Comment: Is it about Brandix, or bad investment strategy?

Sri Lankan apparel giant Brandix last week unveiled its Indian investment Plan. Brandix will set up a state-of-the art integrated apparel supply chain city in India spanning a 1,000-acre plot of land in Andhra Pradesh. Brandix is not the first Sri Lankan apparel company to launch offshore operations.

Earlier a few Sri Lankan investors off-shored apparel manuf acturing to Maldives, the Middle East and some African countries.

However, after the phasing out of the Multi Fibre Agreement (MFA) these entrepreneurs vanished. The motive behind this first phase of off-shoring of apparel manufacturing was not known but it's a fair guess that it had to do with quotas, and comparative advantage on labour and material inputs.

Brandix's off-shoring at this stage of the industry is significant. Their launch has already raised some issues in the apparel industry as well as in the general investment climate of the country. Brandix heavyweights had attempted to dismiss these negative claims by assuring that this new investment in India would not come at the cost of growth in Sri Lanka.

The Brandix argument in favour of its decision is clear. The company claims that it is seeking India's ability as one of the fastest growing economies in the world to offer sale advantages and other strong business fundamentals. These include 'backward integration' of the industry for using cotton and fabric resources in India, and many more.

But the real issue is not the Brandix business strategy, but the strategy of the Sri Lankan apparel industry. Incidentally, Mahesh Amalean, the CEO of Brandix is also the Chairman of the Joint Apparel Association Forum (JAAF), the umbrella organisation of the apparel associations of the country.

Will off-shoring be the final strategy of the JAAF to face the challenges in the garment sector in this post MFA era of competition? If it is so, what would be the shape of the Sri Lankan apparel industry in the future? Can Sri Lanka attract new foreign direct investment into the sector? If Sri Lankan companies are compelled to offshore their operations, why should foreign companies stay in Sri Lanka? That would be a logical poser, along with the question 'what are the advantages these FDIs will have here?' Finally does it mean that the Sri Lankan apparel industry's dominant era as the country's largest exporter and employer is at an end?

Brandix's business strategy complies with the JAAF five-year strategy. One important strategy in the JAAF report is to transform the industry from a "manufacturer" to a provider of a "fully integrated service". Though the report does not propose off-shoring apparel manufacturing, it would arguably be the ultimate option of industrialists' choice, considering industry trends of many years after the report was launched.

But strategy implementation in the apparel sector has been a dubious area of endeavour. We heard a number of proposals in the budget to support the ailing industry. In post budget seminars organised by business chambers, we heard the Treasury Secretary Dr. P.B Jayasundara unveil textile and other accessory manufacturing plans to support the industry. But they remained plans, and did not materialize into fruition to satisfy the intense competition faced by the industry.

Export figures did not see a healthy growth both in US and EU markets. As we reported recently, new challenges are emerging in the sector with high wages being demanded by the workers. JAAF's five-year strategy also stressed the need to reduce the cost of industry utilities.

The report said that the cost of utilities in Sri Lanka is relatively higher than in other apparel manufacturing countries in the South Asian region. Utility costs significantly increase the cost of manufacturing. It is therefore necessary to focus on reducing the overheads. The report recommended utilities at reasonable rates, and alternate cheaper sources of energy for factories. But we know only too well that these remained plans and nothing else.

Under this climate it is not a surprise that the huge Brandix investment left our shores for greener investment pastures. The company's initial investment is $ 35 million and the five to seven years total investment is close to $1 billion with FDI from Hong Kong, UK and US companies.

Why did we fail to retain this investment in the country? Where did the promotion maestros fail, even though they have identified investment issues in advance?

We failed to implement all mega infrastructure projects, which were essential for our industrial sector development including thermal power plants, hydro power plants, highways and harbours. We failed to restructure the CEB and give the power needed by the industrial sector. Political machinations in the country as well as in the region have pushed back some projects to the unforeseen future.

The lesson Brandix has taught us is very clear. Our country is now not in a position to produce apparel to compete with our regional competitors leave alone the global big league. Where will our production come from?

Any politco-bureaucratic think-tank should carefully look at how India, the destination of Brandix - and China -- home for the world's largest off-shoring industries are conducting business today. Granted, that these are the world's brilliant growth juggernauts. But, even so, has our small country exploited our advantages to the fullest?