The Sunday Times FT - Brandix Lanka moving in on the Indian opportunity

Sri Lanka’s largest exporter, Brandix Lanka Ltd, is gearing for regional expansion leveraging the cost and scale advantages of India.

At a press briefing last week the Brandix management maintained that expansion into India will not result in cutting down operations or shedding labour in Sri Lanka.

The company says the Indian venture - the Brandix India Apparel City (BIAC) - is aimed at enabling large scale manufacturing of apparel and fabric.

“Sri Lanka has an advantage in the European market because of the GSP+ benefits that we get. But when it comes to large scale production for the US and other large markets, India has an advantage. The tax regime in India is similar to Sri Lanka. But if you want to go for scale, make goods in huge quantities, even garment buyers are looking at India as an alternative to China, to mitigate exposure risk in China,” explained Brandix CEO Ashroff Omar.

Although the company did not elaborate on the manufacturing cost advantages, India is noted for comparatively lower electricity and land prices than Sri Lanka. India also has the capacity to supply massive quantities of yarn and cotton, the basic raw materials needed for fabric and apparel.

BIAC is a 1,000 acre apparel and textile industrial zone located in Andhra Pradesh India. Investors will be invited to set up operations in the zone that will be managed by Brandix.

The venture – BIAC Ltd - is a partnership between Brandix - the chief shareholder with 55 percent of equity - and five other companies holding the balance 45 percent. These companies are the CMT Group of Mauritius, Pioneer Elastics of Hong Kong, Brandot International of the US, Quantum Clothing of the UK and the Galleon Fund of Sri Lanka. The companies are initially investing US$ 35 million in BIAC, to set up its infrastructure.

BIAC is planning to attract US$ 1 billion worth of investments over the next six to seven years that will lead to 60,000 jobs. The zone is looking at hosting investments for 20 garment factories, three spinning facilities and two fabric mills.

Brandix itself will set up two manufacturing units, each one worth around US$ 10 million – US$ 12 million, inside BIAC. They will be a lingerie production factory and a fabric plant.

The company is now on a promotional drive to attract investors into BIAC.

“We have got expressions of interest from potential investors and we have also got customer commitments to buy what is produced in BIAC,” said BIAC CEO Peter Sun.

BIAC Ltd acquired land ownership of the zone through a lease agreement in June this year and has also got Special Economic Zone Status from the government of India.

The company plans to finalise infrastructure facilities by mid 2007 but says investors can begin setting up their operations from January 2007. Training of workers has already begun in a separate building, until the zone is ready to be occupied.

However, Brandix says it is also increasing its investment in Sri Lanka. BIAC says Brandix, will chiefly be used as a manufacturing centre while Sri Lanka will function as a regional hub, hosting fronting activities like product design.

“Our commitment to Sri Lanka is unflagging. Our capital expenditure in Sri Lanka has grown by seven fold over the period 2003 to 2006. Investments for the financial year 2006 will exceed US$ 30 million,” said Sun.

Brandix Lanka is Sri Lanka’s biggest exporter, accounting for 10 percent of total national exports and employs over 18,000 people in Sri Lanka. Last year the company showed a US$ 280 million turnover and is expecting a US$ 325 million turnover this year. Over the next three years turnover from Sri Lankan based operations is expected to hit US$ 500 million.