The role of the apparel industry to ‘restart Sri Lanka’

Dian Gomes 

The entire industrial economy took a huge hit with the COVID-19 pandemic. The apparel industry, the largest foreign exchange generator for Sri Lanka, which contributes $ 5 billion in exports, the second largest contributor to the national GDP and largest overall employer, fell victim to its detrimental impact. 

While the whole country and the world watched, this industry had to react immediately and bring to play all its sustainable plans to continue work. Speaking of how the industry was affected and how it is restarting is the veteran of the industry, Dian Gomes.

Gomes currently serves as the Honorary Consul of Georgia in Sri Lanka, and is the former Chairman of Hela Clothing, former Group Director of the $ 2 billion apparel enterprise MAS Holdings, distinguished alumnus of Wharton, Ashridge and Harvard Business Schools, President of CIM (UK) Sri Lanka division in 2001 and 2002, and presently sits on the boards of several private and Government organisations. He is the President of the Sri Lanka Amateur Boxing Association, and was the President of the National Olympic Committee in 2013. He was the first Sri Lankan to be appointed as one of the 14 members and currently serves on the Commonwealth Advisory Body on Sport. He was awarded the Business Leader of the Year in 2003 at the CIMA – Janashakthi Pinnacle Awards, and was named Business Icon of the Year 2012 at CIMA Leadership Awards, while being named one of Sri Lanka’s male icons by SLIM in 2007. He was awarded the Brand Leadership Award in the Individual category in Mumbai by the World Brand Congress, 2009. In 2019 he was conferred the title of Sri Lanka Sikkhamani, by the then President, Maithripala Sirisena.

Q: From an economic perspective, the apparel industry contributes the second highest earnings to the country’s GDP. In this situation, how do you see the economic impact that COVID-19 has had on the industry, both from a global and local perspective?

A: Looking at the current situation, the apparel industry during the last 30 years has gone through different and difficult situations, starting with the 30-year civil war. But Sri Lankans have been resilient all the time. The apparel sector especially has been a very cohesive group of people. JAAF, the apex body that runs the apparel industry representing large companies as well as SMEs, has been very focused. 

Looking at the current situation, the apparel industry is going to have a tough time, both locally and globally, because it’s predominantly exposed. Currently the retailers are struggling to survive, because hardly anybody goes to malls or shops on the streets. That has created a huge damage to the retail industry globally, on a scale that it has not happened before, where Europe, Asia and the US are equally affected. The actual impact will be seen in the third quarter depending on how well the global retail industry and economies survive and how fast they implement strategies to come out of it.

In terms of Sri Lanka, we have taken some drastic actions to mitigate the damage, to sustain the industry and for the welfare of the country and for the people as well.  

However, we need to see how we can mitigate the global risk. For that we may need to look at other markets as well. We have to be innovative, because we have to think out of the box now. Currently we are over-dependent on the US, and we do not know how the situation would be in the second and third quarters; how they will come out of the recession, how the customers would behave, because there are 40 million people currently unemployed in the US. But some of the countries will move into different modes of selling; more on the digital platforms, like Amazon. 

Large Sri Lankan companies have been looking at the future, more at innovation and digitalisation aspects to compete globally. So those companies are at least kind of ready, but our main concern is the SMEs. 

Q: With your experience, you are able to see and understand the overall picture. You see the inside and out of how companies are reacting to the situation. Do you think the way some apparel companies are handling the situation is justifiable?

A: Actually, the large companies – the top three being MAS Holding, Brandix, and Hirdaramani Industries – have the strength to face this issue in terms of capital, employees and technology. There are many medium scale organisations, like Timex Garments, and Hela Clothing, ones between $ 300-500 million revenue, who also can survive this situation. Then there are smaller companies within the $ 25-50 million range. All these companies don’t have cash reserves. This is going to be the first problem. 

Since they have a large employee base, the issue is how to maintain the overheads for six to seven months. Even though we have been told that incentives are given from the Government, there is yet to be a confirmation on this from the financial institutes. As a result, small businesses are facing a cash crisis. The large companies will face this problem in about another five or six months because they have existing orders. Both large and medium scale companies have reacted fast and got PPE orders, thereby filling their capacities. These organisations made swift decisions to replace usual production with the timely production of protective gear. This is actually a great strength. 

However, none of the factories have worked properly for the past few months. Salaries and other overheads have had to be paid but with no revenue. The organisations are continuing in a situation like this and trying to work out a way to proceed with the support of the Government to take the apparel industry forward. The government has taken strict measures to control and mitigate the effects of the pandemic. We have to be grateful to the GOSL for this, as we have controlled COVID-19 way better than most of the developed countries. Now what needs to be done is to get together with the Government and see how we can restart these businesses. 

It is important to recognise export-oriented industries as special cases and continue to work even when there is a curfew or lockdown. As a result, companies have been able to fulfil the orders with 50% or 30% staff presence. If we hadn’t done it, the confidence our buyers have in us, and in Sri Lanka, will be lost, and will affect future orders, resulting in a long-term impact. Taking this into consideration, large, medium and small scale companies have taken a decision to continue operations and accept orders.

