SRI LANKA COUNTRY SOURCING GUIDE
CONTENTS Country Overview Political Stability Social Factors Technological Factors Economic Factors Ecological Factors Political Factors State of the Apparel Industry Trade / Transport Suppliers/ Shipping Business Etiquette Sources
CURRENT NEWS
China’s ‘Belt and Road Initiative’ beneficial for Indian Ocean’s socio-economic success Prime Minister Ranil Wickremesinge yesterday declared that China’s ‘Belt and Road Initiative’ will provide the much needed hard and soft connectivity in the Indian Ocean required for rapid economic and social development and its success will depend on the maintenance of long-term stability in the region.
Sri Lanka’s largest fashion week in Colombo This past year’s Colombo fashion week which took place in March was the largest in history. This was the 14th year of the show which is aimed at promoting Sri Lanka’s fashion industry globally. The show showcases both local and international designers. Celebrate Colombo was the theme this year to showcase Colombo from the tourism perspective as a vibrant and creative city.
EU grants Sri Lanka enhanced market access under GSP+ as a reform incentive The European Union today said it will remove a significant part of the remaining import duties on Sri Lankan products (including apparel) entering the EU market in exchange for the country’s commitment to ratify and effectively implement 27 international conventions on human rights, labor conditions, protection of the environment, and good governance.
COUNTRY OVERVIEW Originally known as Ceylon, the island officially became Sri Lanka in1972. After nearly 150 years of British rule, Sri Lanka became an independent country in 1948. The country was involved in a long civil war that began in 1983 that arose from tensions between the Sinhalese and Tamil ethnic groups. In May 2009 the Sri Lankan government defeated the last of the rebel Tamil Tigers. This war destroyed the country’s economy and since then they have been working toward rebuilding the government and economy with help from loans from China.
Location
Sri Lanka is an island nation south of India in the Indian Ocean.
Size
Population: 22,053,488 Area total: 65,610 square kilometers Area land: 64,740 square kilometers
Language
Sinhalese and Tamil are the official languages, with 74% speaking Sinhalese. (about 10% speak English) A small number of people speak other natives languages.
Median Age/ Gender Ratio
Democratic Socialist Republic President Maithripala Sirisena
Total: 32.5 years Male: 31.2 years Female: 33.7 years 96 males for every 100 females
Ethnic Composition
Education Level
Government
Sinhalese: 74%, Tamil: 18%, Sri Lankan Moors: 7%, Indian Tamil: 4.2%, Burgher, Malay and Vadda:1%
Religious Composition
Buddhist (official) 70.2%, Hindu 12.6%, Muslim 9.7%, Roman Catholic 6.1%, other Christian 1.3%, other 0.05%
School life expectancy: 14 years 87.2 percent of the female population and 93.4 percent of the male population, age 15 and over, can read and write.
Currency
Sri Lankan Rupee
INDUSTRIES AND TRADE In 2016, Sri Lanka had $10.12 billion of exports. Their main exports are textiles and apparel, tea and spices, rubber, precious stores, coconut products and fish. Main export partners include the United States, who receives 26% of all exported products, the United Kingdom (9%), India (7.2%) and Germany (4.3%). Sri Lankan imports were $18.64 billion in 2016 and mainly included petroleum, textiles, machinery and transportation equipment, building materials and mineral products. The top countries they import from are India (24.6%), China (20.6%), the United Arab Amirates (7.2%), Singapore (5.9%) and Japan (5.7%). The industrial growth rate is 5.6%. Top industries include: processing of rubber, tea, coconuts, tobacco and other agricultural commodities; telecommunications, insurance, banking; tourism, shipping; clothing, textiles; cement, petroleum refining, information technology services, construction.
