Ha! More holidays for jolly Lankans
Despite all the talk of economic reforms and liberalisation it seems that no government dares to interfere with Sri Lanka's liberal number of holidays. Not even one that is so openly supportive of, and has so much admiration for, the mechanism of the free market which deals ruthlessly with inefficiency, as the present United National Party-led coalition.

The private sector, that much-touted engine of growth, has been shouting itself hoarse for years, if not decades, that a country as poor as ours, with work norms and productivity far below that of our competitors in the global marketplace, cannot afford to have so many holidays. All that successive governments have done is to nod their heads in agreement, wring their hands and make empty promises to cut down the number of holidays.

As our story said last week, the United National Front government too has maintained the same number of holidays for next year, despite the pleas of the business community to reduce them in an effort to improve productivity and efficiency. The Home Affairs Ministry said there would be 25 public and bank holidays in 2003, the same as this year and last. This means that us Sri Lankans would be on holiday for 129 days of the year, including the 52 weekends.

This is despite the announced intention of revising the number of holidays in the proposed National Employment Policy. As Chandra Jayaratne, the outgoing chairman of the Chamber of Commerce has pointed out, other exporting countries such as China, Vietnam and even our immediate neighbour India, have far fewer holidays. What can Sri Lanka offer to the competitive international investor community with its lower skills, excessive holidays, politicised labour unions and low productivity, he asked during a recent speech. Global competitiveness benchmarks indicate that in most areas of productivity and capability of human resources, Sri Lankans lag signi-ficantly behind other competing nations.

The business chambers have been urging successive governments to at least scrap the extra holiday given when official holidays fall on a Saturday or Sunday. Patrick Amarasinghe, a former head of the Federation of Chambers of Commerce and Industry and the National Chamber of Exporters, has pointed out that Sri Lanka is fast losing competitiveness because it was often on holiday while the rest of the world is at work. He has suggested a practical way to overcome the problem, one that allows workers their days off, but at the same time minimises the disruption of production and, hopefully, reduces costs. That is to "rationalise" the system of holidays by arranging them in a manner that would allow companies to anticipate and plan for shutdowns or reduced production.

What happens now is that office work and factory production gets disrupted for lengthy periods of time - a week or two - during seasonal holidays such as the Sinhala and Tamil New Year and Christmas. This is because many workers tend to make use of their liberal allowances of leave during this time so that when offices and factories do re-open after closing for the statutory holidays, they are unable to function effectively. Businessman point out that it is not productive to run factories with minimum staff levels during such periods and that it is better to shut down officially to save costs such as on fuel and electricity. This is how it is done in parts of East Asia such as China and Hong Kong during the Chinese New Year. Of course, the government would have to make up for the lost production time by cutting down holidays elsewhere in the calendar. The number of Poya holidays could be reduced and holidays declared only for the most important events in the Buddhist calendar.

But the private sector has no hope of improving the productivity of a notoriously lazy workforce if even such a market-friendly and pro-business government is reluctant to cut the number of holidays. What is at stake here is the government's credibility, its technocratic credentials and commitment to genuine economic reforms.

Don't gripe - face the challenges!
By Ranjan Alles
With the approaching of the garments quota phase-out in 2005 many reports have appeared in newspapers and trade journals predicting a doomsday scenario for the garment export industry in Sri Lanka. Some have gone so far as to quantify the impact of this doom by predicting the closure of at least 60 percent of our factories. Of course all these predictions are based on speculation and I think it is rather uncharitable to a well-structured and organised industry that has weathered many storms since its infancy.

Most industry sources seem to have caved in to this wave of negative publicity and are accepting defeat more readily than even Mike Tyson at the hands of Lennox Lewis.

Let us first look at the positives of our industry. We have an excellent workforce, which is very literate and well trained and relatively trouble free, though unionised to an extent. The working conditions and the compliance to social and labour issues are the best in the region.

We are probably the only garments producing country in South Asia that can guarantee a child labour free workforce. We also do not employ captive or slave labour in our industry as in China for instance. We also have no environmental issues in our garment industry.

From the customer's point of view we are a producer of medium to high quality garments, with minimal defect and return rates. Even when there are issues related to quality, the business ethics in the country guarantees a speedy resolution.

Global retail giants
Most of the major global retail giants are working in Sri Lanka as are most of the major brands, this is in marked contrast to countries like Bangladesh and Indonesia which are touted as our primary competitors. As a signatory to the WTO we have not had a single issue that has gone to the conflict resolution committee, unlike some of our neighbours.

These and many others being the positives we have in the industry, do we use these positives effectively in our marketing and our negotiations? The SLAEA (Sri Lanka Apparel Exporters' Association) has made a positive start by retaining a team of professional negotiators to work out the modalities of a FTA with the US, but I think we should have done this many years ago, before the global economy plunged into crisis. We bemoan the fact that Bangladesh has obtained preferential treatment from the EU but this did not come on a platter. For a country that started the apparel industry long after us, their administrators were astute enough to realise the importance of positive marketing and retained professional negotiators almost seven years ago.

Some of the major impediments to the industry sighted by our industrialists are, low productivity, high labour costs, high power costs, etc.

