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Future of Sri Lanka’s apparel exports to US: Losing to Vietnam or winning with innovation?

25 Feb 2015 - {{hitsCtrl.values.hits}}

n recent years, Sri Lanka has not been as serious and aggressive about forging trade agreements as many of its competitors. As global agreements like the Doha Development Agenda have stalled, many countries have resorted to signing bilateral and regional free trade agreements to expand the market for their exports. In this, the Trans-Pacific Partnership - commonly known as ‘TPP’ - stands out for its mega-regional nature. The TPP is led by the USA and brings together 12 pacific-rim countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam) covering over 40 percent of global GDP.

Parties to the TPP stand to gain through greater duty-free access to the US market, while others who are not parties to it but still depend on the US – like Sri Lanka and Bangladesh – stand to lose. This was the gist of a report by Standard Chartered Bank (SCB) released last month. The report - ‘Trans-Pacific Partnership (TPP): Winners and Losers’ - focused particularly on the apparel sector and argued that the TPP will make Sri Lanka’s apparel exports to the US less competitive compared to Vietnam’s. This has big implications for Sri Lanka, as the US is the largest single-country market for our apparel exports, accounting for over 40 percent.

TPP risk to Sri Lanka
The size of the loss to countries like Sri Lanka and the gain for Vietnam is contingent on how the Rules Of Origin (ROO) regime is drawn up and this is still being discussed. A flexible ROO regime would require that only the ‘assembly of the final product’ be done in a TPP country in order to gain preferential access to the US market. Under this scenario, Vietnam’s market share in apparel exports to the US by 2024 could rise to about 11 percent from the current 4 percent. This would result in Vietnam’s apparel exports coming close to US $ 115 billion, overtaking Bangladesh to become the largest emerging market apparel supplier after China.

According to the SCB analysis - Sri Lanka’s share could decline to 0.8 percent from the current 1 percent, equivalent to around US $ 2 billion. The report argued, “To cushion against the negative impact of the TPP, Sri Lanka’s apparel industry will have to continually move up the value chain with respect to its product offering. Investment in the latest technology and know-how and continued training and up-skilling could help achieve this.”

Yet, the report was optimistic about our capabilities and observed, “Sri Lanka outperforms Vietnam and Bangladesh across a range of metrics that measure value addition and quality.” Sri Lanka was ranked an impressive third out of 14 countries for capacity for innovation, mainly due to skills (Vietnam: 11th), second for high supplier quality (Vietnam: 10th) but ninth for sophistication of the production process (Vietnam: 13th).

‘Smart clothes’ with tech
During the World Economic Forum’s Annual Meeting of New Champions that the writer attended last year, he met two individuals that gave him an insight into the future of the apparel industry. They have strong implications for the disruption and possible survival of the apparel industry in Sri Lanka. The first was Clint Zeagler, a researcher working with the godfather of wearable tech (and Google Glass fame), Thad Starner. Hisnew research is on electronic textiles and on-body interfaces at Georgia Tech University’s Contextual Computing Group and he showed me how wearable technology is being embedded into apparels to make ‘smart garments’.

We played around with his latest project - a jog-wheel (reminiscent of the first generation of iPods) that had been stitched into fabric (a technique known as ‘Conductive Embroidery’) to give functionality to the wearer of an outfit made with that fabric. To think that the movement of my fingers over what seemed like ordinary thread could give instructions to a connected device was rather remarkable.

‘Non-wash’ with nano
The second person was Marina Ross, a fellow ‘New Champions Awardee’ of the World Economic Forum’s Global Shapers (GS). Marina is co-founder and CEO of one of Moscow’s hottest new start-ups - NanoBarrier - that is using nanotechnology for apparels applications. Her team’s product called HYDROP uses the ‘lotus effect’ of nano-particles to give any surface extremely high water repellent properties – to prevent clothes from getting wet and to easily remove stains.

While their current focus has been to develop a spray for clothes and shoes, an innovative apparel company in Sri Lanka could find a way to infuse this colourless, odourless substance to give clothes ‘super-hydrophobic’ properties at the fabric stage itself. It’s encouraging that Sri Lanka’s apparel brands are already thinking along these lines and this bodes well for the sector. In a speech last week, Udena Wickremasooriya, Director of Brandix and head of its ‘Disrupt Unlimited’ initiative, alluded to this dramatic shift in the apparel industry – the advent of ‘non-wash clothing’.

Global partnerships for industry resilience
Unlike Sri Lanka, Vietnam has aggressively pushed trade agreements. It has one with Japan, the forthcoming EU deal and of course the TPP. Vietnam’s apparel exporters will then have preferential access in the top three apparel importers where 80 percent of global apparel demand comes from. Developing partnerships with institutions like the Contextual Computing Group of Georgia Tech and start-ups like HYDROP can give our industry an edge amidst this competition.

The industry would need to go global to find the cutting edge in technology for apparels and find clever ways of bringing that here. The two leading apparel firms are already embracing this. But we need to help Sri Lanka’s entire apparel industry to move towards that quickly, if it wants a better chance of survival.

(This is the third article in the ‘Smart Future’ column that advances ideas on economic reforms, innovation and competitiveness. Anushka Wijesinha is an Economist and Policy Advisor, with an MA in Economics. He has co-authored ‘Fostering Innovation to Fast-forward Growth in Sri Lanka’, an IPS report. He blogs at thecurionomist.wordpress.com and is on Twitter @anushwij)

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Future of Sri Lanka’s apparel exports to US: Losing to Vietnam or winning with innovation?

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