HANGING IN THE BALANCE
Saroj Lama Hewa alludes to a new world order replete with uncertainty
Q: How do you view the impact of COVID-19 on Sri Lanka’s apparel industry?
A: The Joint Apparel Association Forum Sri Lanka (JAAFSL) foresees an immediate loss of US$ 1.5 billion between April and June while forecasting a 30 to 40 percent drop in orders after June.
This is due to the mass cancellation of orders currently in production or already manufactured for which Sri Lankan entities have assumed liability. These situations coupled with forced discounts and delayed payments will lead to a decimation of working capital. New orders may be delayed given that supply chains are disrupted.
The extended curfew as a result of COVID-19 will also lead to additional losses, and there could be trade shifts due to competitors such as Vietnam, Cambodia and Indonesia being operational.
As for the domestic apparel market, the estimated annual value of 2.5 billion dollars (60% of the domestic apparel consumption is supplied locally) and about 50 percent of turnover are usually expected in March and April, which was completely lost.
Q: So how should the industry adapt to evolving realities, in your assessment?
A: The industry needs to work towards reinventing itself to overcome the crisis. In recent years, many companies established crisis management teams to develop detailed contingency plans to respond to pandemics. This is our chance to implement those contingency plans.
Cash flow management needs to be an integral element of a company’s overall COVID-19 risk assessment and action planning in the near term. The coronavirus pandemic has pushed companies to reexamine their marketing mix – what worked before the pandemic may no longer be relevant in the new world order.
Q: Will the dynamics change or remain the same between buyers and manufacturers?
A: The dynamics will change to a certain level; there will be a surge in orders, disruption to supply chains, changes in customer behaviour, store closures and more.
There’s proof that in times of crisis, people not only band together but also respond in unique ways. Innovation and disruption become necessary. In a progressive world, the only thing that’s certain is uncertainty – how we approach this and what we do with it is our choice.
Q: What are the main roadblocks for the apparel industry in the best of times?
A: The apparel industry revolves around a few export markets such as the US and EU, which account for 46 and 40 percent of its exports respectively. Cumulative apparel exports to Canada, Australia, China, Japan, Switzerland and Israel account for most of the rest.
With the emerging world economic recession, the demand for apparel exports from the US and EU has fallen severely in the recent past.
A lack of production of raw materials and accessories in the country is another major issue faced by the industry – this affects the competitiveness of local garment exports in comparison with others in Asia.
More than 70 percent of the fabrics used by the industry and 70-90 percent of accessories needed for production are thought to be brought in as imports. Labour is on a decline in industries such as apparel with many opting to work in the Middle East while a potential workforce of 1.5 million drives trishaws for a living.
Q: Could you outline the strategies to drive the apparel industry in the future?
A: Bangladesh, Vietnam and Cambodia enjoy competitive advantages due to low labour costs, raw material availability and suspension of the Generalised Scheme of Preferences Plus (GSP+).
Sri Lanka enjoys goodwill, a reputation for ‘Garments without Guilt,’ an educated labour force and a strategic location. The new trade zone in Hambantota is expected to reduce the high costs of transport and save time.
And Sri Lanka’s three largest apparel manufacturers are amongst the world’s 50 most valued garment producers.
So as to reach increasingly economical and disappointed buyers, manufacturers must find creative ways to regain value and rethink their broader business missions. To secure their future, companies must adapt to the new market environment by evaluating divestment and acquisition opportunities to strengthen their core, and capture white spaces that emerge from restructuring.
It might take six months to a year for the retail sector to recover. Meanwhile, it could take at least another three seasons or 18 months for apparel exports to regain normalcy.
Q: And finally, which niches should Sri Lanka look to fill in apparel manufacturing?
A: The Hong Kong Trade Development Council (HKTDC) reported that Sri Lankan apparel operators performed well on detailed work processes including colour management and quality assurance.
Although it does not compete regionally in terms of volumes or low-cost production, the country’s competitive advantage can be found in the high level of value addition – for example, in the lingerie, swimwear and sportswear segments, which require a high degree of skill and utilisation of advanced technical fabrics for manufacture.
As an apex industry and the largest foreign exchange earner, Sri Lanka’s apparel manufacturers stand as one of the country’s greatest strengths.