ECONOMIC OVERVIEW Industrial Growth Rate: 5.6% Labor Force: 9.062 million Labor Force by Occupation: Agriculture: 28.4% Industry: 25.7% Services: 45.9% Unemployment Rate: 4.2% Budget Revenue: 1,648 billion rupees (2016) Budget Deficit: 670 billion rupees (2016) Inflation Rate: 3.8% GDP: 5.3% growth rate $237.8 billion (2016) Currency Exchange Rate: 152.65 Sri Lankan rupees to one US dollar
POLITICAL STABILITY The Sri Lankan government has faced severe corruption. Former President Mahinda Rajapaksa was known was involved in such behavior as nepotism, corruption and war crimes, killing anywhere from 40,000-70,000 innocent civilians in the country’s civil war. He was defeated in the 2015 election, running for an unprecedented third term. Rajapaksa attempted to use the security and police force to keep him in power but this untimely failed. The newly elected president, Maithripala Sirisena, aims to carry out political and economic reforms with a 100 day plan to remove corruption. Since his election, he has worked on reversing many of the democratic restrictions put in place by Rajapaksa and has jailed many former government members involved with the previous corruption. This political shift has made an impact with notable progress on democracy, accountability and human rights. Despite these changes, Sri Lanka still has a low score on the Corruption Perception’s Index with a 36 out of a possible 100. Sri Lanka is focused on rebuilding their economy as well as incorporating more sustainability in their industries. By 2030 their goal is for 20% of their energy to be from renewable sources. The election outcome has allowed Sri Lanka to have more economic cooperation than ever before Sri Lanka has remained cordial with the United States throughout the years and claims a strong commitment to democratic ideals. Since the country gained independence, the U.S. has provided more than $1.3 billion in assistance to build economic development programs and to set up a modern stock exchange in one of the capitals, Colombo. Although, there are no trade agreements between the two countries, the Trade and Investment Framework Agreement (TIFA) was signed between the two countries in 2002. This provides a framework for the two governments to discuss trade and investment. At the most recent meeting in April 2016, they established the Joint Action Plan to Boost Trade and Investment. This plan spans over five years with the objectives of improving competitiveness of Sri Lanka’s exports, developing new markets, promote interaction between the two countries, utilize U.S. tariff preference arrangements and promote greater sustainable manufacturing processes.
SOCIO ECONOMIC STABILITY Issues from previous president Rajapaksa along with the civil war hurt Sri Lanka economically as well as damaged relationships with other countries. The nation is rebuilding their industries and becoming more competitive with other nations. The garment industry is one of the highest earning economic sectors. Now that they are holding political figures accountable for crimes, more social equality is coming with that. The apparel industry in Sri Lanka is known for treating workers well with fair wages, little discrimination, safe workplaces and no child labor. Approximately 22% of people live below the poverty line and the population is among the most educated and literate of the developing world.
SOCIAL FACTORS Sri Lanka has a population of a little over 22 million and a population growth rate of 0.8%. They have very advanced human development goals compared to other developing nations. The life expectancy is 74.97 years (72.95 for males, and 77.08 for females) and has an infant mortality rate of 19/1,000. Under the previous president’s rule, there was surveillance and censorship of media and civil society groups. Steps are being taken now to restore the independence of the judiciary and the government is now encouraging open communication with the international community, including human rights organizations. Despite these efforts, the Sri Lankan government still lacks transparency and is considered corrupt by international standards. It restricts the freedoms of movement and religion as well as influences the judiciary. Discrimination against ethnic and religious minorities is widespread and tension between Muslims and Tamils are a problem. The “Satisfaction with Life Index” measures subjective life satisfaction across various countries. This index uses measures such as health, wealth and access to basic education. On this scale, Sri Lanka scored a 203.33 with the highest country, scoring a 273.4 and the lowest country scoring a 100. This ranks Sri Lanka 93/178. Age Breakdown 0-14 years: 24.35% (male 2,760,821/female 2,652,747) 15-24 years: 14.7% (male 1,660,402/female 1,608,022) 25-54 years: 41.71% (male 4,544,253/female 4,729,544) 55-64 years: 9.89% (male 1,018,357/female 1,181,060) 65 years and over: 9.35% (male 882,740/female 1,197,054) Important Holidays (2017 dates) January 12th - Duruthu Full Moon Poya Day February 4th - National Day April 13th - Sinhala and Tamil New Year’s Day May 10th - Vesak Full Moon Poya Day
TECHNOLOGICAL FACTORS Sri Lanka is up to date with many new technologies especially in apparel manufacturing. The technology has the ability to product such products as wearable technology, e-textiles and environmentally friendly fabrics and color processes. Workers’ rights and environmentally friendly practices are a priority for Sri Lanka, so the majority of their factories are LEED certified by the US Green Building Council. Other technologies include Pocket Welting Machines, Smocking Machines, Tuka Tech, Automatic Cutters and Microsoft Dynamics ERP.
ECONOMIC FACTORS Sri Lanka has a GDP of $237.8 billion (2016) with a growth rate of 5.3%. Their labor force is made up of 9.062 million people who are extremely literate and easily trained. The country has been working towards building up their industries and has been recently investing in more research and development. Their previous president hurt many of the relations with other nations and they are working on connection with other countries to facilitate more trade. Sri Lanka also has a variety of import duties which combined, add a large cost to imports. These include customs-import tariff, Export Development Board levy, Value Added Tax (VAT), Port and Airport tax, Nation Building Tax, Port Handling charges, and agent commissions. These can often discourage exporters from working with Sri Lanka.
