SRI LANKA GLOBAL SOURCING COUNTRY REPORT SUZANNE BRADY FASM 420-01 SPRING 2017
CONTENTS COUNTRY OVERVIEW HISTORY AND COUNTRY TRAITS COUNTRY STABILITY STATE OF APPAREL AND TEXTILE INDUSTRY TRADE AGREEMENTS WITH THE US COUNTRY TRANSPORTATION MAIN SUPPLIERS SHIPPING RESOURCES LEAD TIME OF PRODUCTION HOW TO CONDUCT BUSINESS RISKS AND BENEFITS REFERENCES
COUNTRY OVERVIEW
Since the end of a 25-year civil war in 2009, Sri Lanka has become one of the fastest growing economies in the world. A beautiful island off the southern tip of India is becoming a hub for international trade and manufacturing. The apparel industry in Sri Lanka is known for following ethical practices. Some of these practices include the nationwide intolerance for child labor, and creating the first carbon-neutral garment factory.
HISTORY AND COUNTRY TRAITS
LOCATION Sri Lanka is located in South Asia. It is an island located in the Indian Ocean off the southern tip of India.
POPULATION & GEOGRAPHY Population: 22,053,488 Total Area: 65,610 sq. km Land Area: 64,630 sq. km Water Area: 980 sq. km Coastline: 1,340 km
GOVERNMENT Democratic Socialist Republic of Sri Lanka Sri Lanka is a democratic republic and a unitary state governed by a semi-presidential system, which is a mix of presidential and parliamentary systems. Head of State: President Maithripala Sirisena
LANGUAGE
Sinhala is the official and national language. Tamil is also a national language.
CURRENCY Sri Lankan Rupee (SLRe$)
NATIONAL HOLIDAYS Independence/National Day is February 4th National Heroes’ Day is May 22nd
EDUCATION National Literacy Rate: 92.5%
RELIGION
Predominantly Buddhism
GENDER BREAKDOWN Female: 42.62% Male: 57.38%
MEDIAN AGE Life expectancy is 77.9 years Median age is 31.2 years Age distribution (% of total population) Ages 0-14: 24.57% Ages 15-64: 66.12% Ages 65+: 9.3%
ETHNIC COMPOSITION Sinhalese (generally Buddhist) 74% Tamils (generally Hindus) 18% The Tamils are broken up into two groups: Ceylon Tamils (2/3 of the Tamil population) and Indian Tamils (represent the other 1/3). Moors (generally Muslim) 7% Remaining 1% This includes Malays, Burghers (decedents of British and Dutch colonists), and Veddahs (the aboriginal people).
Sri Lanka’s Export Partners
IMPORTS & EXPORTS Export Volume: $10,439,729,672 Top Exports: knit apparel, non-knit apparel, and coffee & spices Major Countries Exported to: United States, United Kingdom, and India Import Volume: $18,967,230,631 Imports: oil & mineral fuels, motor vehicles & parts, industrial machinery, electrical machinery, plastics, knitted fabrics, cotton, iron & steel, natural minerals & stone, and cereals
ECONOMIC OVERVIEW Industrial Growth Rate: 4.786% Labor Force: 8,576,325 Unemployment Rate: 4.6% Main Industries: Agricultural commodities (coffee, tea, coconuts, tobacco, and rubber) and Apparel and Textiles Budget Deficit: $43,920,151,000 Budget Revenue: $2,008,522,862 Inflation Rate: 0.922% Currency Exchange Rate: 1 Sri Lankan Rupee = .0065 USD
POLITICAL STABILITY RELATIONSHIP WITH OTHER COUNTRIES Sri Lanka’s foreign relations stress friendship towards all and enmity towards none. In addition, Sri Lanka has a nonaligned foreign policy, meaning that the country does not side with any major power.
RELATIONSHIP WITH THE UNITED STATES The United States respects Sri Lanka’s independence, sovereignty, and moderate nonaligned foreign policy. The US supports Sri Lanka’s unity, territorial integrity, and democratic institutions, and the US encourages Sri Lanka’s social and economic development. In addition, the United States is an avid supporter of ethnic reconciliation in Sri Lanka after the end of decades of civil conflict in 2009.
