The development of the textile and garment industry is an important step in the industrialization process of many developing countries. The availability of raw materials and a large unemployed labour force combine to make the textile and apparel industry attractive for developing countries both as a substitute for imports and as a major source of foreign exchange. In Sri Lanka, the sector is important to the national economy in terms of out-put, employment, and foreign exchange earnings, and support for an export-led development strategy. With the expansion of this industry, however, came an increase in cultural concerns about changes in gender roles in Sri Lankan society. With the growth of industrialism the search for cheap labour persists as a way of advancing profits. The history of the development of capitalist industries reveals that textiles, garments, food processing and more recently electronics have traditionally utilized female labour. Since the cost of female labour has always been lower that of males, particularly in the third world, industrialists have preferred female labour in order to increase their profits. Cheap manual labour remained one of the primary concerns of multinational enterprises, which governed their decision with regard to the physical location of industries as well. As a result, countries with cheap labour, a high level of unemployment and sufficient natural resources have been selected by multinationals as locations, particularly for labour-intensive industries. The garment industry in Sri Lanka expanded rapidly after the liberalization of the economy in 1977. Since 1986 the production in the textile and garment sector more than doubled. During the 1990s the garment industry grew 18.5 percent per year. This expansion of the industry led to the replacement of tea by garments as the nation’s largest foreign exchange earner.
The textile and garment sector accounts for about 30 percent of the country’s total export earnings and the industry continues to be the largest source of foreign exchange. The textile industry is also the largest employer in Sri Lanka. In the garment sector, particularly in the export processing zones more than 90% of the workforce is female. Though women constitute the majority of workers in export processing zones, employers typically allow them to stay only until they are married. As a result, only 10% of the workforce in the EPZs is married, making most of the workers are young, whose entering age is between 18 and 25, and employed in a factory for the first time in their life. The women hope to have well paid lasting employment in the free-trade zone, but as a rule their hopes are not fulfilled. The industry provides direct employment opportunities to over 300,000 and 600,000 which include a substantial number of women in Sri Lanka. With economic liberalization and growing numbers of women entering the workforce, especially work in factories, there has been a corresponding increase in worry about changing gender roles and societal concern about a potentially crumbling rural and urban divide, where the villages are seen as a place of cultural traditions and values and the cities as a place of new ways of thinking about gender, a loosening of morals and the decline of traditional values. The public visibility of factory girls indicates too many Sri Lankans that these women, who have crossed the rural/urban divide by leaving their villages for employment, symbolize the end of Sri Lankan traditions. These concerns have lead to factory girls being cast as key symbol of the problems of modernization since the 1977 introduction of economic liberalization. Since shortly after the EPZ was established there has been considerable moral fear about “good girls” going bad, and are seen in media reports of the following issues in association with EPZs and urban women factory workers: including concerns about prostitution, premarital sex, rape, abortion, and sexual harassment.
Sri Lanka should also take cognizance of emerging issues in the international trading environment that can impinge on the marketability of its products. Environmental and ethical issues are likely to affect the industry in the future with producers and consumers becoming more aware of the conditions under which the goods are produced. Buyers are placing increasing importance on worker welfare of their suppliers, to the extent that they send their own inspection teams to examine and report on the working conditions of factory workers prior to placing orders with factories. Manufacturers therefore have to be informed of changing consumer preferences in order to meet necessary environmental, ecological, labour and health standards.
The industry possesses an impressive partnership portfolio which includes world renowned labels such as Victoria’s Secret, Gap, Liz Claiborne, Next, Jones NewYork, Nike, Tommy Hilfiger, Pink, Triumph, Ann Taylor, Speedo, Abercrombie & Fitch, Land’s End, Marks & Spencer and Intimissi. The government has an important role to play in the industry. Infrastructure facilities such as roads, transport, telecommunication, electricity and water services as well as operations at ports and airport warrant improvement. Institutional arrangements need to be substantially strengthened and streamlined to support the garment sector. New areas are open for investment & expansion with the end of war. There are already 10 factories in construction in the North & East of the country and more projects are on the way.
Similarly, to mitigate the impact of Brexit, the Sri Lankan government has begun focusing more on the Asian region. Bilateral trade negotiations with China, India and Singapore have been initiated, with talks of negotiations with Bangladesh, New Zealand, South Korea and Thailand as well. Sri Lanka should naturally also initiate negotiations with the UK to facilitate access for its exports to the UK market after Brexit has been completed.