ENVIRONMENTAL FACTORS Environmental Concern
Because Sri Lanka has been developing so rapidly, many environmental issues have developed such as deforestation, pollution, soil erosion and wildlife issues from poaching and urbanization. Other natural disasters such as earthquakes and tsunamis affect Sri Lanka.
Climate
Sri Lanka has a tropical climate with very distinct dry and wet seasons. The temperature ranges from 82-90 degrees Fahrenheit on average. It can get as cold as 60 degrees in the central highlands and as high as 90 degrees along the Eastern coast of the island. December and January and normally the coldest months and April and August and the warmest.
Centre for Environmental Justice
Green Manufacturing
The Centre for Environmental Justice (CEJ) is an initiative to promote environmental good governance and environmental justice. CEJ was established in January 2004 as a public interest environmental organization to engage in environmental campaigning and legal advocacy nation-wide. They engage in campaigns on water rights, anti GMOs, environmental justice and good governance, anti incineration, energy and climate change, protection of natural environment and sustainable livelihood.
Sustainability is a high priority for Sri Lanka. They had the world’s first Green Garment Factory that cut energy in half and water consumption by 70%. This was achieved through the practice of lean manufacturing, which lowers overhead costs and gives a faster return on investment. The majority of factories in Sri Lanka are LEED Platinum and Gold Certified. LEED certification verifies environmentally friendly conditions as well as extremely safe conditions for both workers and equipment.
POLITICAL FACTORS Sri Lanka is a democratic, socialist republic and a unitary state which is governed by a semi-presidential system, with a mixture of a presidential system and a parliamentary system. It constitutes a parliamentary system governed under the Constitution of Sri Lanka. Most provisions of the Constitution of Sri Lanka can be amended by a two-thirds majority. The election of the new president Maithripala Sirisena, is moving the government to become more transparent and provide more freedom to the Sri Lankan people. During his first year in office alone he initiated a series of constitutional reforms, including establishing a constitutional council and restoring the independence of the judiciary, police, and human rights commissions. Despite the positive changes, it will take a long time to counteract many of the corrupt government policies and institutions that were put in place. The former president Rajapaksa, as well many of his family members and conspirators, were charged with corruption, human rights violations, and the killings and disappearances of journalists and political opponents.
STATE OF THE APPAREL INDUSTRY Sri Lanka’s apparel industry is a significant contributor to their economy. Over the past four decades, the industry has grown substantially and it accounts for around 40% of total exports. The country has the highest apparel exports per capita of any exporting nation in the region. In Sri Lanka, the industry is entirely privately owned and it accounts for approximately 33% of manufacturing jobs. In 2016, Sri Lanka exported $4674.8 million of textiles and apparel, $2122.9 million of which was exported to the United States.
PRODUCT Sri Lanka differentiates itself from the competition by offering high quality, ethically made and eco-conscious products. Factories are very compliment and because of this they have attracted brands with high ethical standards such as M&S, Nike and Victoria’s Secret. Approximately half of the exports are made out of cotton with the rest from man made fibers. Sri Lanka produces the following apparel categories: Sportswear, Intimate Apparel, Lounge wear, Bridal Wear, Workwear, Swimwear and Childrenswear. They are especially known for Intimate Apparel and Swimwear. GARMENTS WITHOUT GUILT In 2006, to improve the image of Sri Lanka’s apparel industry, the Joint Apparel Association Forum (JAAF) established the “Garment without Guild initiative. This initiative includes a certification program that ensures that Sri Lankan factories are free of discrimination, sweatshops and child labor. The Garment without Guild code exceeds many leading industry compliances. Sri Lanka is the only apparel manufacturing country in Asia to ratify all 27 International Labor Organization conventions. Environmentally friendly practices are also a priority for Sri Lanka. Across the whole apparel manufacturing industry, there have been efforts to reduce the carbon footprint. Most of the factory are LEED Platinum and Gold Certified and they created the world’s first ecofriendly “Green Garment Factory” that cut energy in half and water consumption by 70% HUMAN RESOURCES Over 300,000 people are directly employed by the apparel industry and another 600,000 people are indirectly employed. Working conditions in Sri Lanka are better than most other South Asian countries. Approximately 20 percent of the workforce is unionized, but union membership is declining. Workers rights are a priority and they have strict codes against discrimination, sweatshop practices and child labor. The work force is very literate and skilled. In Sri Lanka the minimum working age is 14. There is one minimum wage in Sri Lanka. Minimum wages are determined by trade boards for more than 40 different trades in Sri Lanka. Until recently, there was no minimum wage for private sector workers, which includes apparel workers. In May 2015, the minimum was set to 10,000 rupees ($74) a month which was a pay increase of 15-35%. FUTURE GROWTH The apparel manufacturing industry is continuing to grow and the have recently begun utilizing the North and East of the country where ten new factories are being built. The new government is very supportive with investment friendly policies. Factories are focused on innovation to deliver high quality products while improving speed. In recent years, Sri Lanka have invested more money in research and development in cutting edge technology to stay competitive with other nations.
