Market promotion need of the hour for apparel industry: SLAEA Chair

Sri Lanka’s apparel industry led by the Joint Apparel Association Forum Sri Lanka (JAAF) recently rolled out an image-building media campaign aiming to transform the negative stereotypes on the female employees in the apparel industry, with a view to give the due recognition to female labour.  

In an interview with Mirror Business, Sri Lanka Apparel Exporters Association (SLAEA) Chairman Rehan Lakhani, on behalf of the country’s apparel industry, revealed the background and key objectives of the campaign, while touching upon the future and key challenges of the apparel industry, as the industry embarks on a journey to earn Sri Lanka US $ 8 billion in apparel exports by 2025. 

Could you elaborate on the background that led the industry to launch the ‘Matai Mage Ratatai’ media campaign earlier this year and the key objective of the campaign?
Sri Lanka apparel did not experience any difficulties in recruiting the required labour force till about 2009 and we always had a situation where we were compelled to put a notice outside our factories indicating that there were no vacancies available. The reason was that during this period, despite the civil war, the apparel industry was the only one that continued to grow while operating islandwide. 

After peace was drawn, the economy was activated and a number of sectors emerged, which essentially demanded the available labour force, thus competition for the limited labour force started surfacing. This is one of the pressure points.

‘‘Image building programmes such as ‘Matai Magai Ratatai’, which will uplift the image of apparel workers in our society and give them due recognition for their contribution to the economy, will also benefit the industry in terms of attracting the labour force

However, a much larger issue was there – the negative perception our society had on working women, particularly in a factory and it was considered an inappropriate way of doing a job. This very negative perception quite easily targeted women in our industry or in the tea industry or in the rubber industry or the migrant workforce. Considerable responsibility is shouldered by these women but our society is not willing to extend that recognition. Ironically, not only lack of recognition but also the biggest issue is they are being degraded by all strata of society. 
It is our desire to bring forth the dignity of this workforce, without whose contribution the economy will collapse and tell society at large that they are the real ‘Abhimanaya’ or the pride of our society. Sri Lanka apparel initiated the ‘Matai Mage Ratatai’ movement to tell the world at large that the very hands that are looking after children, while playing the role of a mother and looking after the family are the ones shouldering the major responsibility of the economy as well and it is for that reason we launched the campaign after having undertaken a comprehensive research of the perception of the apparel workers in our society.

We are addressing this not only to our associates  through the company but also our surrounding influences, priests, gramasevakas, teachers, principals, etc. and last but not least, the potential associates as well.

Are you satisfied with the current outcome of the campaign?
It is too early to comment on the outcome because we have just launched it. However, the expected result is that the negative perception of the industry will be reversed to a certain extent and degradation that our associates have been subjected to will be brought down to a minimum.

Some industry experts estimate that Sri Lanka’s apparel industry runs at 15 percent below its capacity, mainly due to the labour shortage. Do you agree with this statement?
Well, the industry is not running at 15 percent below the capacity due to the labour shortage. This statement is not correct. The reason being that historically we have proven that prior to 2005, the total number of companies that were exploiting the quota opportunity was around 800, which are no longer in existence and at this moment, the total factory population has come down to 350. However, the total export turnover achieved in 2005 when compared to the level of US $ 5.3 billion now, more than doubled. 

This achievement was possible because companies now have advanced technology, upskilled the workforce and working with the necessary capacity. However, this does not mean that we are running at full capacity but have the capacity to increase our turnover with the existing workforce by introducing advanced technology. 

However, we need to appreciate that the present younger generation is reluctant to operate in a monotonous production environment and would be more willing to be accommodated in a challenging environment.

‘‘ Our traditional market share as stated earlier is more or less static. Therefore, in the final analysis, the Sri Lankan apparel industry needs to penetrate more to emerging markets such as India, China and Brazil. Thus, market promotion is the need of the hour

Therefore, technologically driven would be one that would be able to attract a large young labour force compared to the others. Additionally, depending on the type of the companies and brand image, it will be easy for large companies to attract a labour force while the medium and small will face major difficulties. 

