INVESTMENT OPPORTUNITIES IN THE APPAREL INDUSTRY
The Project • To develop Sri Lanka into an international centre for the clothing industry similar to other renowned centres such as New York, Paris and Rome. •
To develop backward linkages with the apparel industry. At present Sri Lanka’s average manufacturing lead time is a high of 90 days when compared to the competitors of the region. Strong backward linkages are therefore essential for Sri Lanka to establish a “one stop shop” for apparel requirements by building a strong support base for the industry and thereby effectively reducing lead times for the industry.
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To establish forward linkages. The apparel industry is heavily dependent on international buying offices for export orders. With the abolition of quota in the year 2005, the global apparel industry will make a significant transition to that of a buyer’s market forcing Sri Lankan industrialists to market their products directly to the buyer.
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By developing marketing, product development, design capabilities and logistics Sri Lanka will be in a better position to establish direct links with international brand names thereby escalating up on the value chain. •
To invest in technology. In order for the Sri Lankan apparel industry to be competitive globally it is of vital importance that the manufacturer focuses on upgrading their technology.
The Potential The Sri Lankan Apparel Industry constitutes of 830 registered enterprises in operation. In 2001, the top 25 manufactures managed 38.35% of the value of exports. As a result, there is a high concentration of the apparel business in the large enterprises.
Sri Lanka’s main export markets are the US, EU and Canada. The revenue from apparel exports has demonstrated a sustained increase over the last 20 years, reaching its peak in year 2000 at US$ 2,710.69 Mn.
As Sri Lanka’s largest export industry the apparel sector has considerable potential for development. The opportunity/potential is based on the following facts. Although currently customers develop most of the design specification, a few Sri Lankan enterprises have developed their capabilities to match international design standards. The potential therefore exists for Sri Lanka to become a total service provider for the global apparel industry. This in turn will enable Sri Lanka to provide a more attractive apparelsourcing hub in the region. •
Reputed Customer base: Sri Lanka is already known in the apparel industry for producing designer label clothing for reputed customers in the US and Europe such as Tommy Hilfiger,
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Victoria’s Secret, Liz Clairborne, Nike, The Gap, Marks & Spencer, BHS, Next and Mother Care. •
Sri Lanka has earned a high reputation of being a quality apparel manufacturer for the mass market: The potential exists for Sri Lanka to set up operations in Sri Lanka to now make an entry into the upper market segments and service the high fashion industry. Companies in this sector are invited to set up operations in Sri Lanka.
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The availability of a relatively disciplined, skilled and trainable labour force.
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Compliance with international labour regulations
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Sri Lanka has a reputation of on-time delivery of Standard “all season” products.
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Value for price: Though many other countries in the SouthAsian region are sufficiently able to offer lower CMT prices, the price advantage does not in any way compensate for the shortfall of quality.
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With the removal of the quota system internationally competitive manufacturers can increase export volumes to markets such as North America and the EU.
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The Free Trade Agreement with India provides another opportunity to exploit the Indian market. India possesses an upper middle class who has a relatively high disposable income. In this environment Sri Lankan Apparel exporters need to tie up with international design labels perceived to be up market and effectively target this segment.
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Types of projects Technology supporting the apparel industry The technology levels of the apparel industry vary significantly at present. The worker: machine ratio of 1.8:1 compared to a ratio of 1.2:1 of its competition highlights the fact of our dependence in labour. The industry thus has far to develop to be abreast of modern technology. Investment in technology can be broadly categorized as; a) Process and manufacturing technology b) Marketing technology c) Information technology
a) Process and manufacturing technology This is capable of servicing the industry in the way of quick response time and efficient manufacturing processes. Through the use of diverse flexible manufacturing systems, product quality and efficiency could be improved while decreasing cycle time and inventory.
b) Marketing technology Marketing technologies focus on new applications of Automatic Identification and Data Capture (AIDC), Electronic Commerce and Electronic Data Interchange (EDI) facilities to improve global supply chain management and customer relationship management. This effectively opens a window of access for the buyers into the manufacturer’s site.
c) Information Technology Information
technologies
focus
on
the
effective use of
information to aid the efficient management of resources within
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the organization. Enterprise Resource Planning software such as SAP, Barn and JD Edwards, which help to effectively streamline manufacturing operations, would add much value to the industry. Linkages of the Apparel Industry Backward Linkages – Despite the growth in apparel exports during the last two decades the development of backward linkages has been poor. It has not been developed due the high cost of investment required for the setting up of such operations and the relatively small market. Sri Lanka therefore faces stiff competition from the countries that are well supported by backward linkage industries.
Forward Linkages –
With the quota system soon to be abolished, the global apparel industry has entered the stage of a buyer’s market. This in turn has compelled Sri Lankan industrialists to market their products directly to the buyer. Therefore, it is essential that Sri Lanka develop marketing, product development, design capabilities and logistics in order to establish direct links with international brand names which moves us up the value chain.
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Investment Opportunities Ready access will result in Sri Lanka becoming one of the most lucrative investment locations for the international apparel and textile industries. The following niche areas have been identified for the promotion of private sector investment. •
Textiles (including dyeing) Woven Knitted
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High fashion garments
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Accessories Buttons Zippers Embroidery Labels Yarn, thread Elastic
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Seeking strategic partners
Sri Lanka has low technological, product, and design know-how. Joint Venture business partnerships and building strategic alliances are encouraged as an effective way of importing this knowledge in to the Sri Lankan industry. Investment Proposals The garment/apparel industry is relatively easy to establish. However, prospective investors will have to identify/provide for the basic infrastructure facilities required such as electricity, telecommunication, water
supply,
access
roads,
affluent
treatment,
solid
waste
management…. etc. in their project plans, while the quantum of investment is entirely at the discretion of the investor. BOI incentives will be granted if the project conforms to specific criteria.
BOI facilitation is however available at all stages of the investment process.
Further details – A report prepared by the Sri Lanka Apparel Exporters Association is available with the BOI. (“5 year strategy for the Sri Lankan apparel industry – May 2002”).
The report contains details of: •
Technology supporting the industry
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Linkages
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Availability of skilled/ trainable labour force
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Opportunities
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Global apparel markets
For more details contact
[email protected]
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