TRANSPORTATION
INTERNATIONAL AIRPORTS
SRI LANKAN PORTS
RAILWAYS AND ROADS
Bandaranaike International Airport Katunayake, Sri Lanka
Colombo to Savannah $2,765.58 - $3,056.69 38-46 days
Road transport accounts for 93% of land transport
Mattala Rajapaksa International Mattala, Sri Lanka
Colombo to Los Angeles $3,142.65 - $3,473.46 35-49 days
Ratmalana Airport Colombo, Sri Lanka
Colombo to New York City $2,612.88 - $2,887.92 36-43 days
Prices for air freight are based on weight of goods
Prices are based on Port of Colombo as it is the main port for exporting apparel.
12,210.36 km of roadways and expressways 1,449 km of railway track Train routes connect to all nine providences of the country
SHIPPING AND MANUFACTURING
Ceylon Shipping Corporation NO 27, MICH Building Hot Sir Razik Fareed Mawatha Colombo, Sri Lanka Tel: + 94 11 2328772 –3 Email: cscl@cscl.lk Web: www.cscl.lk
Sea Shipping Colombo Robert No.633-1/2, Sirimavo Bandaranayake Mawatha, Colombo -14, Sri Lanka Tel: 0094 11 5232438 Email: info@seashipping.lk Web: www.seashipping.lk
Sri Lanka Shipping Company Limited Robert Senanayake Building, 46/5 Navam Mawatha, Colombo, Sri Lanka Tel: +94 11 2 336853 Email: lankaship@slsc.lk Web: www.srilankashipping.com
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Bandaranaike International Airport
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Colombo Ratmalana Airport
Mattala Rajapaksa International
Brandix Apparel
Casualwear, sleepwear, briefs, bras Sri Lanka’s largest apparel exporter Buyers: The Gap, Sears, Roebuck & Company, Old Navy, Land’s End, Ralph Lauren 409 Galle Road, Colombo 03, Sri Lanka Tel: +94 11 4 727222 Email: info@brandix.com Web: www.brandix.com
Hela Clothing
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Unilak Fashions
Childrenswear, menswear, womenswear Buyers: Carter’s, Oshkosh, Kohl’s, Walmart, BONTON, Boscov’s, Arthur 34, Park Road, Colombo 05, Sri Lanka Tel: +94 112 508 956 Email: info@unilakfashions.com Web: www.unilakfashions.com
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Linea Aqua
Swimwear products Buyers: Sears, Roebuck & Company, Land’s End, Qs Wholesale, Warnaco Swimwear Thanahenpitiya Estate, Hanwella-PugodaWeke-Urapola Road, Sri Lanka Tel: +94 36-4279600 Email: anilw@lineaaqua.com Web: www.lineaaqua.com
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Casual wear, intimates, childrenswear, athleisure Buyers: Liquid Knits, Lucy Activewear, Nike, Levi Strauss & Co. No 304, Graceland Building, Negambo Road, Peliyagoda, Sri Lanka. Tel: +94 115 800 200 Email: info@helaclothing.com Web: www.helaclothing.com
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Smart Shirts Lanka
Menswear, women’s shirts, children’s shirts Buyers: Smart Apparel, J Crew, Ralph Lauren, Patagonia Lot 10, Off Airport Road, Investment Promotion Zone, Katunayake, Sri Lanka Tel: +94 11 2 252901 Email: Sales@Smart-Shirts.com Web: www.smart-shirts.com/sunrise
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Hirdaramani International Export
Knit garments, fleece garments, intimate wear, nightwear and childrenswear Buyers: SanMar Corporation, 5th and Pacific Companies, Eddie Bauer Level 23, West Tower, World Trade Center, Echelon Square, Colombo, Sri Lanka Tel: +94 11 4 797000 Email: info@hirdaramani.com Web: www.hirdaramani.com
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BUSINESS ETIQUETTE In Sri Lanka people tend to avoid confrontation. Speaking indirectly helps seeming aggressive and rude to others. It is also considered impolite to criticize others in public situations. Generally, an arms length of space between people is normal, however even more space is kept between opposite genders. Physically contact such as holding hands, arm touching, and shoulder touching is acceptable between members of the same sex but not of the opposite sex in public. Direct eye contact is normal with the exception of some traditional Muslim and members of the opposite sex. Taboos in Sri Lanka are very different than the US. Public displays of affection are considered very inappropriate. Touching people or passing objects with shoes should be avoided. Buddha is very important to the people of Sri Lanka and touching or sitting on any image of Buddha should be avoided.
