• Late marriages, migration curb housing loan demand
• Rights issue, bank loan to finance NIC buyout 
• Mind your Business 
• RANSI scheme has plus and minus points
• Sri Lankan inflation at 16 percent in May
• Garment magnate calls for SL caucus overseas on quota issue
• Ceylon Continental aims for first 6-star hotel status
• Is depreciation counter-productive?
• Corporates, children and social responsibility
• Feature
• News
• Ceylinco Travels now in seven key towns -  Shipping & Aviation

Late marriages, migration curb housing loan demand

By Hiran Senewiratne

SMIB chairman, Dr Gamini Fernando, said the demand for housing loans fell due to delayed marriages as people didn't have enough money to settle down. Increased family planning meant that if a couple had less or no children there would be no urgent need for a house while migration to the Middle East has delayed house-owning plans. He said an economic slowdown also resulted in lower demand.

He said on the other hand the entry of new players in the housing finance industry did not have a major impact on SMIB's competitiveness.

Total loan approvals last year fell to 1.5 billion rupees from 1.7 billion rupees in 1999, but Dr. Fernando noted that this had much to do with an overall decline in loans to all sectors in the banking sector than any other reason.

He said the SMIB has to handle public money with responsibility, resulting in some delays in the approval process, which may have discouraged potential borrowers to apply for loans. The bank gave 7,000 loans to the public last year without pursuing any vigorous advertising and publicity campaigns unlike the competitors.

New players in the housing finance market are some commercial and development banks and earlier this month, the Ceylinco Savings Bank.

The majority of SMIB's loan approvals are secured against property mortgages, fixed deposits and balances in the Employees' Provident Fund. The bank has five branches in Colombo and outside and is planning to open a branch in Jaffna later this year. 

Rights issue, bank loan to finance NIC buyout 

By Chanakya Dissanayake

Janashakthi Managing Director, C.T.A Schaffter, said 100 million rupees would be raised through the rights issue while the remaining 350 million rupees would come from a consortium of three banks.

The takeover of the NIC is expected to raise Janashakthi's market share in the insurance market to 12 %. Janashakthi General Manager, Prakesh Schaffter, said the takeover would raise Janashakthi's non-life insurance portfolio to 1.1 billion rupees and the life portfolio to 450 million rupees.

"We are still in the negotiation stage with the government. 

"How NIC will be combined with the existing business and the structure following the takeover are matters yet to be finalised," Prakesh Schaffter added.

Mind your Business 

Wage war waning

In fact, those who burned the midnight oil studying the wages structure in the state sector have proposed salary increases but the powers that be are not too keen to pursue them. Go-slow boys in the treasury have been told the government can't afford such luxuries right now, what with war expenditure expected to spiral. Any pay hike then, will perhaps have to await the next hustings

What's in a trade name?

The reason? A proposal to make non-trade name prescribing mandatory, an idea that has the support of the doctors' trade union. That would spell doom to the drug trade, the industry fears and the present effort is to prevent the proposal being made law so that the choice is at the discretion of the doctor.

Brokers play musical shares

But brokers there are a bunch of optimists and they still see a silver lining in the near future.

Investors not colour-conscious

Overseas investors are not buying this line but then, hope springs eternal.

RANSI scheme has plus and minus points

The bank last week announced the launch of Rupee Account for Non-Resident Sri Lankan Investment (RANSI) scheme, which will enable investments in government securities, company debentures, unit trusts and property. 

The returns from these investments, both interest and capital inclusive, can be remitted out of Sri Lanka without any restriction.

In the short-term it is expected to attract significant foreign inflows to Sri Lanka. The prevailing high interest rates combined with the facility to remit the whole investment will make investing in Sri Lanka a viable option, analysts said. Low interest rates for dollars in the global markets will also be favourable to the scheme.

However, the move also drew negative comments from analysts. "This is effectively borrowing dollars at the prevailing 18%-19% rates. 

"The government is better off obtaining commercial borrowing from foreign commercial banks," said Ajit Colonne, an economist.

He said that this could encourage currency speculation by non-residents. "If there are provisions to retain capital amounts for at least one year and allow only the interest element to be remitted back, the scheme will be more effective," Mr. Colonne added.

