Interview with Mr Kumar Mirchandani

The Joint Apparel Association Forum was established in 2002 as the apex of the industry encompassing all industry trade associations. Responsible for formulating and implementing a strategic plan for the industry, this process is driven by eight sub-committees headed by industry leaders. The eight areas of focus are – marketing, logistics and infrastructure, backward integration, small and medium-scale enterprises, human resources, technology and productivity, labour, trade and finance. The JAAF is also instrumental in positioning Sri Lanka Apparel as an ethical sourcing destination through its ‘Garments without Guilt’ campaign.

JAAF is also now known as 'Sri Lanka Apparel'

The country’s apparel exports in 2008 was at US$ 3.3 billion, approximately 270 factories employing about 1 million people directly and indirectly and contributing nearly 10% to the GDP. In approximate terms the industry value addition now stands at 60%. Industry is also the second largest foreign exchange earner for the country.

We are a small island economy of just 21 million people and a GDP of $42 billion, yet Sri Lanka Apparel supplies over 1% of the clothing needs of the European and American consumers. Sri Lanka Apparel had its modest beginnings in the early 70’s and grew rapidly enjoying the benefits of the MFA assured guaranteed market access. In the last three and a half decades, with exposure to sophisticated customers and retailers and focused reinvestment back into the industry, Sri Lankan entrepreneurs transformed themselves from mere tailors to total solutions specialists.

With these world class manufacturing facilities backed by a highly competent workforce, Sri Lanka Apparel gained international repute as reliable and quality manufacturers with an emphasis on innovation. Over time, Sri Lanka Apparel built its competencies around five key product groups: intimate apparel, casualwear, active and sportswear and children’s wear. In fact, Sri Lanka is seen to be emerging as the ‘lingerie capital of the world’.

As a leading innovator in the global supply chain, commanding the confidence and trust of leading international brands such as Victoria’s Secret, GAP, Marks & Spencer, NIKE, Abercrombie & Fitch, Tommy Hilfiger, Triumph, Ann Taylor and many more, Sri Lanka Apparel is now at the forefront of ethical manufacturing, an area receiving great global attention and preference supported by sophisticated operations servicing high-end niche categories.

Sri Lanka’s apparel industry is dependent on two major markets, the United States and the European Union and currently the share of exports to these two regions is about even. Both of these markets have been hit very badly by the crisis and the clothing retailers based in the US and EU are struggling to survive with many filing for bankruptcy and others consolidating, cutting costs and downsizing. The low market sentiment and the consumer spending in clothing reducing drastically, the net sales turnover of the majority of clothing retailers has a negative growth.

Low sales turnover naturally indicates that the retailers are buying less at cheaper prices making the producer nations compete for these reduced volumes by dropping price and Sri Lanka has to compete with low-cost nations such as Bangladesh, China, and Vietnam for their piece of the pie.

Unfortunately for Sri Lanka’s apparel industry, despite efforts to improve productivity and adopting lean manufacturing methods, the cost per unit still remains higher than its top competitors such as China and Bangladesh due to several factors; the increased cost of utilities and general inflation etc due to escalation in the war (at the time), cost of sustaining high levels of social and environmental compliance which made it difficult to compete with these low cost countries.

Many firms are struggling due to above impact and other macro-economic issues peculiar to Sri Lanka which makes the industry less competitive in comparison.

At industry level, through the Joint Apparel Association Forum (JAAF), the industry lobbied to obtain concessionary rates on utilities and tariffs as well as obtaining the Export Development Reward Scheme which would offset some of these extra costs incurred by exporters to successfully compete.

In addition, Sri Lanka Apparel realized that it cannot simply compete on price alone and aggressively marketed its ethical positioning under its ‘Garments Without Guilt’ campaign to its customers to either obtain a fairer share of orders or a better price.

At firm level, various companies took various steps to mitigate the impact by consolidating their businesses, streamlining processes and adopting lean manufacturing practices and increased contact with customers etc.

Sri Lanka’s Apparel Industry can proudly claim that it has been at the forefront of social responsibility in Asia, having conformed and complied with the norms of ethical sourcing which is backed by strong legislation. Sri Lanka is in fact the only outsourced manufacturing country in Asia which has ratified all 27 International Labor Organization (ILO) Core Conventions covering areas such as prohibition of forced labour and prohibition of child labor. In addition, the country’s strong legislation demands safe and healthy working conditions, governed hours of work, social and security fund contributions and environmental protection standards.

Also, long term relationships with large, reputed retailers who have established standards of manufacture and compliance have also reinstated this focus on ethical manufacture and an approach to Corporate Social Responsibility that responds and caters to the needs and concerns of a diverse set of stakeholders. The association with global brands of international repute has not been a mere business transaction but more an exercise in maximizing value of wealth creation for society.

On the environmental aspects too Sri Lanka Apparel supports many initiatives focused on minimizing its impact on nature. Every effort is being made to create sustainable growth by protecting the environment, both at the workplace and in the community. International standards of recycling, effluent treatment and waste management practices are followed to run the operations at optimum environmental efficiency.

The realization of the value of industry’s inherent best practices and strong ethical thinking positioned the industry on an ethical sourcing platform under the theme ‘Garments Without Guilt’. And with the growing global interest focused on how, where and by whom products were made, launched a self initiated industry-wide examination and certification program conducted by Swiss based SGS Group. The GWG Charter assures our product to be free of child labor, free of forced labor, free of discrimination of any kind and free of sweatshop practices.

The lag between the economic slowdown from our key markets (US & EU) to the consequent economic slowdown in Sri Lanka gave a small window of opportunity to the exporters to make necessary adjustments to their marketing strategy, lobby with GOSL for tariff reductions, reductions in energy costs and other relaxations as well as focus internally on streamlining their processes and rationalize their businesses. But there is no excuse for unethical behaviour, no matter what the economic conditions are. This is the message Sri Lanka Apparel is sending and we hope the buyers notice and appreciate this.

There is no excuse for the retailers to cut corners when it comes to Ethical buying as well.

In 2008, our performance to the two major markets were about even - EU (48%) and US (45%). In 2008, we exported US$ 3.3bn, out of which US$ 1.6bn was to EU and US$ 1.5bn to US. Product between knit (US$1.7bn) and woven (US$ 1.6bn) was also about even. In the first half of 2008, we have exported US$ 1.5bn with slightly higher exports to EU than US.

Certainly! Retailers have to contend with difficult economic conditions for consumers so obviously they will have to restructure their business models to remain profitable. The changes to buying patterns, inventory levels, product offerings and so on will ultimately impact sourcing strategies.

However, my contention is that the cheapest FOB price alone should not be the deciding factor when choosing vendors.

As much as Ethical Manufacturing is a must-so is Ethical Buying!

Well, the very phrase says it all, doesn’t it? Lean, mean and green - it’s the very nature of our business success today.

My pleasure too.