Sri Lanka’s apparel export sector likely to face challenge of TPP

Sri Lankan textile exports are expected to experience a downfall because of the U.S. led Trans Pacific Partnership (TPP) trade pact. Competition from TPP signatories such as Vietnam could deal a blow to the South Asian nation’s apparel export industry, which currently employs half a million Sri Lankans and provides 44 percent of all manufactured goods exported by the country.

Sri Lanka’s garment exporters have found a design-to-deliver supply chain which means that the design, manufacture and logistics such as delivery are all carried out in Sri Lanka. But the industry could get caught out by challenges from a fast-changing global trade environment.

According to Sharad Amalean, deputy chairman of the country’s Joint Apparel Association Forum,it used to take months to design and deliver. But the new solution can help to complete a chase order for something selling in the U.S.,from production to shipping it across the stores, within 14 days.

Despite this innovation, growth in exports to the European Union — Sri Lanka’s biggest garment export market — fell from 13-14 percent from 2005-2010 to about 7 percent a year after the GSP+ status was revoked, according to a report by consultancy Oxford Business Group, citing numbers from a Joint Apparel Association Forum official. The country exports about $5 billion worth of apparel a year.

Still, heavy investment in a value-added supply chain that enables prompt turnaround has kept the industry going in the face of unfriendly trade treatment. But Ashroff Omar, group chief executive of Brandix, Sri Lanka’s largest apparel exporter said that he was hopeful of another about-turn. The exporter shipped $750 million worth of goods to its clients last year.

He added that Sri Lanka was duty-free to the E.U., and due to various reasons, the status was lost. He believes that the status will be regained it by the end of this year, so they become very bullish on the European market. Already, they see buyers coming in anticipation of the GSP+ coming in by early next year.

Even so, the TPP will deal a blow. Competition with Vietnam, Sri Lanka’s closest garment-making competition, will be particularly stiff, but Sri Lanka may be able to buy some time while hiccups in the TPP’s implementation are ironed out.

Omar believes that the TPP will come only in 2018. And there’s a 10-year phase-out period to remove duties on most apparel products. During this decade-long run-up, costs in Vietnam will likely go up and suck up the available labour. Thus, the country would be able to compete with Vietnam.

He is aware that the trade deal may still impact Sri Lanka’s share of the apparel export pie since China grabbed most of Mexico’s share of the global trade when the Multi-Fiber Arrangement – a deal that set quotas on the amount of textiles and clothing developing countries could export to developed countries – expired in 2004.

So, along with expectations Vietnam’s cost base will rise while the TPP is phased in, Sri Lanka’s strategy is to specialize, by focusing on providing vertically-integrated design-to-delivery solutions, not just in the country, but also with partners in places as farflung as China and Hong Kong.
Exporters like Brandix are also teaming up with industry players in China and Hong Kong to improve overall supply chain management.

Omar suggested that they are our joint venture partners, who run the show, but they can be influenced by having an equity proposition and are heavily involved with them in management. So on one side raw material or fabric supplies are secured and investment in printing, in laundry, in processing is done-everything the customer needs.

Sri Lanka could also reposition itself as a hub for supplier countries in the region noting that neighbors India, Bangladesh and Pakistan were large producers of cotton, yarns and textiles. Sri Lanka’s reputation as a no-sweatshop, ethical garment center was another advantage, said Amalean, who is also CEO of MAS Holdings, a garment maker. Higher-end brands including Victoria Secrets, Nike, Gap, Marks & Spencer and Ralph Lauren are among the names manufactured in Sri Lanka in part due to this reason.

Omar said that while productivity and speed are Sri Lanka’s hallmarks in the current fast fashion landscape, its garment makers are acutely aware that changes are afoot. But just what will prove to be the “iTunes of apparel” is not yet clear.