Strengthening the dependence of clothing SMEs in Sri Lanka is good for everyone

By Joint Apparel Association Forum (JAAF)

Micro, Small and Medium Enterprises (MSMEs) are the backbone of any economy, and this is certainly true for Sri Lanka. MSMEs represent over 90% of all non-farm business establishments in the country and generate 52% of GDP. They also account for 47% of all jobs in a labor force of around 8.18 million.

The importance of MSMEs to Sri Lanka’s economy spills over into the economically essential clothing sector. In total, Sri Lanka’s garment sector is the source of nearly 48% of domestic exports and valuable foreign exchange, in addition to contributing 7% of Sri Lanka’s total GDP of $ 84 billion. In addition, the sector accounts for about 15% of all jobs in the industrial sector. These 350,000 jobs – including 20,000 in the SME clothing sector. Context is important to illustrate that the Sri Lankan garment sector, and its SME sector in particular, is exceeding its weight, given that these 350,000 jobs represent almost half of all export earnings in the country. Sri Lanka.

Disruption at the base

“Many large companies in this country and in our industry have started as SMEs,” says Hemantha Perera, president / CEO of Sarasavi Exports, a leading apparel manufacturer. Despite many obstacles, SMEs have played a vital role in the continued development of the garment sector in Sri Lanka. And they managed to continue to play such a central role, without requiring much support. “

However, with the onset of the COVID pandemic, the daily work of many apparel SMEs has been severely disrupted. The sector is now mobilizing in its call for structured support to relaunch its businesses. One of their main obstacles is the structure of the SME segment itself.

About 80% of SMEs obtain their market by working in partnership with large exporting companies. When Sri Lankan clothing performed well, it resulted in lower orders, allowing the industry to flexibly provide increased production capacity to larger players when needed.

“Traditionally, a continuous flow of orders has not been a feature of this industry. This is of course common in all clothing supply chains, which is linked to seasonal fluctuations in consumer demand, ”explains Rantha Tissera, Managing Director of Estilo Apparel, a medium-sized company that is one of SMEs. of Sri Lanka’s most vibrant clothing.

“Typically, we tend to expect orders to drop for about three months each year, and during that time, SME production lines are generally idle. Given our current position in global supply chains, it will be difficult to break out of these cycles if we continue to maintain the status quo. And this was all before COVID. ”

Funding adapted to a resurgence

With the onset of the pandemic, order cancellations hit clothing producers around the world. Given their already narrow margins, clothing SMEs around the world are seeing their business erode on a daily basis. In addition to looking for safe ways to return to work, apparel SMEs are keen to raise the necessary financial capital to restart their businesses.

“Even when there is work, accessing working capital will be a challenge that we will need help to resolve. It is essential that we identify precisely who among us needs urgent working capital to resume work. Beyond that, we need assurances that we can continue to operate safely without disruption, ”said Rushan Perera, Director of Sun Queen Garments Ltd.

“The reliance on the big guys means we rely on their orders to be able to pay our workers. Since they still face shortages, we cannot expect the SME sector to survive on the basis of what they are currently getting. Some of us have the resources to be able to manage, but not all of us. Those that have been able to demonstrate greater resilience are the SMEs that have managed to find and respond to stable niche markets. ”

While working capital is the urgent need of the hour, access to investment capital to purchase new machinery or upgrade their existing facilities will be essential in charting a more stable and sustainable trajectory for SMEs in the future. Sri Lankan clothing.

“Many SMEs have ambitions for growth but are unable to achieve them due to a lack of access to capital,” said Denver Jayasundara, COO of Rainbow Apparel. “Many SMEs wish to develop and market directly continuously by investing in brand image and technology. As an industry and as a nation, we must develop a strategy to facilitate such a strategy. ”

Vaccines essential to safely strengthen the capacities of SMEs

Most SMEs expect these conditions to last for a few more months. All view the serious possibility of a third wave of COVID cases with trepidation. Small business factory owners and workers worry about how safely they could operate. While there are logistical challenges given its size and wider geographic distribution, the consensus is that mass vaccination of the SME workforce is the only way forward.

“Our members employ more than 20,000 people, and over 90% of them have been vaccinated,” said Sri Lanka Chamber of Garment Exporters Secretary Rohan De Silva. “However, there are many clothing SMEs outside of our association whose workers will also need vaccinations and commitment to regain confidence and return to work.”

With orders flowing again to major manufacturers, Sri Lankan clothing begins to ramp up production. When foreign exchange is desperately needed in the national economy, it is essential for Sri Lanka to ensure that every available unit of production in Sri Lanka’s supply chain is brought back online.

The way forward: grassroots collaboration and innovation

In support of this, the Sri Lankan Joint Apparel Association Forum (JAAF) actively engages with its members to share best practices on security protocols, while strengthening coordination with public health officials and the government. in order to accelerate the vaccination of SMEs. sector too.

So how is the industry adjusting? Many companies support each other by sharing the flow of orders and redistributing work according to available capacity. By larger companies working in partnership and sharing a certain amount of its orders, helped SMEs to overcome their concerns about meeting delivery deadlines and returning workers to their factories.

“We will have to start thinking about vaccinating families afterwards,” Jayasundara says. “You don’t want workers to get sick because someone at home is infected and then have to stay away or create more panic. It will be difficult to get back on our feet if we face another protracted crisis. JAAF and larger actors are also working with national and regional health ministry authorities to speed up vaccination of communities linked to the garment sector. This is seen as crucial to revive these essential basic economies.

“This is also a good time to think about permanent long-term solutions”, says De Silva. “JAAF had a technology upgrade program for SMEs to meet sustainability and compliance needs. With the worst of this crisis behind us, we urgently need to consider relaunching these programs and adding training and talent development programs for SME workers. “

Many SMEs are also looking to specialize; for example, Ruwangi Fernando, COO of Adeem Uniform, operates an SME that produces school, work and hospital uniforms for exclusive buyers in the UAE, in addition to maintaining its own retail presence. Going forward, it is also exploring ways to expand its production to other specialist uniforms in the Middle East while developing a diverse product line.

In addition to working in partnership with larger companies, Estilo Apparel of Rantha Tissera produces highly specialized flame retardant protective equipment under an exclusive partnership with a single overseas buyer. Such work helped overcome the pandemic when subcontracts ran dry.

Another factor that many Sri Lankan SMEs are hoping for is the pursuit of SPG +. This would give them direct access to markets to meet EU demands for sustainability, ethical manufacturing and quality. The pursuit of GSP + by the EU will be like the seal of good management for other markets like the US and UK with similar PGS programs.

Apparel SMEs in Sri Lanka are resilient, but they also need a little help from their friends back home and hopefully new partners in niche markets overseas.