18 May 2016 12:00 am Views - 6585
By Development Strategies and International Trade Ministry
Making the best use of a free trade agreement (FTA) by penetrating another market needs skills and foresight. Sri Lankan entrepreneurs with such endowments have made their mark in India. But entrepreneurs who rely on a protectionist umbrella with state patronage may not be successful in such market penetration. Being shielded from competition in the local market tends to make them shy away from taking risks in the foreign markets.
It is often said that the Indian market is very difficult to penetrate for items produced in Sri Lanka. However, it is pertinent to point out that countries like Malaysia, Singapore and Thailand export between US $ 5 and US $ 8 billion worth of goods and services per year to India compared to our US $ 645 million in 2015. This highlights the potential for increasing our exports to India, which by common consent is going to be the fastest-growing large economy in the world.
The Indian non-tariff barriers (NTBs), procedural delays, approvals and clearances are mentioned time and again as problems for doing business in the Indian market. Despite these claims, there have been many Sri Lankan entrepreneurs who have been successful in the Indian market. Unlike the instances where the Sri Lankan entrepreneurs had difficulties in the Indian market, the voices of the entrepreneurs of their successes are rarely heard. Therefore, it is timely to examine four selected cases of those companies that succeeded in the Indian market, viz., Damro, MAS, Brandix and Colombo Dockyard.
Success of Damro in Indian furniture market
Damro made use of the tariff concessions of the India-Sri Lanka FTA (ISLFTA) at the very beginning of the agreement and opened the first furniture showroom and distribution complex in Chennai, India in October 2000. Perhaps it was the first Sri Lankan venture established in India after the ISLFTA came into operation.
Damro first studied the Indian market before moving in and this strategy paid dividends. A separate production plant was also built to create new designs to suit foreign markets like India. Damro Furniture (Pvt.) Ltd is a company incorporated in India and in line with Indian corporate laws. It markets itself in India under the slogan ‘Largest furniture manufacturer in South Asia’ and this has gone a long way in giving a strong footing to the company in the Indian market. So much so, Damro now has more than 60 branches in India spread over the states of Karnataka, Goa, Tamil Nadu, Kerala, Andra Pradesh, Telagana, West Bengal and Maharastra. Damro has a strong dealer network in India and an Indian furniture importer said, “Every month we get new furniture from Sri Lanka and we are able to sell because they are good quality.”
The Damro Chairman and Managing Director did not shy away from competition and said, “Competition is a must for development of the industry. If there is no competition, we will keep supplying the same product. But when there is competition, we have to be more active and conscious of the market demand. Competition is a healthy sign of development.” (March 31, 2002, Sunday Observer)
This fearless attitude, among other reasons, was behind the success of Damro in the Indian market and Damro will soon spread its market network across India.
amante – Positioning as a value premium product in Indian market
Making use of the tariff preferences and utilizing the apparel quota made available under the ISLFTA, a MAS Holding product by the brand name ‘amante’ made inroads to the Indian market in 2007. The ISLFTA facilitated lingerie and swimwear – the main ‘amante’ products – to overcome the normal duties in the range of 9-12 percent for such products in the Indian market.
amante, at present, has more than 250 large stores and 1000 multi-brand outlets while maintaining strong online presence. Today, amante stands among the top five premium lingerie brands in India and is the preferred fashion-forward lingerie brand amongst the Indian consumer. In 2010, amante was voted ‘Product of the Year’ by the Indian consumer in the largest independent survey carried out in India.
amante’s ability to win over the Indian female is attributed to the brand’s distinctly Indian flavour. amante products are made to suit and fit the Indian female. The designs and styles are originally sourced from international fashion centres and made to international standards. But the colours, shape and designs are adjusted to suit Indian preferences. In other words, the international colour plates were adjusted to suit the Indian women.
The special Indian colour plate, with names like Antique Rose, Grape and Floral Romance won over Indian females who tend to be more conservative than the Western women. amante is also priced to fit the Indian purse in the range of Indian Rs.400 to Rs.1000, which is seen as affordable and good value for money given the fact that it is positioned in the market as a ‘value premium’ product.
MAS did not just walk into the Indian market but did its homework and studied the market very carefully before moving in with its premium products. It provided the Indian female access to international-standard apparel wear, customized to suit their unique contours and preferences of the Indian female.
After amante’s stellar success in India, amante entered the Sri Lankan market in 2012 and the Pakistani market in early 2016. The brand’s retail presence in South Asia will expand further in the future. In India at least, its presence is now felt everywhere.
However, they are concerned about the limited quota available for apparel exports under the ISLFTA and expressed the need for removal of quota restrictions which they believe would materialize under the proposed Indo – Sri Lanka Economic and Technology Cooperation Agreement, thus providing increased market access opportunities for their product in India.
Brandix – Reaping India’s economies of scale
Brandix has been a fast-growing apparel exporting company in Sri Lanka. Around a decade ago, when the apparel exporters were consolidating, Brandix too started to consolidate its operations but there was limited potential for economies of scale in Sri Lanka.
In 2006, Brandix moved to India to reap economies of scale where cotton, spinning and labour were available in abundance. The result was the Brandix India Apparel City (BIAC) – a unique integrated apparel supply chain city managed by Brandix Lanka Ltd. Up to 25 percent of Brandix’s production now happens in India in this venture which is spread over 1000 acres in Visakhapatnam in Andra Pradesh.