FUTURE GOVERNMENT PLANS Sri Lanka hopes to use its geographic positioning to its advantage in global trade. While this ambition is not new, Sri Lanka’s recently elected president and prime minister look to Singapore to follow the steps it has taken to become a major player in global trade. Increase apparel and textile exports. Restructure regional plantations to maximize agricultural exports.
COUNTRY STABILITY P E S T ANALYSIS POLITICAL Sri Lanka is a democratic socialist republic and a unitary state governed by a semi-presidential system, which is a mix of presidential and parliamentary systems. Parliament is governed by the Sri Lanka Constitution, and amendments can be made to the constitution through two-thirds majority. Sri Lanka is the oldest democracy in South Asia. After the end of a civil war in 2009, Sri Lanka has gained substantial political stability. In addition, the current governing regime has the majority in parliament; however, it is becoming a concern that too much power is being distributed to only a few individuals. Due to the country’s long, rich history, Sri Lanka’s legal system is diverse, consisting of a complex mixture of several laws. Sri Lanka has strict labor laws that clearly describe allowed working hours, prohibition of child labor, working age limits, industrial safety, and the prompt monthly payment of wages. Sri Lanka also has strict environmental protection laws. Over the years, amendments have been made to the constitution to regulate and protect the environment in addition to the establishment of the Central Environmental Authority (CEA) in 1981.
ECONOMIC Sri Lanka has been recognized as a fast growing middle income country. In the 19th and 20th centuries, Sri Lanka became known as a plantation economy, exporting cinnamon, rubber, coffee, and Ceylon tea. Towards the end of the 20th century and moving into the 21st century, Sri Lanka has steadily moved towards an industrialized economy exporting textile and apparel, finance, and telecommunications.
SOCIAL Sri Lanka has a population of over 22 million people with 92.5% of those people being literate. Sri Lanka’s high literacy rate has resulted in a highly skilled workforce and the accomplishment of human development goals, specifically in comparison to the country’s South Asian neighbors. After the end of Sri Lanka’s civil war in 2009, along with the rapid development of the private financial sector, many of Sri Lanka’s young people have adopted modern fashion trends and spending their money on things they enjoy, such as beauty products. In addition, the growing number of television sets and digital mass media networks are also indicators of the changing mindset and consciousness of the Sri Lankan people.
TECHNOLOGICAL Sri Lanka has an A- and B-class road network spanning 7,460 miles. The country’s rail network is operated by the national railway operator, Sri Lanka Railways, and the network spans 900 miles. The Sri Lankan government has made efforts to repair and further develop the country’s road network. Sri Lanka has also invested in research and development (more than 5 billion USD in 2008). In addition, 461 patents have recently been registered with the National Intellectual Property Office of Sri Lanka. This interest in registering patents indicates the rise of innovation and the desire to protect intellectual property. Telecommunications is a rapidly growing sector in Sri Lanka. In 2011, Sri Lanka had approximately 2 million internet users. In addition, Sri Lanka’s cell phone usage grew 550% in just five years, from 2005 to 2010.
ECONOMIC STABILITY CURRENCY AND GLOBAL SOURCING The Sri Lankan Rupee is the official currency of Sri Lanka. It currently has an exchange rate of 1 Sri Lankan Rupee equalling .0056 USD. The Sri Lankan exchange rate is currently in a period of depreciation. This means that imports are more expensive for Sri Lanka’s domestic market and exports are more inexpensive for foreign markets, like the United States. Overall, depreciation is beneficial to the Sri Lankan economy because it creates a higher demand from foreign markets for inexpensive Sri Lankan exports. In addition, because imports are more expensive, depreciation increases the demand for domestically produced goods.
STATE OF THE APPAREL AND TEXTILE INDUSTRY CURRENT STATUS AND FUTURE OUTLOOK The Sri Lankan apparel industry has experienced fast and healthy growth over the past forty years. The industry plans to capitalize on this growth with plans to expand the garment industry within the coming years. The government has also recognized this growth and the benefits the industry has given Sri Lankan economy. In addition, the government hopes to continue the garment industry growth and hopes to make Sri Lanka a hub for global sourcing and trade.
