017.

    The total earnings from export of apparel products falling under HS Chapters 61, 62 and 63 amounted to US$ 4817 mn in 2017, registering an increase of 3.1% compared to an export turnover of US$ 4672 mn in 2016. The USA and the EU continued to be the two largest buyers of our garments, in both volume and value terms. Earnings from these two markets in 2017 amounted to US$ 2164 mn and US$ 2024 mn respectively, jointly contributing 87% of total earnings from garments.

    Meanwhile garment exports to other non-traditional markets such as Canada, Australia, China and UAE also grew from US$ 607 mn to 629 mn in 2017. However fabric and other textile product exports remained more or less static at US$ 195 million in 2016 to US$ 199 mn in 2017.

    The Textile and Apparel Industry employs nearly 350,000 workers directly and twice as many indirectly. Total employment is estimated to be in the region of 15% of the country’s eligible workforce. The majority of this workforce are women from regional areas, the backbone of the industry.

    Social responsibility
    The social responsibility agenda of the industry is meant for the continuous improvement of the living standards of these families and to create pride in their mind of their involvement with the industry.

    The contribution of the textile and apparel industry to the GDP is in the region of 6% based on re-based GDP estimates. It is very unlikely that any other sector will come upto this level of performance in the short to mid-term. Therefore, the apparel industry will continue to influence the level of economic development in the mid-term.

    The desire of the apparel industry is to reach a US$ 5 bn target only on apparel exports (does not include textile exports) in 2018 and by 2025 US $ 8 bn, provided the envisaged market access programs through regional, multi-lateral, or bi-lateral trade arrangements are put in place.

    Three types of leaders
    Historically the apparel industry is known as a buyer driven value chain containing three types of leaders - the retailers, the marketers and manufacturers of branded items. The globalisation of the industry created a competition between these firms where every firm had to develop extensive sourcing capabilities. They were concentrating more on strengthening their capabilities in high value added design and marketing segments of the apparel chain. This in fact has diminished differentiation among these three types of players and they were required to align themselves with the supply chain interests they have. This process converted and compelled industries in countries like Sri Lanka to get involved more and more in the supply value chain where they had to move away from the traditional role assemblers or mere tailors and become a more decisive player as a supply chain specialist. Thereby, the local manufacturers had to take their own decisions in relation to the total supply chain and got the opportunity to understand well the intricacies of apparel sourcing.

    With increased global competition for such manufacturing today, the industry will have to move further up in the value chain by offering unique selling points, differentiating the industry from the others. Worldwide this is the trend.

    Speed to the market
    In the case of the Sri Lankan industry, the track record of ethical businesses, the dependability and long lasting relationships have given us an edge on this journey. However, as time goes by, these virtues also become a given stipulation and the industry will have to raise the bar. It is for that reason that the industry is now attaching importance to improving on time delivery, known as speed to the market. The Sri Lankan industry is capitalising on its strategic location and working hand in hand in minimising transaction time with the government through measures such as electronic commerce and digitalization. The apparel industry is emphasising to the government that these actions are essential and extremely important elements in the much discussed trade facilitation agenda. Easing the way of doing business with greater facilitation coupled with improved logistic policy and service delivery will essentially offer greater speed to the market benefiting the entire export paternity.

    Retailers, the brick and mortar of the industry, are facing new challenges and difficulties, yet the core business will continue to be there while e-commerce is surfacing rapidly, Sri Lanka is also experiencing the emergence of consumer demand for e-commerce and is in fact getting ready to undertake B2C transactions. In the process the industry made specific proposals to the government for the creation of a customs procedure as a platform for e-commerce which have now been put in place. Again as a result of the efforts of the apparel industry all players in any sector are now having modalities to engage in e-commerce exports.

    Even today among the top ten largest apparel exporting countries covering 73% of world clothing exports, there are advanced economies such as Germany, Spain, France and Turkey playing this role of front end runners where the highest value addition is created in the apparel supply chain. In this process stitching or assembly is a minute portion. These countries in fact outsource the assembly part to developing economies where the low cost advantage is available. The difference in Sri Lanka is that while it is still identified as a relatively low cost destination viz a viz such destination it is now adding the front end service coupled with manufacturing. At the same time countries such as Bangladesh, Cambodia and Vietnam have increased their presence in the world market and occupy a slot in the top ten based on cost competitiveness influenced by preferential market access and distinct labour cost advantage.

    The Sri Lankan industry which is no longer enjoying lower cost advantage due to dynamics of the current labour market and the lack of preferential market access other than GSP+ of EU is required to ensure that it is effectively present in the world apparel sourcing map by changing the pattern of business in catering to the apparel demand. In this respect to become a true total solution specialist Sri Lankan industry is compelled to raise the bar yet again in getting into the very starting point of the world apparel value chain where dreaming creative ideas are converted to products of commercial value.

    Recently research, innovation and development have been brought in to the industry agenda at the front end where high component of value addition could be created.

