INVESTMENT OPPORTUNITIES IN THE

APPAREL INDUSTRY

The Project -
• To develop Sri Lanka into an international centre for the clothing
industry similar to other renowned centres such as New York, Paris and
Rome.
• To develop backward linkages with the apparel industry.
At present Sri Lanka’s average manufacturing lead time is a high of 90
days when compared to the competitors of the region. Strong backward
linkages are therefore essential for Sri Lanka to establish a “one stop
shop” for apparel requirements by building a strong support base for
the industry and thereby effectively reducing lead times for the industry.
• To establish forward linkages.
The apparel industry is heavily dependent on international buying
offices for export orders. With the abolition of quota in the year 2005,
the global apparel industry will make a significant transition to that of a
buyer’s market forcing Sri Lankan industrialists to market their products
directly to the buyer.

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 By developing marketing, product development, design capabilities and
logistics Sri Lanka will be in a better position to establish direct links
with international brand names thereby escalating up on the value
chain.
• To invest in technology.
In order for the Sri Lankan apparel industry to be competitive globally it
is of vital importance that the manufacturer focuses on upgrading their
technology.

The Potential -
The Sri Lankan Apparel Industry constitutes of 830 registered
enterprises in operation. In 2001, the top 25 manufactures managed
38.35% of the value of exports. As a result, there is a high
concentration of the apparel business in the large enterprises.

Sri Lanka’s main export markets are the US, EU and Canada.
The revenue from apparel exports has demonstrated a sustained
increase over the last 20 years, reaching its peak in year 2000 at US$
2,710.69 Mn.

As Sri Lanka’s largest export industry the apparel sector has

considerable potential for development. The opportunity/potential is
based on the following facts.
Although currently customers develop most of the design specification,
a few Sri Lankan enterprises have developed their capabilities to match
international design standards. The potential therefore exists for Sri
Lanka to become a total service provider for the global apparel industry.
This in turn will enable Sri Lanka to provide a more attractive apparel-
sourcing hub in the region.
• Reputed Customer base: Sri Lanka is already known in the
apparel industry for producing designer label clothing for reputed
customers in the US and Europe such as Tommy Hilfiger,

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 Victoria’s Secret, Liz Clairborne, Nike, The Gap, Marks &
Spencer, BHS, Next and Mother Care.
• Sri Lanka has earned a high reputation of being a quality
apparel manufacturer for the mass market: The potential
exists for Sri Lanka to set up operations in Sri Lanka to now
make an entry into the upper market segments and service the
high fashion industry. Companies in this sector are invited to set
up operations in Sri Lanka.
• The availability of a relatively disciplined, skilled and trainable
labour force.
• Compliance with international labour regulations
• Sri Lanka has a reputation of on-time delivery of Standard “all
season” products.
• Value for price: Though many other countries in the South-
Asian region are sufficiently able to offer lower CMT prices, the
price advantage does not in any way compensate for the
shortfall of quality.
• With the removal of the quota system internationally
competitive manufacturers can increase export volumes to
markets such as North America and the EU.

• The Free Trade Agreement with India provides another

opportunity to exploit the Indian market. India possesses an
upper middle class who has a relatively high disposable income.
In this environment Sri Lankan Apparel exporters need to tie up
with international design labels perceived to be up market and
effectively target this segment.

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Types of projects

Technology supporting the apparel industry

The technology levels of the apparel industry vary significantly at

present. The worker: machine ratio of 1.8:1 compared to a ratio of
1.2:1 of its competition highlights the fact of our dependence in
labour. The industry thus has far to develop to be abreast of modern
technology.
Investment in technology can be broadly categorized as;
a) Process and manufacturing technology
b) Marketing technology
c) Information technology

a) Process and manufacturing technology

This is capable of servicing the industry in the way of quick
response time and efficient manufacturing processes. Through the
use of diverse flexible manufacturing systems, product quality and
efficiency could be improved while decreasing cycle time and
inventory.

b) Marketing technology
Marketing technologies focus on new applications of Automatic
Identification and Data Capture (AIDC), Electronic Commerce and
Electronic Data Interchange (EDI) facilities to improve global supply
chain management and customer relationship management. This
effectively opens a window of access for the buyers into the
manufacturer’s site.

c) Information Technology
Information technologies focus on the effective use of
information to aid the efficient management of resources within

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 the organization. Enterprise Resource Planning software such as
SAP, Barn and JD Edwards, which help to effectively streamline
manufacturing operations, would add much value to the industry.

Linkages of the Apparel Industry

Backward Linkages –
Despite the growth in apparel exports during the last two decades
the development of backward linkages has been poor. It has not
been developed due the high cost of investment required for the
setting up of such operations and the relatively small market. Sri
Lanka therefore faces stiff competition from the countries that are
well supported by backward linkage industries.

Forward Linkages –

With the quota system soon to be abolished, the global apparel

industry has entered the stage of a buyer’s market. This in turn has
compelled Sri Lankan industrialists to market their products directly
to the buyer.
Therefore, it is essential that Sri Lanka develop marketing, product
development, design capabilities and logistics in order to establish
direct links with international brand names which moves us up the
value chain.

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Investment Opportunities

Ready access will result in Sri Lanka becoming one of the most
lucrative investment locations for the international apparel and
textile industries.
The following niche areas have been identified for the promotion of
private sector investment.

• Textiles (including dyeing)

Woven
Knitted
• High fashion garments
• Accessories
Buttons
Zippers
Embroidery
Labels
Yarn, thread
Elastic

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Seeking strategic partners

Sri Lanka has low technological, product, and design know-how. Joint
Venture business partnerships and building strategic alliances are
encouraged as an effective way of importing this knowledge in to the
Sri Lankan industry.

Investment Proposals

The garment/apparel industry is relatively easy to establish. However,

prospective investors will have to identify/provide for the basic
infrastructure facilities required such as electricity, telecommunication,
water supply, access roads, affluent treatment, solid waste
management…. etc. in their project plans, while the quantum of
investment is entirely at the discretion of the investor. BOI incentives
will be granted if the project conforms to specific criteria.

BOI facilitation is however available at all stages of the investment

process.

Further details –
A report prepared by the Sri Lanka Apparel Exporters Association is
available with the BOI. (“5 year strategy for the Sri Lankan apparel
industry – May 2002”).

The report contains details of:

• Technology supporting the industry
• Linkages
• Availability of skilled/ trainable labour force
• Opportunities
• Global apparel markets
For more details contact infoboi@boi.gov.lk