Sri Lankan inflation at 16 percent in May

The department said that annual inflation on the basis of a 12-month moving average rose to 11.5 percent in May from 10.3 percent in April. Price increases last month were registered in sugar, fresh milk, condensed milk, Lactogen, salt, garlic, red onions, butter, beef, potatoes, most varieties of fresh fish, vegetables and fuel.

"The price increases in food items can be mainly attributed to the short supply of consumer goods to the main markets in Colombo city and the hike in prices of fuel," the department said.

Garment magnate calls for SL caucus overseas on quota issue

By Dinali Goonewardene

These concessions have already been granted by the US and European Union to the country's competitors, Chairman, MAS Holdings (Pvt) Ltd, Mahesh Amalean told a recent conference organised by the Chartered Institute of Management Accountants.

This lobby should be supplemented by a pool of world-class negotiators who would negotiate on behalf of the country regardless of the industry, Mr. Amalean said. While this team would have the negotiating skills, various technical teams would support them with specific knowledge. Alignment to a strong and lucrative trading bloc would also help the local industry, he said.

Mr. Amalean also sees the need for a change in labour policy. While international buyers stipulate that workers should not work in excess of sixty hours a week unless local laws deem otherwise, Sri Lanka's factories ordinance restricts overtime to hundred hours a years or six hours a week. 

Although not enforced in practice the law should give way to more flexible provisions since manufacturers are under increasing pressure to deliver on time and reduce lead times, Mr. Amalean said.

International buyers require compliance with local labour regulations and this restriction is impossible to adhere to, he said. While wage increases should be linked to productivity, government support to foster responsibility among unions is also sought. Present labour laws and practices provide ample room for unions to flex their muscles although opportunities for management to drive productivity related wage bargains are limited.

The need to provide investment incentives to foster areas such as fabric, design capabilities and information technology to enable a full service industry to develop was also highlighted by the MAS chief, who is a recognised figure in the local industry.

The Sri Lankan apparel industry has been a success story primarily due to quotas under the Multi-Fibre Agreement. While 60 percent of apparel exports are to the United States, 90.4 per cent of this is under quota. With the end -in 2005 - to preferential trading fast approaching, the industry's future hangs in the balance.

Ceylon Continental aims for first 6-star hotel status

U.K. Sharma, chairman of Hotel Services (Ceylon) Ltd., the owners of the hotel, told The Sunday Times Business Desk that the company had applied to the Ceylon Tourist Board for six-star hotel status.

"This means a major improvement in service, food and hygiene standards which we are doing at the moment," he said adding that the Tourist Board, which has authority to grade hotels only upto five-star status, has referred the application to an international grading organisation for ratification.

Mr. Sharma said they hoped to get the six-star grading by October when the entire renovation programme at the hotel was completed. If that happens, the Colombo Continental Hotel would be the first hotel here with a six-star rating.

But even before the dust settled after a soft opening of the hotel in March, under the re-launch programme, the hotel had differences with the Jetwing group which was earlier this year appointed to manage the property and handle sales. Sharma said due to differences of opinion in some of the clauses in the agreement, the management and sales contract with Jetwing was terminated by mutual consent.

"We had a few problems in fulfilling some clauses and both sides then decided to terminate the contract," he said without giving details. Jetwing officials were not available for comment.

The hotel chief said he opted for a local company to manage the hotel instead of getting a foreign party like the earlier global Intercontinental chain but the exercise unfortunately didn't work "The owning company has now decided to handle management and sales and we are getting fully involved," said Sharma, an Indian national married to a Sri Lankan.

The directors of Hotel Services Ceylon Ltd are U.K. Sharma, E.A.P. Edirisinghe, Jeevaka Edirisinghe, Palitha Edirisinghe, Lal Edirisinghe, Ms. S.K. Sharma, P.K. Sharma and Ms. R.L. Samarasinghe. The Sharma family has a 98.7 percent stake in the company with the other directors being nominated ones.

Mr. Sharma, who has business interests in several countries and operates from Colombo, said he was optimistic about the growth potential in the industry and the hotel in particular. The Indian businessman bought a majority stake in the hotel two years ago and then had differences of opinion with the international hotel chain that had been managing the hotel for decades. Due to unresolved issues, the management contract was not renewed and the company decided to run the hotel with 100 percent Sri Lankan staff.

