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Only Do What Only You Can Do

February 22nd, 2013

by Satya Patel

of Matthews Asia

Sri Lanka is a tiny country of approximately 21 million people, with roughly the same population as the city of Mumbai and a total land mass nearly as big as Ireland and slightly bigger than the U.S. state of West Virginia. Despite being diminutive relative to other Asian countries, exports are an important part of Sri Lanka's economy, just as they are for its neighbors.

Historically, exporters across Asia have benefited greatly from their access to large pools of relatively cheap labor. This combination of cheap and abundant labor has helped foster the large-scale production of goods across the region. For instance, Bangladesh, with its population of 150 million, has more than 4,000 clothing factories that employ more than 3 million people. While Sri Lankan companies cannot compete on sheer scale, they have wisely managed to carve out a niche in the production of more complex and specialized goods.

The focus on specialized manufacturing in Sri Lankan factories allows exporters to compete despite the country’s relatively high labor costs, which are roughly twice as high as in India or Bangladesh. Sri Lanka's labor costs are high for a variety of reasons, including the relatively high skill levels and productivity of workers and the country's low unemployment rate. For commoditized goods, for which manufacturers compete on price, Sri Lankan companies would struggle to underprice those in other Southeast Asian countries. However, despite their higher labor costs, Sri Lankan exporters have done well in producing higher value-added goods across many industries.

Textile manufacturers in Sri Lanka, for example, are capable of working with such high-tech fabrics as those worn by Olympic swimmers. In fact, many special types of elastic for swimsuits were created in Sri Lanka. In addition to their expertise in performance apparel, Sri Lanka has also been quite strong in the manufacture of automotive tires. While many global tire companies have rushed to set up plants for mass market tires in Indonesia, Sri Lankan companies are some of the world’s leading producers of solid rubber tires. Some of its tire factories produce large specialty tires, weighing more than 2,000 pounds each, that are used on industrial and construction equipment globally.

As the management saying goes, Sri Lanka competes by “only doing what only they can do.” Companies across the region may have access to larger and cheaper labor forces, but Sri Lankan manufacturers increasingly demonstrate innovative gumption.

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