GREETINGS AND GESTURES There are different greeting standards for different genders. When greeting the same gender a light handshake is appropriate. When acknowledging the opposite gender, handshakes are still common but it is best to let the women to initiate the shake first because many women refrain from physical contact with men in public. Hugging and kissing as a greeting is usually inappropriate. To call people over, Sri Lankans will extend an arm and make a scratching motion with their fingers, palm facing down. When they shake their heads in a wobble motion, this usually means yes but can sometimes mean no depending on the angle, expression and speed. Eating with the left hand is considered unclean, so if dining, using the right hand is polite. BUSINESS DRESS Dress is Sri Lanka is very conservative for both genders. Men should wear dark colored suits and shoes that can easily be taken off. Women should wear conservative business suits or dresses. Tight fitting clothing, short skirts and sleeveless items should be avoided. Women should be careful not to show too much skin. Dressing in traditional Sri Lankan clothing such as the “salwar kameez” or “sari” is also acceptable. Dressing in business casual attire is not recommended for the first meeting however, in the warmer seasons business dress tends to be less formal.
MEETINGS AND NEGOTIATION Personal relationships are important in business in Sri Lanka and first meetings are often used to build a relationship. For this reason small talk is very important before jumping into business. First meetings usually take place with someone middle ranking who is used to gather information to present to the decision maker. If they feel that the proposal is strong and the relationship was made a priority, future meetings with involve the decision maker. This is important because decisions often take a long time to make and very little will get done without the decision maker present. Business cards are exchanged after the initial greeting. Titles hold a lot of weight in Sri Lanka, so it is important for ranks to be included on cards. Business cards should always be presented with two hands and they must be treated with respect. Putting them in pockets, writing on them, or wrinkling them is considered rude. Sri Lankans often say what others want to hear, so it is crucial to read between the lines. Indicators to look for are long pauses, lack of eye contact, or other forms of evasion.
CONCLUSION
Risks -Natural disasters and flooding may effect lead times -Cutting edge technology could drive up production prices -Limited product categories offerings compared to other countries
Benefits -High quality niche products -Made with high ethical and eco-friendly standards -Skilled and Literate workforce -Good relationship with the US with incentive programs to work with Sri Lanka -Continued technology research and industry growth
Sri Lanka is a great choice for sourcing if ethically made and sustainably made products are a priority. With the new government change, Sri Lanka’s human development is improving and the government is becoming more stable and transparent. The industry is growing and the government is supporting the growth with more investment in research and development.
WORKS CITED t://globaledge.msu.edu/countries/sri-lanka/government http://www.srilankabusiness.com/apparel/ http://guide.culturecrossing.net/basics_business_student.php?id=190 https://www.export.gov/article?id=Sri-Lanka-Trade-Agreements https://ustr.gov/about-us/policy-offices/press-office/press-releases/2016/april/jointstatement-12th-joint-us-sri http://www.independent.co.uk/news/world/asia/hero-or-war-criminal-sri-lankanleader-mahinda-rajapaksa-under-pressure-8940591.html http://www.lankabusinessonline.com/sri-lanka-targets-4-6-pct-budget-deficit-for2017-ravi/ http://www.tradingeconomics.com/sri-lanka/inflation-cpi/forecast http://www.statistics.gov.lk/samplesurvey/2016Q4report.pdf http://0-www.lexisnexis.com.library.scad.edu/hottopics lnacademic/?verb=sr&csi=417290 http://www.indexmundi.com/sri_lanka/age_structure.html https://openknowledge.worldbank.org/bitstream handle/10986/23961/9781464808135.pdf?sequence=2&isAllowed=y http://www.ejustice.lk/ http://www.just-style.com/news/sri-lanka-sets-minimum-wage-for-garment-workers_ id125174.aspx http://worldfreightrates.com/en/freight http://0-search.ebscohost.com.library.scad.edu/login.aspx?direct=true&db=buh&AN=11 7548016&site=bsi-live https://www.cia.gov/library/publications/the-world-factbook/geos/ce.html https://www.export.gov/article?id=Sri-Lanka-Labor http://www.srilankaapparel.com/sl-in-numbers
JULIE SAMPSON - FASM 420 - SPRING 2017