The company is forecasting 40-45 percent occupancy this year. "When we launched the soft opening in March, the hotel occupancy was 4-5 percent, in April it rose to nine percent and today it is at 17 percent. Things are looking up," he added.

Is depreciation counter-productive?

This was again based on the premise that agricultural exports could not be increased and that there would not be an increase in world demand for our agricultural exports in response to lower dollar prices. In fact there were fears in some quarters that international prices for our tea would in fact decrease as a consequence of the depreciation of the rupee. Have these fears been vindicated?

The fears with respect to exports arise from the fact that in the first quarter of this year dollar export earnings from our main export, garments, declined by 2.7 percent, reversing last year's export earnings growth of 21 percent. Interestingly, while dollar export earnings decreased rupee export earnings increased by as much as 14.6 percent, according to Central Bank statistics. Does this mean that garment manufacturers expanded their exports or retained their markets by reducing dollar prices? In which case what has happened is that the exporters have gained in rupees while the economy has lost foreign exchange.

Since the performance of exports have to be judged on the basis of foreign exchange earnings, in as far as the economy is concerned this development may be detrimental to the trade balance and the balance of payments. Whether it would have a long-term beneficial impact is a question that cannot be answered at this point in time. As to what would have happened to garment exports if there was no depreciation, is indeed a moot question. In the case of most other industrial exports, their export earnings have increased in dollar terms and therefore increased even more in rupee terms. There are fears that dollar tea prices have decreased owing to the depreciation of the rupee. It is difficult to determine this on the basis of the available statistics.

In the first quarter of this year agricultural export earnings grew 1.1 percent in dollar terms and by 18.8 percent in rupees. It appears that international tea prices may have fallen somewhat owing to the depreciation of the rupee. This too cannot be conclusively determined on the basis of the available statistics.

On the import side we find that consumer goods imports have risen by as much as 13.6 percent in dollars and by 33 percent in rupees. Therefore it very clear that the depreciation of the currency has not had the desired impact in curtailing even consumer imports. This was expected, as a very large proportion of consumer imports is essential items, like rice, sugar, milk and other foods. However, total imports have declined by 2.8 percent owing to a decrease in intermediate or raw material imports by 6.4 percent in US dollar terms. Since there are no reasons for petroleum imports to have contributed to the decrease, the curtailment of raw material imports is likely to have been due to lesser industrial activity.

The available trade statistics for the first quarter of this year do not provide adequate information to make any definite conclusions. Yet there are early indicators that suggest that the depreciation of the currency may have been ineffective in improving the trade balance. There are fears that the depreciation may have depressed export prices of our main exports and it failed to curb consumer imports, despite the rate of effective protection too being increased owing to increased taxes on top of the depreciation.

The early indicators of the first quarter's overall statistics give rise for concern that the feared adverse effects of the depreciation of the rupee may have occurred. This should be determined by those who have the full array of relevant statistics. The detailed trade statistics should be studied and analysed to determine the impact of the depreciation of the currency on our trade objectively. Maybe economic theory unimaginatively applied has once again been proved wrong.

Corporates, children and social responsibility

By Feizal Samath in Kathmandu

Kathmandu, nestling amidst the Himalayas, is cool during the day even during the "hot" season in South Asia which is probably why most United Nations" agencies have thought it fit to locate their regional offices here.

One of the more popular stories doing the rounds as to why UN South Asian offices and regional offices of non-governmental agencies are located in Kathmandu, which is not as developed as India, Sri Lanka, Bangladesh or Pakistan, is because the cost of running an office is cheaper and it is a nice place for expatriates to reside.

While Mount Everest, the world's tallest mountain, is certainly the draw, there are other attractions like trekking, clean air and wildlife.

The reason I spent a couple of days in Kathmandu last week was because UNICEF, the global UN Children's Agency, brought together business leaders, children and government ministers and officials for a regional summit to promote investing in children.

What a summit it turned out to be with 17 children in the region stealing the show from the adults and even questioning them on all kinds of promises they made towards child welfare.

Participants from India, Pakistan, Bangladesh, Sri Lanka, Nepal, Bhutan and the Maldives took part in the four-day tripartite discussion which first saw children and corporate leaders meeting separately. The two groups then met together at an interesting session that virtually threw business leaders off their feet, trying to respond to grilling by children on social responsibility and children being employed in the worst forms of labour.