At the same time, large companies have distributed portions of their PPE gear orders to the smaller companies. Globally, certain international relations have given Sri Lanka an opportunity to step in and produce this gear and expand the market opportunity. Therefore, I personally feel that the industry has handled the situation considerably well.

Q: Before Sri Lanka was affected by COVID-19, we saw its adverse bearings on other countries for several months. Did the apparel industry foresee the pandemic and take any preventive measures?

A: Not only the apparel sector, but the corporate teams of companies under all sectors such as tourism, aviation and agriculture, started the discussion about how COVID-19 would impact industries. This is the usual protocol when there is a foreshadow of a negative impact. Then they look at alternate ways that can be taken if we are hit. But this is a global issue. We knew that it will go from China to America and to the whole world.

The first thing that the apparel industry did was to see where the raw material was sourced, which is China. So we knew there would be a decrease in the raw material/fabric that we get. So we looked at other options, like increasing local raw material capacity or considering alternative material, and informing the customers about this.

The second step was to look at how the global market was affected. If exposure to the pandemic in the US is high, we look at Europe. But what happened in this instance is that it spread all over the world simultaneously. When that happens, it’s hard to plan for something like that.

Therefore, what we have control of at present are factors like how we restart our operations, about the health and safety of our employees, what are the incentives from the Government and banking sector. Companies have to think about all these avenues. There has never been a time before where multiple markets have crashed. These have been thought about, but the backdrop of the pandemic is changing daily. Today’s background will entirely change in a week. Fortunately, the Sri Lanka Government reacted swiftly and brought it under control, and corrected even the smallest mistakes. As a result we have been able to keep the death toll at 11, while thousands are dying in other countries. 

Factories have reopened. The Government and JAAF are regulating how these factories are being operated. The machines on the factory floor have been distanced. Social distancing is being maintained in all areas of factories. Such measures have been taken all across the industry.

Q: In your opinion, is that enough? There is a debate between what’s more important, the health of people or the economy of the country. In this debate, everyone is trying to find the best balance. Are the guidelines that have been given to get back to normal sufficient?

A: It is difficult for me to answer that. But given the circumstances, we have acted in the best interests of all. First is the interest of the employees, as well as the national interest. We can’t be irresponsible to not conform to the health guidelines. Most of these steps are mere self-discipline. It’s not the Government or the employer, but you need to be disciplined to do all those.

Along with this the State and private sectors have taken necessary action to comply with the Government for the welfare of the workers, which I think is great in a positive way, and I’ve seen the whole of Sri Lanka falling in line with it. Other than for a few foolish incidents, we have been fairly in control of a lot of situations. But it has also increased the cost to the employer. Because transport, food, hygiene, masks, all these costs have been added to the business, which the customer is not willing to pay for. So obviously, there is a huge cost in addition to the financial cost that the companies will have to bear at this particular moment. 

Now that will lead to another issue. In this whole scenario, there will be certain industries that will be hit very badly. The apparel industry has to rethink everything; the model, the way of working, the customer, whether we have to get into digitalisation, do we need to move from traditional clothing into medical wear, do we need to go into more masks if there is another pandemic, etc. So there are lot of questions to be debated and asked.

Q: Assuming that we will get out of this pandemic soon, what happens to the companies that decided to change their model – for instance, go into production of essential medical apparel? While it is a good idea in the short term, what’s the way forward for them afterwards?

A: I think this will give them the battle experience to go into other areas. Sometimes when people are pushed to the wall they react. Sri Lankans are good at reacting because that is why we have been very resilient and we will come out of this. But there will be a cost to all this. There will be companies which will go bankrupt, there will be companies that will have to lay off people, companies that will have to shut down factories, because that’s the reality and we need to understand it.

As Sri Lankans, we can’t allow the industries to collapse; whether its apparel, tourism, or aviation. The whole industry sector cannot collapse, because then it will have a domino effect – everything will crash. We need to understand that and take necessary action, which is also hard, and sometimes you have to take the bitter pill as well.

Q: As a country as a whole, as Sri Lankans, how do you think we should move forward? What should we do as a nation right now?

A: I think we are a very resilient country. The most important thing is that if you’re resilient, you will survive. We have survived a war, a tsunami, terrorist attacks; we have survived all kinds of things. But as Sri Lanka, we have always moved forward. So as a Sri Lankan, we have to think what is the best for our people, what is best for our country. We have to support local industries because most of the industries we talk about are very driven. Our export-oriented industries are badly affected because of the current situation overseas. But what about the local industries? We need to support them as well. The banks need to support, people need to support, we need to get them going so that the masses won’t crash, and the smaller industries should not crash. We need to always think, ‘buy Sri Lankan, let’s be Sri Lankan, and a united Sri Lanka’. When there is COVID, the focus should be COVID, let’s not bring anything else. As industrialists, Sri Lankans, or sportsmen, we need to think Sri Lanka first, we need to survive in this game.

Q: You said that the apparel industry has to think out of the box, it has to adapt and evolve, look at other markets, digitalisation, and all the avenues you spoke of. Are they doing it?

A: Yes.