Image building programmes such as ‘Matai Magai Ratatai’, which will uplift the image of apparel workers in our society and give them due recognition for their contribution to the economy, will also benefit the industry in terms of attracting the labour force. 

Has the labour shortage undermined the industry’s ability to fulfil the large export orders?
This again is a myth. Our factories can expand as explained earlier with the existing staff and we never turn away large export orders. We have proved this factor historically because we have always grown every year, except in 2009 and we have a very good growth rate of 8.9 percent on a year-on-year basis, in the month of January 2019.

What’s the current labour turnover cost in the country’s apparel industry?
This varies from company to company, the scale of the company and their budgets. But this cost has not moved significantly in the recent history. 

Do you believe sub-contracting to low-cost destinations such Bangladesh as a way to bring down the cost of production in Sri Lanka or else, what are the alternatives you propose?
Even today, among the top 10 largest apparel exporting countries covering 73 percent 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, it is now adding the front-end service coupled with manufacturing. 

At the same time, countries like Bangladesh, Cambodia and Vietnam have increased their presence in the world market and occupy a slot among the top 10 based on the cost competitiveness influenced by the preferential market access and distinct labour cost advantage.

‘‘  Continuation of the trade policy framework with the aim of increasing market access is vitally important to our industry as we rely on the world market

What is the industry’s export growth expectation for this year?
The Sri Lankan apparel industry aspires to have a very ambitious target of US $ 8 billion turn over by 2025.  In the year 2018, our performance was around US $ 5.3 billion. Therefore, in order to achieve the 2025 target, we need to have an annual average compound growth of about 6 percent, which is higher than the actual rate that we achieved in 2018.

What are the key challenges in achieving the envisaged US $ 8 billion in apparel exports by 2025?
Time has come to look at the opportunities and not just at the surmounting challenges. The ones that will succeed will have to realise that the new paradigm taking shape around them dictates that old rules simply don’t work.  

Regardless of the size and segment players, now need to be nimble, think digital first and achieve ever faster speed to the market. They need to take an active stance in social issues satisfy the consumer demand for radical transparency and sustainability and most importantly have the courage to disrupt their own identity and the sources of their old success to realize these changes and win a new generation of customers. 

They also need to invest in enhancing their productivity and resilience as the outlook is uncertain. External shocks to the system continue to lurk and thus growth cannot be taken for granted. We are witnessing that trade policy changes will pose potential risk to global economic growth. 

To put it in a nutshell, uncertainty will remain the single biggest challenge facing the apparel industry in 2019, ranging from a more volatile global economy, the unpredictable outlook of the USA and China trade talks to the various possible Brexit scenarios.  Academics will have exciting opportunities to do research while we, the companies, big or small, will be saddled with big issues, seeking a foreseeable market environment to guide our business plans and investments. Trade aside, another challenge facing the apparel industry is keeping up with the pace of change with consumers. The retail sector will be pushed to limits in keeping ahead of new technologies, the online effect and pressure from fast fashion retailers, etc. These disruptions however offer new opportunities for brands and retailers to rethink their business models and explore new ways of working and engaging with their clients.

We, the countries like Sri Lanka, representing the manufacturers, will be the ones who are actually entrusted with the responsibility of delivery to the destinations so designated by the buyers in the new models of doing business.

After being elected as Chairman of the SLAEA earlier this year, you stressed on the need to explore emerging markets for future growth. How ready do you think the exporters are to take on this challenge?
Our traditional market share as stated earlier is more or less static. Therefore, in the final analysis, the Sri Lankan apparel industry needs to penetrate more to emerging markets such as India, China and Brazil. Thus, market promotion is the need of the hour.

As the SLAEA, what are the initiatives that you are planning to take on this regard to support exporters?
Continuation of the trade policy framework with the aim of increasing market access is vitally important to our industry as we rely on the world market. 

In addition, we as an industry, look forward to the government assistance purely for the purpose of creating the right business environment and wish to request upon the authorities for a decisive policy framework with consistency and predictability on the fiscal regime, trade policy with proper FTAs and monetary policy, so as to ensure that we use our resources in marketing our products rather than using them to resolve the domestic process issues in transacting with the government. 