It was not the usual "talkshop" type of UN conference because the children stressed that they would hold corporates and governments accountable for promises made at the meeting. 

"We will ensure, at least through the media, that all kinds of assurances and promises made at the meeting are kept," vowed a Pakistani girl.

Sri Lanka's Bank of Ceylon chairman Ken Balendra, who played a key role as a prominent regional business leader, said children expect commitments backed by action. 

"They wanted our involvement in promoting quality basic education and good quality health care for children. They want us to stand up and be counted among those advocating actively against child abuse," he said.

While presentations by government delegations hardly contained new information about the country's status vis-a-vis children, statements and comments by business leaders brought a breath of fresh air to the conference.

Mr. Balendra, who along with Maldivian businessman Waheed Deen impressed many of the delegates at the meeting with their forthright remarks, noted that many in the private sector were committed to the concept of social responsibility while the adoption of best practices in corporate governance was fast gaining momentum.

"Don't just go after (our) financial resources. We have management and organisational skills that can be applied in school management; we have human resource development approaches that can be adapted to train teachers, health workers, social workers; we have financial acumen that can be applied to budgeting; and our emphasis on profitability, a return on investment, can be put to good use in social sector reform, in identifying ways in which social investment can yield a higher return. Why waste money on schools and education systems if children fail to learn?" asked the Bank of Ceylon chief.

Mr. Balendra said corporate leaders attending the summit had asked UNICEF to work with us and facilitate "our ability to enhance the practice of corporate social responsibility with special emphasis on children".

Maldives' Waheed Deen said that while corporates in the region were prepared to help children in providing time and financial resources to governments, they must be treated as equal partners and there should be transparency in the whole exercise. 

"When we invest in children through governments, we need to know where the money goes or whether it is being actually spent on children, not on buildings or other activity."

One of the issues that business leaders raised with children was a no-nonsense business plan. "Come up with a business plan and we will support you," a businessman told the children. And indeed they did! The children, after a group discussion came up with a tentative plan to invest in children which they said would be expanded in time.

Ranjit Page, managing director of Sri Lanka's Cargills group who also took part in the corporate deliberations, said the conference was an eye-opener for business professionals like him. "Look, this has opened my eyes about what more we could do for children," he said adding that there were a few ideas that he wanted to suggest to Mr. Balendra in the formulation, hopefully, of a new agenda for Sri Lanka's corporate sector to care for the country's deprived children.

While many companies are involved in big and small charity projects as their share of social responsibility, these are mostly in one's own backyard and do not involve the entire community as a whole. 

What is required is a programme of action by the corporate sector, acting as one, and handling mega projects that provide some meaning to under-privileged children across the island.

As Mr. Balendra said, the corporate sector has the financial means, human resources and skills to help children. Investing in children makes a lot of business sense. Who knows the poor child who is guided by the private sector through hard times and through to university education could be the CEO of tomorrow, the prime minister or even president of the future and last but not least a cash-paying consumer.

Investing in children also has long-term benefits like ensuring that children get a decent education and don't fall into the all-too familiar trap of drugs, crime and prison if they are idle.

Whether this meeting will also end up the way of the dozens of international "talk shows" is left to be seen. But what is strikingly clear is that the children are certainly no pushovers and are not going to treat this as a one-off event. 

They are going to probe, prod and push corporates and governments to do more for children, within the UN structure or outside.

A taste of their determination to take on the adults was evident at Kathmandu. "Why weren't we included in the drafting committee that prepared the concluding resolution at the meeting?" asked one girl. This was met - as usual - with a patronising answer by an official, "Good question, good point. We will not make that mistake again."

But when asked later whether children would be part of the drafting committee for a major UN summit in September in New York on children, and that the same mistake should not be made like in Kathmandu, the response was rather poor.

"I can't make you promises but the views of children would be taken into account when the final (New York) draft is prepared. 

It would be adults who would be on the drafting committee," one official said.

Then why make a song and dance about the need for children to take a major role in decision-making on children's issues? If children are to be a part of the mechanism that decides their future, then why exclude them from the key decision-making process?

Is decision-making the preserve of bureaucrats and bureaucrats alone? Also the drafting committee did not have representatives from the corporate sector. Why? Both children and corporate leaders played a key role at the meeting and certainly helped to liven up what would have otherwise been a stereotype UN session of government ministers and officials talking about achievements in the past and what should be done in the future.