BIAC highlights India’s phenomenal synergies in the world of textiles. To leverage India’s immense potential for economies of scale and other robust business fundamentals in its fast-growing economy, Brandix brings 30 years of industrial expertise to produce a value chain and invites others to join it. The dynamics of the apparel market demands speed to market, least cost, flexibility and assurance of compliance and the BIAC is built on this foundation.
The rationale for investment is procedural ease and an array of inviting financial and operational incentives, as well as duty-free imports. Greater efficiency in distribution and front-end costs due to single location of all value chain partners, a centralized logistical unit and a just-in-time process to ensure optimum returns makes the BIAC the most competitively priced apparel location in the region.
Brandix customers are now served from both India and Sri Lanka. It is a model that the Western and East Asian firms have used for decades by locating their manufacturing overseas – the know-how makes everything work from the on-set.
The Brandix success story in India also highlights the trade and investment nexus and the potential for making Sri Lanka the apparel hub for South Asia taking advantage of its geographical location and the hub regulation in place; textile and apparel sector liberalization by India under the proposed Economic and Technology Cooperative Agreement (ETCA) would open vast opportunities for both countries which will be a ‘win-win’ situation.
Colombo Dockyard – Success in specialized services exports
Ship and boat exports to India ranked number one among all Sri Lankan exports to India in 2013. They accounted for 10 percent of Sri Lankan overall exports to India in that year. The key agency that supplies ships and boats to India is Colombo Dockyard.
In February 2015, MV Lagoon the second 400 passenger cum 250 ton cargo vessel was ceremonially handed over by Colombo Dockyard to India at the shipyard premises. This showed the confidence that the Indian government has placed in Colombo Dockyard to build such a vessel immediately after the delivery of two 250 passenger cum 100 ton cargo vessels (MV Arabian Sea and MV Lakshadweep Sea). These exports are additional to the ship repair business with India, which is a ‘services export’.
Apart from passenger ship building, Colombo Dockyard specializes in construction of offshore support vessels such as Anchor handling, tug supply vessel, multi-purpose platform, supply vessels, etc. India is a major market for the Colombo Dockyard which already engages in managing ship repairs for Indian companies.
The case of Colombo Dockyard is unique, in the sense it was a state-owned enterprise (SOE) that was set up in the mid-70s for import substitution, with the formation of the Ceylon Shipping Corporation. The role of the company changed with the change of government policy with the liberalization of shipping and a focus on export orientation. Colombo Dockyard in spite of being an SOE moved toward export orientation, having expanded its drydock capacity, to meet the capacities of the fast-growing Indian fleet, especially oil tankers (both crude and product).
By then, the Indian vessels were drydocked and repaired mostly in Singapore and Colombo Dockyard was able to attract the business with competitive pricing using the location convenience and rapidly building capacities in technical competencies. The Indian shipyards, especially Cochin Shipyard, followed suit and became a strong competitor for Colombo. Yet, Colombo Dockyard faced the competition fearlessly and became a winner, attracting a significant portion of the Indian repair business both from SOE sand private entities.
The privatization process with Japanese equity enabled Colombo Dockyard to diversify its operations and internationalizing its shipbuilding activities, which was initiated in early 2000. India was a high-potential market with the limited capabilities and capacities. Thus, a niche-market approach had to be adopted. Passenger vessels (which are much needed in India to serve the islanders in both eastern and western territories - the Indian yards takes six to seven years to build such a vessel, as opposed two to three years by Colombo Dockyard) and sophisticated specialized vessels (e.g., support vessels for offshore oil and gas explorations) were found to be potential market segments.
Since then, Colombo Dockyard has tripled its turnover – from about US $ 50 million to over US $ 150 million overcoming many capacity and other obstacles. The shifting to shipbuilding helped them to endure the severe competition on the repair business by the Chinese Yards, while improving know-how and competitiveness in shipbuilding. The ongoing down-turn in shipping and rock-bottom oil prices have placed some pressure on the company but going forward the accumulated know-how, capacity and market positioning should enable them to exploit many opportunities both in Indian and regional markets.
Building on the success
These examples were highlighted to show that it is not a ‘gloom and doom’ story that prevails in the Indian market. Successful entrepreneurs do not talk much about their success, inter alia, as they do not want their competitors to know their business competing strategy. Hence, it is not prudent always to bring only one side of the story mainly from those who failed to penetrate the Indian market often claiming that the entire market is cumbersome and closed for any sensible business without being balanced and rational. The lack of attention to positive stories does not serve the national interest well.
There are many other local companies that have succeeded in India; the challenge is to build on this success. The way forward for Sri Lanka is to strengthen the positive side of the FTA and address the impediments and move ahead. India is a fast-growing nation and is predicted to become the third most powerful country in the world by 2050. By common consent, it is expected to be the fastest-growing large economy in the world in the coming years. This massive and expanding market is at our doorstep.
Sri Lanka should aim to seek the maximum from India’s growth for the benefit of its own growth and prosperity. For this to materialize, our businesses need to adopt the appropriate mindset. The success stories cited in this article have a common thread. The enterprises concerned have studied the Indian market and have tailored their production and marketing to meet the demand there. Not enough businesses adopt such an approach. The potential benefits are such that there is every reason to make such an effort. The deepening and broadening of the current FTA through the ETCA will serve to create a more conducive business environment for doing so.
While negotiating the ETCA, the Government of Sri Lanka is first seeking to resolve some of the firm-level NTB-related outstanding issues under the current FTA and secure an ‘early harvest’ to increase the benefits accruing from it.