Whilst the export community continues to give leadership to the country by contributing to almost 30 percent to the GDP and making Sri Lanka cross the 6.8 billion dollars in export revenue for the country, an in-depth analysis reveals that there has been no shift in the strategic direction of exports during the last five years.

In 2001, total exports were around 4.3 billion dollars and today export revenue exceeds 7 billion dollars. However, the sectorial contribution remains the same. This clearly demonstrates that we as a nation have not influenced the overall strategic direction.

On the other hand if we take a country like India, we can see how the state identified a specific sector where the nation can have a competitive advantage and thereafter instilled policy reforms that led to attracting the private sector. The case in point in the IT sector of India.

Radical policy changes were made by the policy makers that have resulted in making India emerge as a dominant player in the global IT arena. This, in turn, creates a directional change in overall export strategy. That is what Sri Lanka requires. The last of such directional changes took place when the apparel sector was launched in Sri Lanka. This remains so to date though fast eroding.

India again is once again making a strategic policy shift that will affect the composition of the export industry. State of art Investment parks are being developed with up-to-date infrastructure facilities in Andra Pradesh. It is being marketed to the world offering competitive prices resulting in attracting leading global manufacturing operations of the world to Andra Pradesh.

We have seen top Sri Lankan apparel companies like Brandix deciding to set up operations in India. Sri Lanka needs to follow thesame strategy of dynamism to adapt to the changing global business climate. If we do not, in another five years the composition of the export industry will remain the same in Sri Lanka and may not be in sinc to the world market. Maybe, we will see India taking over the export industry of apparel that Sri Lanka currently has.

If we were to examine the causes that need a strategic change in direction in a country’s exports, it is because of the concept called ‘global product life cycles’. When a particular industry reaches maturity stage, at one moment supply exceeds demand in the global marketplace. At this juncture, a typical company could either differentiate one’s merchandise with concepts like branding or be the best cost supplier. Sri Lanka apparel industry strategy was the latter, with a competitive advantage of providing consistency in quality. However, with cost of power being the highest in the region, we have gradually lost this competitive position.

India having identified this inherent weakness in Sri Lanka, has changed strategy accordingly. Hence, it is important that Sri Lanka monitor the global market changes and influence policy changes to protect the country’s export industry.

To further justify the argument that Sri Lanka requires a strategic shift in export strategy development so that we can cover ourself to any loss in the garment industry, which accounts for forty three percent of the exports.

Let us examine the sub-sector performance during the last four years for a deeper understanding of this requirement.

Nearly 70% of total export earnings in 2006 were derived from 10 product categories. Namely garments (43%), bulk tea (6.5%), tyres and tubes (4.3%), diamonds (4%), tea packets (3%), petroleum products (2.4%), electrical and machinery (2%), tea bags (2%) and gems (1.7%). That remains the composition of the export revenue being the same as in 2002. Which means that at a macro level, the product mix we offer to the world has been the same. This further justifies the argument that we need to influence the directional change. If we do not have to change this composition, then research should validate the current course of action in comparison to the export performances with countries like Vietnam.

On the criteria of differentiation, if we analyze the top ten categories in the 2006 export performance, it is fair to say that Sri Lanka is weak on creating a competitive advantage by way of branding and value addition. Garments, tea in bulk, tyres and tube, which are mainly exported on a bulk basis, contribute to over half the export value of 6.8 billion dollars in 2006. If there has been some value addition done, it is only in the tea packets sector. But this sector had declined by 2.4 percent which is a major area of concern. Just imagine if we have greater value addition than exporting in bulk, what impact it can have on the top line. Maybe Sri Lanka’s exports would have touched 10 billion rupees plus.

In terms of charting the future course of action, take the garment sector which has contributed 43 percent to the total export revenue. For objectivity, let me take the number one export destination in the year 2006 – the US. Recent media reports have revealed that the Deputy US Commerce Secretary William Lash recently said: "China is a source of global piracy. Lash accused Beijing of failing to take seriously the rampant counterfeiting that is estimated to cost US businesses US$450 billion in the year 2005. (Source: CNN Interview – January 13, 2007). Lash, explained, the US is investigating the Chinese products based on the rules of the WTO. The United States deputy secretary further said 1442% increases in exports by China to the US took place in the first half of 2005 alone, which explains the magnanimity of the problem to the US economy. EU Trade Commissioner Peter Mandelson said in Paris on September 24, 2006, that China needs to curb the cheap textile exports to the EU. Given these developments, Sri Lanka has the golden opportunity to position our export industry as "Sri Lanka – for ethically manufactured products". It’s a claim that we can really create awareness globally and thereby be unique in the minds of our global customers and end consumers.

The Joint Apparel Association of Sri Lanka has developed a logo – Sri Lanka for a garment without guilt. This proposition makes Sri Lanka poised take the high ground on practices like strong ethical labour practices. The components of this positioning strategy could be empowerment of women, equality at the workplace. No sweat shop conditions in the manufacturing plants, no child labour being used. The need of the hour is for the policy makers to absorb the strategy to the 10-year vision of Sri Lanka and develop a national campaign globally. This can help differentiate a Sri Lankan manufactured garment from the likes of India, China, Vietnam, Bangladesh or, for that matter, Mexico, which is a large source base to the US market. This is just one such strategic shift Sri Lanka can pursue. I am sure there are many more hard decisions that can be made to policy for Sri Lanka exports to be stronger in the global marketplace.

For this kind of strategic shifts in policy requires a considerable focus on research. A country needs to move into a knowledge- based economy. If we examine the current spending on R&D in Sri Lanka, it is a mere 0.16 percent of GDP down from the 0.30 spent way back in 1996. This is even way below the investment by countries like Bangladesh and South Korea, which experienced phenomenal growth in the last two decades. These countries in the last decade increased R&D spending from 0.2 percent to a fantastic 2.8 percent of the GDP value, which explains the strategic thinking required to create a change in export strategy.

Scandinavian countries spend nearly 4 percent of GDP on R&D, whilst India has increased the investment to 1 percent of the gigantic economy.

The India Prime Minister once made a comment that R&D investment is the only way to make a country compete with the Western world. We need to take a cue from such statements as we see India pirouetting on the world stage of business at present.

Hence, we see that there has to be a strong directional change to the Sri Lanka export industry so that we can be receptivem to realities of the business world. This is all the more important, given that Sri Lanka’s long-term economic growth and economic stability depends heavily on the future of the country’s exports. If we were to diversify the export sector, we can also reduce the vulnerability the country has face vis-a-vis the shocks the world is witness to.

The key factor to remember is that an awareness to reality requires a strong private-public sector integration so that it will lead to a healthier balance of payments in the near future and sustain a higher economic growth which will make the dream 8 percent GDP growth a fact.

It will certainly benefit corporate Sri Lanka and drive down poverty across the country through wealth creation.