GOVERNMENT SUPPORT The law prohibits all forms of forced and compulsory labor. The Sri Lankan parliament recently set minimum wage for 10,000 Sri Lankan Rupees ($70 US) per month and 400 SLRe ($2.75 US) per day. In addition, the government will interfere with private sectors, like the apparel industry, occasionally. For example, the Sri Lankan government gave a 2,500 SLRe ($17 US) increase to workers that earned less than 40,000 SLRe ($278 US) per month. The government also prohibits child labor with a minimum working age of 14 and 18 in hazardous working conditions.
LABOR SHORTAGE Despite the high level of female participation in Sri Lanka’s garment industry, there is currently a labor shortage in this industry. The shortage is primarily for machine operator positions which are the positions females typically hold. This labor shortage has become such an issue that there have been proposals to automate the apparel manufacturing process. Reasons behind the shortage include competition from other sectors (such as tourism and retail), mobility issues (many women do not want to leave their families to commute to work), negative social image (working in the garment industry is often associated with promiscuity), and changing career aspirations (young women are seeking higher education and therefore are seeking more prestigious careers).
LABOR COSTS Minimum wage: 10,000 Sri Lankan Rupees ($70 US) per month and 400 SLRe ($2.75 US) per day
KEY APPAREL AND TEXTILE EXPORTS TO THE US Knit and woven apparel
APPAREL AND TEXTILE EXPORT VOLUME TO THE US Export volume in 2016 to the US: $1,782,300
APPAREL AND TEXTILE INDUSTRY STRENGTHS Apparel produced in Sri Lanka includes sportswear, lingerie, loungewear, bridal, workwear, swimwear, and children’s wear.
TRADE AGREEMENTS WITH THE UNITED STATES There are currently no trade agreements between Sri Lanka and the United States. However, both countries have signed the Trade and Investment Framework Agreement (TIFA). This agreement allows for a forum for the US and Sri Lanka to discuss mutual issues and areas of interest in order to improve cooperation and opportunities for trade.
COUNTRY TRANSPORTATION PORTS IN RELATION TO MANUFACTURERS Hirdaramani Industries Ltd
Brandix Apparel Ltd
Quantum Clothing Lanka (Pvt) Ltd
Hela Clothing (Pvt) Ltd
INTERNATIONAL PORTS Port of Colombo Port of Hambantota Trincomalee Harbour Port of Galle
SHIPPING COMPANIES ZIM Star Lanka Shipping (Private) Ltd Mediterranean Shipping Company (MSC) Freight Time (by sea) Sri Lanka to Savannah: 34 days Sri Lanka to Los Angeles: 36 days
COST TO TRANSPORT Sea
Colombo to Savannah: $463 origin charge + $863 destination charge = $1,326 Colombo to Los Angeles: $393 origin charge + $722 = $1,115
Air
International Airports: Bandaranaike International Airport (in Colombo), Ratmalana Airport (in Colombo), and Mattala Rajapaksa International Airport (in Hambantota) Feasibility of air transport is dependent on weight of product shipment.
Land
Road transport accounts for 93% of land transport in Sri Lanka Rail routes connect major cities of the 9 provinces of Sri Lanka
HIRDARAMANI INDUSTRIES LTD. Address: Ring Road 2, KEPZ Rd, Katunayake, Sri Lanka Phone: (94) 11-479-7000 Products: specializes in woven garments including dresses, jackets, pants, skirts, shorts, blouses, nightwear, and children’s wear
Customers: some include: Tommy Hilfiger, J. Crew, Uniqlo,Victoria’s Secret, Patagonia, Club Monaco, Calvin Klein
Website: http://www.hirdaramani.com/
BRANDIX APPAREL LTD. Address: 409 Galle Rd, Colombo 3, Sri Lanka Phone: (94) 11-472-7444 Products: casual wear, jeans, sleepwear, lounge wear, briefs, and bras Customers: The Gap, Ralph Lauren, Old Navy, Diesel, J. Crew Website: http://www.brandix.com/
MAIN SUPPLIERS QUANTUM CLOTHING LANKA (PVT) LTD.
Address: Millewa, Moragahahena, Horana, Sri Lanka Phone: (94) 11-555-5444 Products: lingerie, sport, shapewear, swim, hosiery, and shirts Customers: Lululemon Website: http://www.quantumclothing.com/sri-lanka/
HELA CLOTHING (PVT) LTD.
