Firms go overseas to mitigate risk in SL
Sri Lankan companies are taking their A game to other countries – partly because they are good at it and mostly to mitigate the macroeconomic risks in Sri Lanka.
A top investment banker said that companies are progressively seeing risks in operating in Sri Lanka. He pointed out that restrictions in importing raw materials, power cuts, and the exchange rate crisis have pushed more and more companies into eyeing overseas markets.
“This is especially true for manufacturing companies. Most of them are looking at going to East Africa and Bangladesh. It is also because they want to take the low labour cost advantage in such countries.”
A Colombo-based IT professional pointed out that business process outsourcing and knowledge process outsourcing firms are either going or looking to go overseas because the labour talent from Sri Lanka is becoming increasingly scarce owing to labour migration to greener pastures.
Analysts say that this trend to set up in other regions started over four years ago. Deshan Pushparajah, Managing Director, CAL Bangladesh said that the parent company, Capital Alliance wanted to expand abroad to take their expertise into a market like Bangladesh and to facilitate Sri Lankan businesses interested in investing in the 165 million-strong Bangladesh population. “Sri Lankan businesses started exploring markets overseas more than five years ago, when the economy was slowing down and when Sri Lanka relaxed its foreign exchange regulations in 2018.”
An economist said that the onset of the unprecedented economic crisis really showed how truly vulnerable the businesses in Sri Lanka are. “Trying to penetrate foreign markets has been a growing trend since then.”
He also added that over the years there were more Sri Lankan firms wishing to win on a global scale. “The trend to go abroad started in 2018 and these firms firmed up the plans over two years ago.”
Kushan Jayasuriya, Solar Industries Association Sri Lanka President told the Business Times that companies in the energy sector are looking at Uganda and Bangladesh to expand. “Already, many companies have set up in Africa. With the many issues in this sector, many others in the industry want to mitigate the risks associated with Sri Lanka. They also want to apply their technical expertise in the other countries.”
A tea industry analyst said that many tea companies are setting up in Kenya. Sri Lanka does not allow blending and these firms are exporting tea to Kenya from Sri Lanka and blending it there and re-exporting it to other countries.
Most recently, LB Finance PLC and Hemas Holdings PLC took their business and products overseas. LB Finance set up in Myanmar while Hemas expanded its fast-moving consumer goods product line to Bangladesh and is planning to venture into the region.
Construction sector analysts say that many construction firms are also venturing into African countries. “Basically, the construction sector is more or less doing pretty badly over here, and these companies have better markets, like Africa,” one analyst said.
According to the economist, medium-sized firms that didn’t think of leaving the shores are now trying to do so. Companies in the areas of electrical devices, processed food and beverages, mechanical devices, medical devices, and some tourism are trying to venture out. “They are still at the initial stages of exploring their options. But many are cottoning onto the idea of setting up elsewhere due to the limitations in the country.”
He also noted that out of these, certain companies would have ventured out to other markets anyway, because the Sri Lankan market has been saturated
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