Let's hope that the move to bring children together and take on the adults on equal terms would herald a new beginning in the search for a world that would adequately recognise children's right to education, health and decision-making among other issues.

It is still not too late to involve children in the drafting committee stage at the UN special session on children next September that brings together an array of world leaders including Sri Lankan President Chandrika Kumaratunga, to decide the future of children to the year 2010.

Ten years ago children were not part of the UN summit on children that decided on the course of action for the next ten years. 

Ten years later, children have became a part of this process and have demanded a role in it.

In that sense, isn't it unfair to deprive children the right to be represented on the drafting committee? Hope the UN would bend its rules a bit and depart from tradition to accommodate children even as observers in drafting the final resolution in September that would decide their future.

Colas versus Elephant House – who's winning the heavyweight bout?

A former chairman of beverages giant Coca-Cola once said that there was no competitor to coke other than water and tea.

"Our main competitor is water and then tea, which is a traditional drink," the former Coke chief once said.

The beverages market in Sri Lanka has progressed from locally-made soft drinks to Colas by global rivals Coca Cola and Pepsi, both making giant strides in recent years and giving indigenous soft drinks bottler Elephant House a run for its money.

Millions of rupees are annually poured into advertising by the three main players in the local industry to promote brands, raise volumes and increase profits. There are other small players who are unfortunately swallowed by the three giants, through an unlimited resource base.

How is the local beverages market faring? Is the competition stiff between the three main players? In this special feature, journalists Chanakya Dissanayake, Akhry Ameer and Feizal Samath take a look at the beverages industry, its growth potential, claims for market share made by players and one of the unique features of the Sri Lankan consumer.

According to industry sources, Sri Lankan consumers have a preference for sweet, low carbonated drinks whereas Colas are less sweet, high carbonated drinks. This is one of the reasons for Coke and Pepsi to move into a special range of drinks that suit local tastes.

This for instance is unlike in other countries in South Asia where Colas drive the market as against local brands.

While Elephant House is more than 100 years old, Coke has been in existence since 1953 through its local bottler with Pepsi being a new entrant and just eight years old.

The industry is also facing some competition from the new range of fruit juices in packets and an array of fresh milk products, also in packets.

The consumer trusts us-Elephant House

Earlier you adopted a mass marketing approach. Consumers used to ask for Elephant brand rather than the individual product like Necto or Lemonade. But now we see a clear, different strategy and aggressive advertising to create a separate identity for each brand. Has it been successful?

Yes. It has been very successful. We have recorded above industry-average growth and achieved the market leadership position. The differentiation strategy is customer driven. We have understood both the customer and the soft drinks market in Sri Lanka better than our multinational competitors.

The annual growth in the soft drink sector is around 5%. This fluctuates with the weather and the economic conditions. Our growth has been constantly higher than the industry average.

What is your advertising strategy?

Our overall spending on advertising is much lower than our competitors and the industry norm. Our advertising is much more objective and result oriented. Once again this is derived from our better understanding of the local consumer.

Soft drink buying is impulse oriented. Advertising contributes significantly towards building up brand image and equity.

What are your main strengths, when compared to Coke and Pepsi?

Our main strength is the trust the consumer places on Elephant House products, which is built over a long period of time. Sri Lankans also prefer natural products like Ginger Beer.

Our distribution network, which has 80,000 retailers islandwide, is also one of our main assets.

What are the new opportunities you see in the soft drink market?

There is a growth for liquid milk. Also there is a demand for natural fruit juices.

Consumers are shifting towards more natural drinks. Our success in Ginger Beer is partly attributable to that trend.

We also launching new brands and re-launching some of the older brands continuously. Recently, the re-launching of Lemonade was very successful.

What is the possibility of launching Ginger Beer as a global brand?

We are investing heavily in Ginger Beer. The Ginger Beer can has a potential to become a global brand. Already we are marketing the product in Australia.

The trend in western countries towards natural drinks is favourable to our Ginger Beer. We are also exporting to Europe on a limited scale.

We have positioned Ginger Beer as an all-natural drink in the overseas market.

Difference in taste between Pepsi and Coke

Coke and Elephant House are the other two big brands that Pepsi and Ole have to compete with. What is the local competitive strategy for your two brands?