Address: No 35, Balapokuna Road, Colombo 5, Sri Lanka Phone: (94) 66-723-4000 Products: casual wear, children’s wear, athleisure, school uniforms, and intimates Customers: Superdry, Calvin Klein, H&M, Levi’s, Nike Website: http://www.helaclothing.com/
SHIPPING RESOURCES ZIM STAR LANKA SHIPPING (PVT) LTD. Address: Level 3, BTL Shipping House, 45/2, Braybrooke Street, Colombo 002, Sri Lanka Phone: (94)11-231-780
MEDITERRANEAN SHIPPING COMPANY (MSC) LANKA (PVT) LTD. Address: 7th Floor, 193, Dr Danister Silva Mawatha, Colombo 08, Sri Lanka Phone: (94)11-452-9000
Because of Sri Lanka’s geographical location, the country experiences rainfall patterns affected by the monsoon winds of the Indian Ocean and the Bay of Bengal. Heavy rainfall and strong winds have resulted in recurrent flooding and damage to the country’s infrastructure. Holidays such as Sri Lanka’s independence day, national heroes’ day, and various religious holidays are both public holidays and bank holidays. These days, which include Poya Day (a Buddhist day of fasting during a full moon), could affect lead time of production.
LEAD TIME OF PRODUCTION
HOW TO CONDUCT BUSINESS
Sri Lankan business etiquette can be rather formal. Firm handshakes are the most common form of greeting, and greetings are given when meeting and leaving. In general, men only shake hands with men and women only shake hands with women. Many Sri Lankan women do not want to shake hands with men, so it is best that men wait for women to extend a hand. Sri Lanka is also a hierarchical society, so titles are important to them. If someone does not have a professional title, use “sir” or “madam.” These titles can be used with first names and surnames, however, wait for someone to invite you to use their first name. In Sri Lanka, business cards are essential and are exchanged after initial greetings. They should be presented and received with two hands, being sure to handle with care and respect. Since titles and qualifications are important in Sri Lankan culture, they should be added to your business card.
Before conducting business, be sure to give some background about yourself and get to know your Sri Lankan counterparts. They want to know about you and feel comfortable with you before discussing business. Generally, the first meeting is more of a relationship building exercise. Face-to-face communication is highly regarded in Sri Lanka, so be respectful and never put others in awkward situations and never openly criticize them.
RISKS AND BENEFITS Sri Lanka is fairly stable for now, but it would be wise for the United States to keep in good relations with Sri Lanka. Although Sri Lanka and the United States do not have any trade agreements, the two countries can continue to discuss trade at the annual TIFA meetings. Sri Lanka is highly aware of environmental concerns and has created the first carbon-neutral factory. This factory can continue to better the environmental health of Sri Lanka and, and hopefully, this innovation will be used throughout the world. The best apparel classifications to produce in Sri Lanka include women’s intimates, athletic wear, woven apparel, lounge wear, and swimwear.
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REFERENCES http://www.colombopage.com/archive_16B/Oct27_1477581556CH.php http://www.srilanka-apparel.com/export-performance/archive http://www.ips.lk/talkingeconomics/2017/04/03/the-dwindling-stitching-hands-labour-shortages-in-the-apparelindustry-in-sri-lanka/ https://www.export.gov/article?id=Sri-Lanka-Labor https://ustr.gov/countries-regions/south-central-asia/sri-lanka http://www.zim.com/pages/default.aspx https://www.msc.com/lka?lang=en-gb https://www.export.gov/article?id=Sri-Lanka-Business-Customs http://www.commisceo-global.com/country-guides/sri-lanka-guide https://en.wikipedia.org/wiki/List_of_airports_in_Sri_Lanka http://www.srilankashipping.com/index.php http://www.thaibizsrilanka.com/lk/about/page4.php https://lanka.com/about/public-holidays/ http://www.srilankaapparel.com/images/pdf/slaea_1.xlsx.pdf http://www.srilankaapparel.com/index.php http://www.hirdaramani.com/index.php http://www.quantumclothing.com/ http://www.brandix.com/ https://panjiva.com/Brandix-Apparel-Ltd/28284981 http://www.helaclothing.com/ https://panjiva.com/Quantum-Clothing-Lanka-Pvt-Ltd/37352500 https://panjiva.com/Hela-Clothing-Pvt-Ltd/33403636