Such environment will result more foreign exchange inflows than the so-called export proceed monitoring on a Cusdec basis. I strongly believe these thoughts are taken as constructive opinions from the people who run the business in the real competitive world and not the armchair critics.

How crucial are the proposed ECTA and China-Sri Lanka FTA to enhance the access to India and China? How are you planning to access other emerging markets such as Brazil and Russia?
While the industry by itself will take all possible steps to meet capacity, technology and resource issues, the envisaged market access programmes through regional, multilateral or bilateral trade arrangements are also extremely important, particularly with the emerging markets such as India, China and Brazil.

Sri Lankan apparel is looking forward to raising the bar to the next level with effective public-private partnerships with the government on the policymaking and in the trade development agenda.

However, Sri Lanka is yet to resume any FTA negations for the year and the negations for the proposed Sri Lanka-China FTA have hit a standstill. As exporters, aren’t you concerned over these developments? 
Well, the present situation is that there is a lull period but the government has categorically stated that the FTA with India, China and Thailand will be recommenced and the negotiations will be under the purview of the Commerce Department. 

We too have had the preliminary discussions with the Commerce Department and despite the delay we are hopeful that these negotiations will continue in a positive manner.

Do you see any risks associated with Brexit on Sri Lankan apparel exports?
Though there are certain issues relating to Brexit, whether it is a negotiated deal or hard Brexit, the UK government has now confirmed that facilities similar to GSP Plus would be made available. 

Thus, we do not believe that there will be a serious disruption on the trade between the UK and Sri Lanka after Brexit. However, it is absolutely necessary that we formalise this arrangement.

Do you consider the current government’s taxation and other policies are supportive to the apparel sector? As an exporter, what are the key areas that you’d like to see any improvements?
The present taxation policy as given, we have been living with that system for a long time. However, we see certain new developments, which in our opinion are not conducive for creating new models for exports. They are the imposition of 14 percent income tax and dividend tax on offshore income that is being brought into the country by industrialists for professional services rendered abroad. This has created a serious predictability issue and inability to sustain such operations in Sri Lanka, as these types of operations are offered considerable tax concessions in other countries in the region. 

In the new budget, there is a thought that the ESC on imports should be imposed. This is a fundamentally wrong principle as a direct tax should not be converted to an indirect border tax as well. Secondly, such a move shall reduce our cost competitiveness and violates the basic principle that exports should have access to inputs at international prices free from domestic distortion. Hence, we oppose this.  

At the same time, the effort taken by the government to address the SME credit issue needs to be well appreciated. Support for entrepreneurship is a major boost so by and large we believe that the present taxation is one that we can live with. However, we have to note very seriously that while the Sri Lankan industry is competing in the international markets on its own, the other exporters from other countries are offered various subsidies and grants by their respective governments, which we do not have here. This is a difficult situation for the industry.

Is there potential in international markets for more Sri Lankan apparel manufactures to establish their own brands? 
The development of the brand is a journey and is a very costly one. In fact, the way the Western brands are promoting their businesses, which we have witnessed, our industry cannot ever envisage brand protection, brand promotion and stability. Therefore, it is very unlikely that further improved brand journey will take place in catering to the international markets. 
However, the JAAF has among its members approximately 60 brand owners, who are catering to the domestic market and a few of them are slowly entering the regional markets but whether it is a prominent brand building exercise is yet to be ascertained. 

The biggest problem of the export community is any branded product has to be tested in the domestic market. Therefore, consumer acceptance in the domestic market will be of paramount importance. However, restrictions imposed on us in catering to the domestic market negate any efforts by us in creating our own brands. This needs to be recognised.

In concluding, what will be the future of human resources with the evolving industry dynamics?
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.

In this process, the human aspect is undoubtedly the most important asset we have. If we do not respect them, recognise their contribution and not be proud of them, then this industry cannot survive. Therefore, I appeal to society, particularly the media, to create a conducive environment to recognise the contribution made by our associates to the garment industry.