Comment: Indifference to Lankan products

A young engineer who designed a workflow-monitoring system for manufacturing factories once recounted a bitter experience he faced when he introduced his product to a local manufacturer. The manufacturer was happy about the product quality, features and the price and he almost agreed to purchase it. But his final question reversed the deal when he asked where it was manufactured. When he got to know that it was made in Sri Lanka he refused to purchase the product. This engineer said that he could have sold his product even if he said it was made in Ethiopia.

This is the general attitude of our entrepreneurs and public (consumers) towards locally manufactured products. A software company owner related a similar experience he is facing when he markets the software locally. He said that our entrepreneurs are seeking foreign products and feel that if the product is imported it is superior and if it is local it is inferior. This sentiment is common from primary agricultural products to software as our products are considered inferior to those imported.

In the present global economy, countries which have opened their markets to specific countries through regional or bilateral trade agreements or to the whole world via WTO agreements face a similar situation. As a result many indigenous industries are dying. In Egypt, the fawanies (colourful traditional lanterns light during the Ramadan festival) industry are disappearing due to low cost Chinese imports. In developed countries low cost imports replace traditional industries and even display the symbols of some nations. At the Eiffel Tower in Paris, vendors sell models of the Eiffel Towers to tourists that are made in China. In Sri Lanka too Vesak lanterns, kites, reed hats, food, farm products and many more imported products are dumped in the market killing all domestic industries. If this is common around the globe how do we protect local products from low cost imports?

The time is not opportune to go for the protectionist model. We have to find solutions in this open global market. If we are unable to sell our products in the domestic market what is the purpose of all plans and dreams of our policy makers in developing SMEs as the backbone of the economy?

The theory of comparative advantage says that; "If a foreign country can supply us with a commodity cheaper than we can produce it, better buy it from them with some part of the produce of our own industry, employed in a way in which we have some advantage. If we apply this theory blindly we will continue to remain a consuming nation.

To start and sustain a product, the industry should have a fairly sufficient market. If the market is large, industries can get economies of scale and reduce the cost and price. But will we be able to produce on a scale where China and India produce due to their large domestic market and therefore our cost and price would be higher than importing them.

However, we should find ways and means to increase domestic demand for local products if we want to reap the fruits of investment we made on SMEs.

Some government policies have shown results. For example this year wheat flour consumption has dropped by 60% by increasing the tax. Simultaneously rice consumption increased. However, these results were achieved by increasing taxes and we are loosing this advantage too due to the trade agreement we have entered into. Therefore we should find a solution within the new trade system.

We have seen how multinationals and big Sri Lankan companies sell their products in the local market through huge advertising campaigns. They have been successful in changing even social attitudes. If we can employ the advertising campaign that is carried out by these companies to sell sausages, beverages and noodles to promote rice, rice products, cereal products, sweet potatoes, manioc and other local food products as nutritional food, the results would be impressive. The beneficiaries of such a campaign would be the poor farmers who produce it and face a crisis when they sell them, and finally the whole economy.

Increasing domestic demand for locally produced goods depends on a marketing strategy for them. You can't compromise quality and the price of a product and tell the consumers to buy local products to protect our industries. But the issue is that most of our products are equally good or at times even superior to imported products, but we fail in marketing them.

As a result the only SMEs who can survive in this market situation are those who sell imported items.

There should be more Government assistance to SMEs to cover marketing aspects too because these SMEs don't have money to spend on advertising, as such a campaign would cost more than their initial capital. On the other hand they are unable to get credit from banks for advertising. Some government agencies assist SMEs in marketing their products. But this approach is traditional and less effective. A broader national campaign to promote local products, concessionary rates in government media, sponsorship by financial institutions, tax concessions on advertising and marketing expenditure of these companies would help our SMEs to build a brand name and a strong local base. It would help them to sustain until they achieve the comparative advantage over other countries and finally go to the export market.