Exporters with an increase of 15% or more in foreign currency earnings for the year of assessment 2016/17 in comparison to 2015/16 will be granted a rebate equal to 75% of the tax attributable to the increased earnings. The government will commence operations of an EXIM Bank in 2017. It will have an initial capital of LKR 25,000 million, with an initial government contribution of LKR 10,000 million.
China’s dominance of the global apparel trade may change in the years ahead, mainly due to rising prices in China that are encouraging investors to seek out apparel companies in countries like Cambodia and Vietnam. This potential decrease in Chinese exports presents an opportunity for apparel sectors in South Asia.
Global trade in textile and garment is expected to gain from liberalization. It is expected that the liberalization of textiles and garments industry in both developed and developing countries will have a positive impact on the industry. It is observed that, phasing out of quotas will close down nearly fifty per cent of garment factories. However, as production in the Sri Lanka’s garment industry, is concentrated on a few large factories, a large part of export earnings and job opportunities will be saved. However, in the short run there will be a negative impact on employment, which may not be very serious. Large scale firms and at least a some of the medium scale firms will have to be strong enough to face the competitive environment emerging after the phasing out of quota in 2005. Therefore, the future of Sri Lanka’s garments industry depends, to a large extent, on maintaining the momentum built up over the last 20 years while increasing the competitive edge that Sri Lanka has in the international environment. A firm foundation has been laid, on which the future of this sector could be strengthened and safeguarded. Yet there is much to be done to meet the challenges of intense competition in the future. In the past, Sri Lanka’s garments industry competed with other countries protected by quotas, government incentives, competitive labour costs and Free Trade Zones. However, nowadays competitiveness is not defined as something emanating from abundant natural resources, cheap labour, continuous currency depreciation or government incentives. It has to be achieved by increasing value addition (and profits) through efficient and effective management. These include (a) identifying and serving specialized markets, (b) adding unique features to products, (c) adding value and service dimensions to export products and (d) developing complex products which cannot be easily replicated. Industries can build competitive advantage through superior economic and business strategies. They should emulate the strategies which are being adopted by other competitors. Venturing into new markets outside the traditional markets should be coupled with measures to reduce costs of production, increase productivity, specialize and be product focused, to train and develop manpower skills, enhance investments and adopt new and efficient technology. The Government must improve infrastructure facilities; ensure minimum disruptions in the working environment to support the industry.
Strategies based on labour cost advantages are not a sustainable source of comparative advantage due to existing labour market rigidities and lower labour costs in other markets. In regard to labour costs, other emerging markets such as India, Bangladesh, Indonesia, Vietnam and China will continue to be major competitors. As reducing of labour costs per hour is not feasible, the way out should be reduce labour costs per product. Sri Lanka’s garment industry is considered as operating at an average of 40 per cent efficiency. Hence, there is much room for improving efficiency. High literacy rates and in easily trainable workforce is the advantages possessed by the country. A long term plan to build up professionalism and a stable work force is necessary for further growth in the industry. Development of infrastructure to provide training facilities as well as a change in attitudes to match the new challenges in the industry is essential to provide sufficient manpower as well as to improve quality and productivity. As a long term strategy, human resources development should be go hand in hand with educational reforms. Universities, technical colleges and other government and non government organizations such as Industrial Services Centre and Textiles Training and Services Centre are now offering training facilities to develop various skills relating to the textiles and garments industry. More investments should be diverted to develop designer capabilities and the marketing and management skills of entrepreneurs. Increasing productivity and efficiency of labour is associated with technology enhancements as well. This should be associated with work plans and targets set according to international standards. Proper time management, maintaining accurate work measurements, proper tools to collect information pertaining to production and close monitoring with efficient methods to detect errors and inefficiencies associated with production are essential to minimize losses. Quick responses to correct errors and to avoid inefficiencies and use the most appropriate method to correct them are key elements in efficiency improvement. Working condition and effects on the environment have been brought in to the limelight. This is one area when Sri Lanka can capitalise as it has a better record than many of her neighbouring competitors.