    Absence of volume restriction
    Since the world apparel industry is not being governed in terms of the captured quota, the demand from the buyer is now differentiated and they have the capacity to demand more and more deliverables, product variety, fast fashion, in addition to the price. In the absence of volume restriction, the capacity to supply will depend on export competitiveness of a company which is purely based on cost competitiveness. Therefore, it is very likely that the global production function will be concentrated on most competitive firms as could be seen in the expansion of the industry in a number of other countries.

    On the competitive issues, one parameter for the sustenance of the industry in meeting global competitiveness is based on technical advancements in the manufacturing process being introduced to reduce costs and minimise human intervention where multiple tasks could be performed by a machine which essentially demands up-skilling of the work force.

    3D printing and digital printing
    In the front end, 3D printing and digital printing will clearly offer extensive advantages in reducing cost and time of design and sampling which will be a major breakthrough where speed to market is concerned. The Sri Lankan apparel industry is gradually taking steps towards this direction. Presently by using automation it is possible to reduce manpower and costs, achieving better and consistent quality and increasing productivity. Besides these broad advantages, there are many more benefits of using automated machines such as energy saving, less spare parts, less maintenance cost, less space requirement in production line, reduced handling, better WIP control, reduced operator stress and fatigue, easy production accountability and reduced alteration.

    ERP (enterprise resource planning) software is also widely used in apparel industry to increase productivity. There are versatile uses of ERP in the industry in areas such as Production Planning, Trade finance, Supply chain, Inventory and Warehousing, Sales, Marketing, Laboratory, Production and Production Schedule Management, QC and Packaging, Distribution, Accounts, DSS, and MIS . In other words internal measures are also taken by the companies to improve competitiveness of the industry.

    The other support function to make the industry competitive that could be offered by the government is obtaining preferential market access for penetrating into the international market. While regaining GSP + is significant break-through to our industry where possible positive impact is already demonstrated, on the bilateral reciprocal preferences as of yet, not much has been achieved as the Economic and Technology Cooperation Agreement (ECTA) with India and an agreement with China have yet to be concluded. This is important because leading exporters in the region are enjoying such benefits.

    Due to the absence of a strong textile base, the industry is dependent on external sources for fabric requirements.

    The textile industry in Sri Lanka is largely catering to the domestic market though there is a very limited population of six companies engaged in the knitted fabric production basically catering to the domestic exporters demand, In fact majority of these companies are joint ventures of apparel exporting companies and knitted fabric produced being absorbed by owning apparel companies.

    The difficulty faced in the attraction of a strong textile base is the inability to offer facilities in a sustainable and cost effective manner since we have serious concerns in protecting the environment. This situation has created a significant disadvantage in maximising GSP+ benefit where the country of origin rules will have to be met. Given these constraints, the industry in collaboration with the Department of Commerce is at present exploring possibilities of using Indonesian and Korean fabric for manufacturing of apparel products in Sri Lanka for exporting to EU under GSP preference within the legal framework which offers opportunity for regional and extended cumulation.

    In the case of apparel manufacturing, ethical manufacturing and sustainability has been and continues to be a way of live in the Sri Lankan apparel industry. In fact, Sri Lanka is home to the first LEED Platinum and Gold certified factories and Asia’s first carbon neutral factor. Sri Lanka is the premier green destination for

    apparel sourcing. Popular wisdom would suggest ‘Green’ is a cost centre. We, on the other hand, have found that investments in ‘Green’ have only made us leaner.

    The apparel industry was one that took advantage of opportunities presented by Sri Lanka’s open economic policy in the 1970s. It was largely supported by foreign investments, which brought in the market, technology and finances, and the most valuable contribution of best practices. This drove the industry’s growth but it would have been unable to sustain itself if our industrialists also thought on the domestic market. Apparel companies continued to think world as their market place.

    ‘Garments without Guilt’
    The Sri Lankan export oriented apparel industry plays a pivotal role as a key driver of the national economy and has grown to be the most significant contributor to the country’s economy over nearly three decades of its existence. It upholds high ethical practices and does not employ forced labour or child labour unlike some of its competitors and is well known in the world as producers of ‘Garments without Guilt’.

    Keeping the world as its target market, the industry will continue to improve its competitiveness through measures already discussed and will engage in different business models so as to meet the challenges coming its way.

    In fact, right now the industry had become international players through setting up of plants overseas or through international sub-contracting and through international trading houses owned by the industry.

    The next level of raising the bar to meet the challenges of low cost manufacturing, the industry will drive itself to be a knowledge based service exporter which is the role now being played by number of advanced countries involved in the apparel trade. Sri Lanka commenced this journey by providing its skills to the regional market where majority of the plants in the leading countries in the region are using Sri Lankan skills and expertise.

    This skills export would very soon be transferred to a total solution service provider extensively engaged in front end service entailing design product development and sampling, order management, supply chain management, financial services, etc., and continue to receive the total FOB earnings into the country.

    Industry is looking forward for facilitation of this advancement by the Government. This thought process would well fit in to the knowledge based social market economy concept.





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