In terms of a survey done by WERNER International in the region Sri Lanka enjoys higher productivity rates than both Pakistan and Indonesia and comes a close second only to Bangladesh, primarily because of product specia-lisation in the Bengali factories due to the quota free situation for EU. In terms of labour costs:

  • Sri Lanka $ 0.45 per hour.
  • Bangladesh $ 0.43 per hour.
  • Pakistan $ 0.34 per hour.

Higher productivity and low labour costs are touted as the panacea for all ills, but I think this premise is unfounded. No doubt factories must strive to achieve higher efficiencies and lower manufacturing costs but I don't think therein lies the solution.

In reality the making (manufacturing) cost constitutes a very small percentage of the FOB value of the garment. Example - A blouse with a FOB price of $ 10 may have a making cost of $ 2.50 and the balance would be consumed by fabric and other trim items.

Assuming you achieve a 10 percent saving on this $ 2.50 by an improvement in productivity and efficiencies, etc, the saving translates to only $ 0.25 cents on a FOB value of $ 10 which in percentage terms is only 2.5 percent. In terms of the price competition with our neighbours we are not looking at a difference of one or two percent but at a difference in the region of 10-15 percent. So what is the solution?

I think most Sri Lankan manufacturers have not established any alliances with their fabric and accessory manufacturers and have been content to take the easy road, by using either middlemen or trading houses.

Most factories are at the mercy of these middlemen as they have not developed any wherewithal to source fabric and accessories at competitive prices and end up paying maybe $ 30 - 80 cents more per metre of fabric, which translates to almost a 16 percent saving on the FOB value of a $10 blouse which in effect is the difference between our competitors and us.

Another common complaint is that we do not have adequate backward linkages to the industry which is not totally correct as we have sufficient linkages in products like woven/printed labels, paper hangtags, price tickets, plastic hangers, buttons, interlinings, polyfil, elastic and other packaging materials.

What we do not have maybe are adequate linkages in fabric manufacture. Do we need such? With an industry the size of the Indian juggernaut at our doorstep, why do we need to import this dreaded industry with all its evils of pollution and environmental degradation, when we can conveniently access this huge resource pool.

Why has it not happened up to now? Again I find the industry at fault for adopting this arrogant and negative attitude of saying that Indian piece goods are poor in quality and the mills are difficult to deal with; and deliveries are not on time, etc. Whilst there may be some justification in these arguments are they really not the same, when we started trading with Hong Kong, Korea, Taiwan, China or wherever. Again I think the industry is guilty of taking the easy road out and not forging any alliances with the larger Indian manufacturers.

We have been blinded by negative perceptions for far too long, especially about India. Look at how Tirupur has evolved from a knitwear cottage industry to being one of the largest knitwear producers in the world.

We routinely complain of the lack of infrastructure facilities, Tirupur has none, not even a single star class hotel or an airport and is located in a most inhospitable place. So if there is a will there is a way.

It is also foolhardy to believe that the developed markets like Hong Kong, Taiwan, Korea, etc. are totally self-reliant. With the cyclic nature of the business and with its rapid changes in fashion, no country is self-reliant in fabric and all fashion trims.

All of these countries still import substantial volumes of fashion fabrics and accessories from Italy, Germany, the US, etc, but the difference is that they cope with such situations with great speed using the global advancement in communication and transportation links. So one should not view these as major impediments.

EDI links
A number of manufacturers are also advocating EDI links which is very positive but a mere link without the resultant action of delivery direct would render the system useless. Is this delivery direct possible? Yes, I am aware of a number of very large re-finishers both in the EU and the US who have networks which are fully geared to access the daily selling results of their customers and distribute the exact colour and size of the garment sold on a refill basis to the exact store location.

With this system in place most retailers feel they can maximise their sales and have the right merchandise for the customer at all locations, all the time.

Can our manufacturers fit into such a system even with EDI? Yes I believe they can, but how many manufacturers have even attempted to form some strategic alliances with such global players to maximise their market penetration? Just a handful maybe and again it shows some certain lethargy on the part of our manufacturers.

Our manufacturers have over the years enjoyed a comfortable slumber on a large bed, blissfully unaware that our envious neighbours were quietly creeping up to our bed to enjoy our bliss, and eventually got on the bed.

The bed is now crowded. What do we do? Do we just get off and walk away? No, we must fight and now is the time to lay down all barriers and declare war.

For us in Sri Lanka this is relatively easy, as we are fully aware and have been aware of what our problems are. The quota disappears in end 2004, a fact known for the last five years. America is a market of 274 million people and the EU including the UK of 320 million which are our principal markets. Both have very low population growth rates.

Shifting priorities
In reality in some member states of the EU the population is declining. In both these markets the consumption in clothing is diminishing as priorities are shifting to computers, electronics, holidays, motorcars, etc.

The focus of the clothing industry is evolving in sizes from infants to toddlers, to teenager, to adults, with the passage of time. We are all aware of these facts but are we mindful of them? If you look at our market penetration which is 1.7 percent to the US and 2.4 percent to the EU, it appears that our manufacturers have again neglected the larger population market even though it has been quota free and with Sri Lanka having a very rapid sea transit time to the EU.