Our main strategy is that we try to give the best product, whether it is a cola product or another flavour in this market to the consumer. We have done a lot of research to find out the real consumer preferences with regard to taste, their impulse buying patterns and what they look for in a carbonated soft drink and we try to differentiate our products from our competitors.

You might think that all cola brands are the same, but if you go into the consumer taste preferences they always observe a difference in taste. 

With regard to our other brand, Ole, we wanted to give the local consumer the local taste. The Ole Apple which we launched recently is liked by consumers more than most of our other flavours. No other company has launched apples in Sri Lanka as a carbonated soft drink or even in neighbouring countries. This is a bold step we have taken in introducing new flavours to the market. As Ole Springs Bottlers we have a complete range of 32 different pack sizes and flavours with both brands. We are also the pioneers and market leaders of the pet bottles in the carbonated soft drinks market.

The cola brands are a basic homogenous product. The essential differentiation is done through advertising. What is your advertising strategy? 

You might think that advertising makes the difference. Sometimes advertising may be common – consumers buy on impulsive behaviour. If you really analyse it is not the case. Therefore we always try to differentiate our products within the cola categories and we always try to offer value for money.

If you compare Pepsi and Coke there is a difference in taste. It is also not only the core product … the service, advertising, promotion or distribution could make a change in the final package the consumers are going to get.

We also have a very strict credit policy and in this industry some believe that credit is the key towards volume. We have disproved this. We have also disproved that lower prices drive more volumes. Our products are priced at a premium level.

What are your respective market positions and what has been the growth in recent years?

In this industry we are only eight years old, whereas Coke is about 30 years and Elephant House is about 100 years old. In this respect we are still babes and according to our figures we have a market share of about 23% for Pepsi and around 7% for Ole. Ole was launched in 1999 December and within two years we have captured 7% of the total market. Our performance is great and it is a marketing success story. Pepsi was around 20% in December '99 and now we are around 23%.

Pepsi has international icons in popular stars like Michael Jackson, Sanath Jayasuriya and Sachin Tendulkar to promote the brand. In your perception what is the Sri Lankan buying behaviour?

Pepsi is a brand for the young. It is a youthful brand. Internationally we promote this through cricket and music. Enthusiasm for cricket in Sri Lanka is very high and we have made use of it and both cricket and music have worked well here.

One of your main competitors, Coke recently did a major move in dropping its prices on its cans to Rs. 20. Any plans for Pepsi to drop prices on its cans?

Our pricing strategy is market driven. At the same time we don't want to lower the price below certain production and cost levels. We don't do business to incur losses and we have no plans to lower prices because of the competition. We have our own pricing policy. We look at the market forces and also the long-term scenario.

What is the involvement between Pepsi Cola International and Maharaja Organization?

Ole Springs Bottlers is a joint venture of Pepsi Cola International and the Maharaja Organization. Ole Springs is part of the South Asian Business Unit of Pepsi Cola International which includes India, Bangladesh, Nepal and Bhutan. There are 44 plants in this business unit and we are ranked within the first five in international grading.

We were also the recipients of the bronze award for '99 and 2000 from Pepsi Cola International.

Ceylon Cold Stores is widely regarded to have the largest distribution network. What is your distribution strategy?

We consider our distributors as part of our business. We look after them well to make them happy and do their business properly. We are distributing to about 65,000 outlets in the country and we are happy with this.

Locally most of the suppliers provide coolers to obtain exclusivity. This raises questions of anti-competitive behaviour. What is your opinion?

Exclusivity is a known fact in today's economy. There is nothing wrong in it. By placing a cooler to obtain exclusivity in the present context is not possible. There are very few outlets where you can ask for exclusivity. We don't adopt this approach. Our coolers are placed along with competitor coolers, but as long as we are better than our competitors, consumers buy our products. That is our strategy.

How do you see the competition in future with other substitutes such as the packeted ready to drink juices, iced tea, etc. on the increase?

Competition is very high. It is a market structure with three players. The other drinks coming in are not in direct competition, although they will become in the future. The market conditions are difficult. We have not noticed any growth in the market. According to our estimates the total market demand is somewhat static at around 16 –17 million, 8-ounce cases annually.

We are market leaders and still expanding - Coke 

How does Coca-Cola see the industry performing in the next six months?

