ECONOMYNEXT – Sri Lanka firms with foreign investment or demanding global customers learns to raise standards and compete while protected firms may be left behind, participants of an online seminar said.
“The inconvenient truth is that if you look at Sri Lanka, all the firms that have developed very professional practices whether it’sproduct, service, employee, value proposition, have three factors in common,” Chanakya Dissanayake, Global Head of Investment Research, Acuity Knowledge Partners told an online seminar organized by the Friedrich Naumann Foundation and EconomyNext.
“Either they are forced to compete in anoverseas market with developed world competitor, they have Tier One global clients who impose the global best practices on them or they operate domestically with Tier One competition created by multinational corporations and best in the world.”
Dissanayake said services firms like the one he worked for was one type of example but it also applied to other sectors.
Though it started over a decade earlier with two dozen people it grew and was acquired by a Fortune 500 company.
“We were forced because we had all three of those factors we have operate in overseas markets, Tier One clientele and our competition was also world class.”
“But we are not the only one. If you look at our apparel industry because of their joint venture partners they got the same thing.”
Sri Lanka’s Millennium IT started off as a Sri Lanka based SME which competed against some of the best securities trading systems to win the Colombo Stock Exchange deal on its own merits.
The firm used Sun servers for its trading system based on innovative middleware, when competition was offering ‘mainframes’.
“So the question is, why should a small and medium enterprise now starting off pure local business should aspire to basically have this global professionalism?” Dissanayake asked.
“In my opinion they should do that to basically break the negative cycle. Because if you don’t have world-class professionalism in your products, we saw even in your employee value proposition you end up always with Tier 2 clients who can never pay you enough to have the world-class standards.
And that becomes a never-ending negative cycle. You can’t hire the best quality people, you can’t retain the best quality people, you don’t have enough resources or your finances or investors don’t trust you to give you the money to come up with that.
In Sri Lanka however Latin America style import substitution industrialization (ISI) to ‘save foreign exchange’ is widespread.
A Latin America style central bank was set up in 1950 by a US money doctor that has printed money and created chronic depreciation and forex shortages, had provided an ideal excuse for rent-seeking import substation firms to sell goods at ‘black market’ prices to consumers with state sanction.
A German Historical Economics style infant industry argument is also peddled by protectionists advocates though protected firms are now decades old and geriatric.
Sri Lanka’s Hemas Holdings which has operations in pharmaceuticals and fast moving consumer goods is operating in both Sri Lanka and Bangladesh competing against multinationals.
“If you’re a truly Sri Lankan company, my argument is you know the Sri Lankan consumer better,” Kasturi Chellaraja, Group Chief Executive, Hemas Holdings said.
“MNCs can claim to be knowing but your roots are here”
Last year we brought Clogard salt and amazingly it took off because we understood salt culturally.
In Bangladesh a variant of Komarika oil is sold which was relevant.
“So we’ve learnt that sometimes when we understand we will compete differently.”
Hemas is also in pharmaceuticals and recently bought an old established pharma firm, J L Morrisons. Sri Lanka’s government also promoted domestic drug making, giving buy-back agreements from the state health budget and protecting the firms from competition.
However many drugs are under price controls, in a reverse from the protection offered to other goods, amid warnings that such practices may create drug shortages when the value of the currency notes issued by the Latin America style central bank’s collapse.
In medicine it has been harder to push the protectionist argument as sick people get sympathy and it is less easy to get around politicians to exploit them with high prices.
Chellaraja said Hemas was focusing on cutting costs by tying up with bigger producers.
“For an example at a Morrisons while we supply to the government our strategy was already onboard two big Indian giants who using this plant to manufacture their brand and we tapped into supply chain of theirs.”
“Technically when you’re producing for 20 million I can’t get the best API (active ingredient) for that small volume, but when you go with the partner and say okay I will do this, you give me your supply chain raw material at your price.”
She said there were lots of media reports saying imports of drugs should be limited, but when the science was not there it cannot be done fast.
It was important to give high quality medicines at affordable prices, she said. (Colombo/July23/2021)