On an examination of our conscience, we all know that the EU was neglected for short term monetary gains by adopting a policy of dealing with the US only, again the easy rider policy. How many times have I been told by manufacturers that they are not interested in dealing with EU customers because they can make more money speedily by working with US customers.

Is it fair then, to complain now of shrinking markets. Markets and customers do not fall on one's lap, they must be astutely cultivated and serviced over a period of time.

Almost all CEOs are knowledgeable in the art of crisis management and problem solving, etc, so when the problem is not a crisis but one which had been staring in our faces for the last five years, there appears to have been a certain laxity on the part of our industry for not having designed a cohesive action plan to cope with the situation. Crying foul now seems hardly fair.

Both India and Pakistan are spoken of as our competitors, primarily because they have huge fabric bases, but is this presumption totally correct? With all their sophisticated fabric and raw material bases and with the huge size of their industry and the populations they have, their garment exports are only $ 5 billion in India and $ 2.2 billion in Pakistan compared to $ 2.9 billion in Sri Lanka.

So in terms of per capita our garment exports are streets ahead of both these countries. It is very much the same if you compare Bangladesh which has a $ 4 billion industry. This clearly indicates the confidence the customers have in our market.

Production technology
In terms of production technology, management and equipment the larger units in Sri Lanka compare with the best in the world. So is there any need for the histrionics and the doomsday predictions? Talking of numbers let us look at the positives. Sri Lanka's share of the US market is 1.7 percent (which is 60 percent of our total exports of $ 2.9 billion = $1.74 billion). Is it not conceivable that we could with a concerted marketing effort of all of our strengths achieve a 2.5 percent share?

After all in terms of the total American market this would be an insignificant increase but it could easily wipe out our 2002 deficit.

Positive marketing requires much travelling and direct interaction with the buyers. The majority of our manufacturers do not even know where their customers are located and have not visited them at all.

How can you successfully service your customer if you are not familiar with the environment in which he retails? It would also encompass professional product and design development.

Here again one cannot design in a vacuum, it is necessary for the product development people to live and work in the retail environment so that they have a feel for the fashion influences like the seasons, the weather, the dressing habits, showbiz fashion influences, etc.

All of these would require much investment of funds, but in the long-term interest of one's business these would be funds well spent.

Sitting back and waiting for the emergence of the FTA is futile as the odds are stacked heavily against us since the trade deficit with the US is very much in our favour.

Short-term measures
Unless short-term remedial measures are taken to reverse the trade imbalance, success with the FTA is doubtful. Of course if the peace initiatives are pursued vigorously then the trade issues may take a back seat in the negotiations.

As Sri Lanka probably has the highest number of SUVs (sports utility vehicles), like the Pajeros and Landcruisers, etc. per capita in South Asia it might be prudent to import the versatile Jeep and the compact Cadillacs as alternatives, so that the trade imbalance can be corrected in the short term, or if only SriLankan Airlines can purchase a few Boeings, I think the trade deficit would be a thing of the past.

Lastly let me also bring up the question of alternative markets. The land of the rising sun and Kangaroo land are also worthwhile pursuing, as are probably Korea and Taiwan and maybe neighbouring India.

Due to the untiring efforts of our youthful minister of commerce we have been afforded favourable terms on the re-negotiated FTA with India.

Hence this market should also be pursued. In terms of Australia one might say that this is a market of only 18 million and raise the question as to whether it is worth following up but it may come as a surprise to the uninitiated that the average Australian is the highest per capita consumer of sports shoes and outdoor apparel in the world and the single store with the second largest turnover in the whole world is located in Melbourne and run by their premier retailer.

However, one must realise that both Japan and Australia are difficult markets and would require much inputs in terms of quality, sizing, fabrication, etc. and would require much hard work to successfully penetrate. As they say, no pain, no gain.

After the recently concluded World Cup match with South Korea the coach of the losing Italian team said, we did not lose the game, we just ran out of time. So let not the time run out on us, victory is ours, we only have to go out and get it.

(The writer was the founder vice chairman of Sri Lanka Buying Offices Association, a former member of the advisory board of marketing garments to the textiles ministry (1993-94) and has been CEO of a sourcing group responsible for Sri Lanka, Bangladesh and Pakistan for 23 years.)

In the article by Labour and Employment Minister Mahinda Samarasinghe headlined "The need for pension reforms" which appeared on page 2 of last week's Business Section, there were errors that crept in paragraphs 11 and 13 due to a technical problem.

The correct version is as follows:

"These indisputable eventualities have profound policy implications to the retirement system in this country, specifically:

* Currently for every 100 working age people there are 15 retirement age people, by 2025 for every 100 working age people there will be 32 retirement age people (not all working age people in the population are in employment).

Current pension schemes

The formal pension systems in Sri Lanka have two variants;

Public sector:

All government employees (0.9 million people) and teachers (0.8 million) are eligible to the public sector pension scheme (PSPS). There are currently 370,000 people drawing pensions."
The error is regretted.

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