Some large companies have already taken steps to obtain certificates of conformity is accepted standards in labour, health and safety and the environment. Eco-labelling, ISO 9000, ISO 14,000 etc. should be taken as advantages for building up marketing strategies in future competitive markets. Quality improvement is a priority area, with which Sri Lanka can maximise opportunities in the developed markets. Sri Lanka can focus on developing brand names to build an image as the best garment manufacturer in Asia. Our exporters have already selected this as their vision for the future. Sri Lanka’s product base is highly concentrated on casual ware. Future trends in European and American markets are for casual ware rather than designer attire. The garment industry is expected to have a greater shift towards casual and comfortable clothes. The newest generation of children, ‘eco boomers’ are the force behind the success of the children’s ware industry. Sri Lanka can specialize in these products with her existing experience and skills to meet the future demand in those countries. The geographical location of Sri Lanka places it far from the main markets. This is a disadvantage to some extent, because quick responses are crucial to keeping up with fast changing fashions. Sri Lanka and India have the higher lead time (19-45 days) compared to competing countries such as Mexico (6-8 days).
The industry has to focus on exploring new markets and making efforts to strengthen the raw material base for the industry and to reduce lead time. If delays involved in obtaining raw material could be eliminated by attracting world class fabric producers, accessory manufacturers etc., the present long lead times could be reduced. Therefore, there is an opportunity to develop the textiles industry to provide raw materials and accessories for the garment industry in the region. Indo Sri Lanka Free Trade Agreement opened a window of opportunity to break through to the huge Indian market and source fabric from internationally reputable textiles manufacturers. The industry must focus upon taking advantage of the Free Trade Agreement with India. Although quotas available for Sri Lanka are limited, the development of India as a supply source of textiles to Sri Lanka will solve the problem of lead time to a large extent. The industry should explore market access in India. This opportunity can be used to explore the possibility of inviting fabric manufacturers to establish joint ventures/ strategic alliances.
The emerging regional trade blocks have adversely affected Sri Lanka’s textiles and garments industry eroding Sri Lanka’s market share in the world market. This situation will be further aggravated when these agreements are fully established in the next few years. However, Sri Lanka has also achieved considerable development towards regional and international co-operation. An agreement with the EU and Sri Lanka to remove all quota restrictions on textiles and garments exports to the EU enabled it to reduce advantages that Turkey and Central and Eastern European economies had in the EU market. At present, Sri Lanka has an advantage over India and Pakistan. Bangladesh and Cambodia also have separate bilateral agreements with the EU. The Scheme of Generalised Preferences of EU gives the advantages to Sri Lanka over India and Pakistan. Sri Lanka is eligible for the preferential rate of 15 per cent of the common tariff rate for textiles and garments. Under special arrangements, another 15 per cent of the common tariff rate is granted to countries that country fulfil the requirements of (a) maintaining sufficient labour standards and (b) protecting the environment. Recognition of SAARC as a regional grouping for the purpose of extending ‘Cumulative Rules of Origin’, by EU will help SAARC members to use the facilities available under GSP more effectively. Government provides a generous incentive package (liberalisation of imports of raw material and machinery, establishment of free trade zones etc.) for sustained development of the textiles and garments industry.
However, such incentives are no longer a sustainable source of competitiveness. Given the budgetary constraints, Sri Lanka cannot spend continuously to provide these incentives. Any available resources must be diverted to improve infrastructure facilities such as transportation, power and energy, telecommunications and waste disposal system etc. Sri Lanka would have to attract fabric mills, accessory manufacturers, marketing and training institutions, designing centres etc. Incentives and encouragement should be diverted to foster areas such as fabric design capabilities and information technology to build up a full service industry. The government has taken steps to improve efficiency in customs procedures and successfully implemented the Electronic Visa Transformation System to reduce the malpractices and inefficiencies in quota utilisation. The industry initiated the use of electronic media in the textiles and garments industry. Internet has proven to be a viable alternative to traditional distribution channels in developed countries. Accordingly firms can explore the opportunities that internet offers to build up relationships with customers and suppliers through these channels. Government can take initiatives to canvass in major exporting centres to obtain concessions some of which are already enjoyed by our competitors. Such canvassing must be supported with world class negotiators on behalf of the country.
Furthermore, cultivation of more innovative ideologies among public institutions, minimisation of political intervention in labour issues, transparency in economic policies, maintenance of consistency in macro economic framework, better co-ordination among public sector institutions and development of a continuous dialogue between the government and the private sector would be the responsibilities of the government to ensure an environment conducive to the growth of the industry to grow in a more competitive market in the future.
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