Sri Lanka is a small market for us to operate given the size of its population. Even though this is a small market, it is an important market. We estimate the market to be around 20-23 million cases (24 bottles per case) annually. We are the clear market leaders in this industry, operating in Sri Lanka since 1953 through Pure Beverages Ltd. as our franchise operator.

The Sri Lankan operation was the first one Coke started buying (from local franchise operators). Coca-Cola Sri Lanka is now a subsidiary of Coca-Cola International.

Earlier the Singaporean bottler for Coke began buying franchises outside Singapore including Sri Lanka. Then the Singaporean bottler itself was taken over by the Coca-Cola company.

Has Coke also taken over bottling operations in the region?

We have taken over in Nepal, we own 40-47 plants out of 60 in India and we own eight out of 10 bottling plants in Pakistan. It was a global strategy adopted in 1995.

Where does the Lion brand fit in this scheme of things?

Since we own the bottler (Pure Beverages), we also own Lion brand. It is part of our portfolio. Similarly Portello was a brand owned by a company in Britain and in 1999 we bought the local rights for that as well. Portello is now a Coca-Cola global product. We have not only invested in the brand but also in the infrastructure of the bottler.

Market expansion?

It is moderate and hasn't declined significantly. It has grown at an average of 5-7 percent in the past five years. For us 1996 was a bad year because of a strike and when we disappeared from the market there was a significant decline in the industry followed by another lean year in 1999.

The Sri Lankan growth rate is quite good but there is tremendous potential to move up. In the US, the per capita consumption of Coke is once a day while in Sri Lanka it is twice a month. So the potential for growth here is huge because asking a consumer in the US, for instance, to drink two bottles a day would be too much.

Last year was a growth year while this year demand is also growing but at a slower pace than expected because of economic conditions and the free float of the rupee which resulted in our costs going up as the concentrate is imported.

The global growth rate is four percent but this could vary from region to region. In North America the growth is lower because it is a more mature market while in Asia it could be even 8 to 10 percent.

Your main competitors in Asia?

Pepsi is our main global competitor but this could vary in some countries where local brands are strong like Korea and Sri Lanka (Elephant House) for instance.

What's your market share here?

There are different definitions of market share. If you take the market share in terms of the number of times my bottle is being sold, then it is a different scenario to that of how much liquid is sold.

We measure ourselves on transactions like the number of times a Coca-Cola bottle is purchased - whether big or small – and in that sense we have a 54 percent market share. During the crisis a few years ago, the market share went to virtually zero between December 1996 to March 1997 and we have now slowly regained lost ground.

All the pending issues we had with the labour force have been resolved.

Have you increased your investments in Sri Lanka since the crisis ended?

We have invested in basically two sectors. On the brand side, we bought rights to Portello and this was done basically for the Sri Lankan market because it is much known in Sri Lanka than anywhere else in the world and there is lot of potential here for Portello's growth.

We have invested heavily in portraying Portello as a young brand.

What were the reasons for 2000 being a good year here for Coke?

There were two major initiatives - supporting local brands, Portello and Lion, and a new campaign for Coke.

Do consumers here prefer local brands?

Globally the cola segment drives the carbonated soft drinks market. We tried the same philosophy in Sri Lanka but were unsuccessful as the local consumer here is quite unique in comparison to consumers in the rest of the world.

Sri Lankan consumers have a preference for sweet, local carbonated drinks while coke is a less sweet, high carbonated drink. That's why we have been able to cater to the Sri Lankan palate with a wide range and the Portello acquisition was with this in mind. Lion and Portello represent about 25 percent of our production and volumes, which is a doubling from earlier volumes of local brands.

While Coke leads in other countries in the region where consumers prefer carbonated soft drinks, in Sri Lanka the market is fragmented with cola's, lemon and lime. But in all these segments, Coca-Cola is preferred over the competitor. In the cola segment, we are ahead of Pepsi; in Fanta we have the edge over Orange Barley and in the lime segment, Sprite is ahead of Lemonade or Seven-Up.

How do you see the competition evolving?

Our main competitor is Elephant House which is quite strong in the rural market while Pepsi is more urban based. But all three players, including us, are making huge investments in terms of new flavours and a new range. It is a very competitive market.

This year we are planning to increase our product range. We are also launching a new campaign for Coke in line with global strategies.

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