• Unilever signs peace pact with JVP
• Banks become landed proprietors as parate executions grow
• Another MoU – between private sector and Education Ministry
• Edegra wins battle of the aphrodisiacs
• "When the US sneezes…
• Political or economic stability?
• Takeover of oil companies
• Mind your business
• News
• Business Features

Unilever signs peace pact with JVP

By Chanakya Dissanayake

The expansion of soap production lines from the existing factory at Colombo 13 to a plant at Sapugaskanda, was originally planned for the beginning of 2001. However, due to a crippling protest campaign led by the JVP trade union demanding higher compensation, the expansion was put on hold resulting in heavy losses.

Mike Thompson, UCL chairman at the time, told the Sunday Times Business Desk in an exclusive interview some months ago, that the company may even pull out its production facilities if the labour force continues to resist change.

Ehsan Malik, the new UCL chairman who took over from Thompson this month, said the company had achieved a breakthrough in employee relations by making the trade union understand the need for change.

"We have better communication with our trade union now. They have realised the reasons for expansion," Malik said. " I can't say whether we should have done this six months ago. But I am certainly happy that we have settled the matter," he added.

S. Amarasinghe, secretary of the JVP union at Unilever said at a time when the JVP is being blamed for all the corporate ills "we were able to show the whole country how to win demands by peaceful means". Union sources said the JVP union may not represent the company's entire workforce but its demands then were backed by other unions.

The production line expansion at Sapugaskanda will realise efficiency gains leading to an increase in output and increase UCL's competitiveness in the region. "The gains we realise through the expansion could eventually lead to exporting the products to the region," Malik said.

Meanwhile, the labour dispute at the UCL's Walls ice cream plant which led to the plant been closed down, is now in the arbitration process. Malik indicated that the company might reopen the plant if an amicable settlement is reached with the workforce, again led by the JVP union.

There is speculation that if Unilever decides to close down its Walls operation, the John Keells (JKH) group might make an offer to acquire the factory.

If JKH took over this business, it would have a virtual monopoly status in the local ice cream industry through its Elephant House range. "If Unilever decides to sell its Walls factory, we may consider the option of acquiring it," JKH deputy chairman Jagath Fernando said when asked for his comments.

UCL has been operating in Sri Lanka for the past 60 years and enjoys leading market shares in almost all the consumer product categories. Its country performance indicator - share of wallet, which measures the proportion an average consumer spends on Unilever products in day-to-day activities, stands at 2% - 3% in Sri Lanka. This is the highest for Unilever in the South Asian region.

UCL offers 14 brands in Sri Lanka, but most of its revenue comes from laundry and washing products. Its largest brand, Sunlight, enjoys an 80% market share in the laundry product market.

"The scope of growth in the laundry market is limited. In 3 - 5 years time I want most of the revenue to come from personal care products," Malik said.

The company is planning to introduce premium personal care products including shower gels and its top end toilet soap, Dove. "Timing is essential for the introduction of premium products. We expect the Sri Lankan economy to recover in the near future and then we will introduce the value added products," Malik said. Commenting on competition from local producers, he said the company has introduced an "enterprise culture" to eliminate straight-jacketed management styles and improve flexibility in decision-making.

"We have created multi-disciplined brand teams around our products. A given team will be autonomous and will include 7 - 8 managers from all functions. This will improve our responsiveness to local competition," he said.

Banks become landed proprietors as parate executions grow

"The result has been that on most days parate notices dominate several pages in the national newspapers sending a negative signal to foreign investors regarding the economy," the Institute of Policy Studies (IPS) said in a report on the crisis facing the small and medium-scale industry.

The report titled, "Parate execution in Sri Lanka: its impact, necessity and future", was prepared for Sri Lanka's Federation of Chambers of Commerce and Industry (FCCISL). The federation has raised this issue over the past few months saying the assets of thousands of companies have been seized by banks for defaulting on loans. Currently an average four companies a day close down, federation officials said.

The report takes a rational look at the problem, after interviews with banks and industry specialists, and makes recommendations on how to tackle this problem. Officials of the federation met Treasury Secretary, Dr. P.B. Jayasundara on Wednesday and gave him a copy of the report and urged that some relief be provided to the industry.

IPS says the whole process of parate execution needs to be re-examined. "The moment a resolution is published in the newspapers, there is a visceral reaction on the part of fellow entrepreneurs."

Obtaining credit from traders becomes akin to pulling teeth, while banks tend to freeze even temporary overdraft facilities, IPS said adding that the lack of credit facilities then virtually paralyses the business.

"The publication of the parate resolution has far reaching social consequences for many entrepreneurs. Since the resolution contains personal information, the borrower lies exposed to the general public. In a conservative society, the perception that a person cannot meet financial obligations can have long-term consequences. It can lead to the borrower and his family becoming social outcasts, children being harassed in schools and the loss of status in the economy," IPS said.

The report said banks are fast gaining a reputation of being landed proprietors but they are unable to sell the land and are merely biding time. The business community for this reason had suggested that banks reach settlements on outstanding loans rather than go through the parate process. "Given the level of idle assets that are being held by banks, it is suggested that banks need to rethink their approach on this matter," the report said.

While banks have the right to recover bad debts, there is concern that at the rate they are effecting parate executions, the entrepreneurial spirit in the country may be steadily diminishing, IPS said noting that entrepreneurs may decide not to engage in new ventures creating a void in the credit market.

"Any slowdown in borrowing results in a breakdown of the intermediary role played by banks in a competitive economy. Banks need to be aware that there could be long-term consequences to rapid debt recovery," it said.

IPS also asked whether entrepreneurs were going to the proper forum to finance a new project, saying that using commercial banks to finance projects that should be financed through development banks was a common feature.

It said entrepreneurs should be encouraged to personally handle the sale of their property rather than allow the bank to auction it. More often, the entrepreneur will be able to obtain the best price for the collateral, the report said while suggesting changes to the debt recovery law to make it more effective. (FS)

Another MoU – between private sector and Education Ministry

"We want to work with the government in developing these sectors in schools, particularly E-learning," said Faizal Salieh, a member of the chamber's human resources and education committee. E is a term generally referred to any electronic information.

Salieh, also CEO of NDB Housing, told reporters last week that the MoU will create a steering committee of government and private sector representatives which would then prepare a document for implementation after consultation with various concerned groups.

He said the chamber has been actively lobbying for extra resources to be channelled into English and IT education. He was hopeful that the future education curriculum would link schools and universities with the rest of the world. "Students and teachers can communicate with their counterparts from the rest of the world," he said.

The MoU would reinforce the government's current educational reforms which has a major IT input but with limited resources and infrastructure development.

Edegra wins battle of the aphrodisiacs

Harcourts CEO, Ahamed Rheyas said his company last month withdrew its product Edegra, which helps patients suffering from erectile dysfunction, after Pfizer – owners of Viagra – complained of patent rights violations. But after an exchange of letters between Harcourts and Julius and Creasy, a local law firm representing Pfizer Research Co in Ireland, Harcourts re-introduced the product last week in the Sri Lankan market.

"They (Pfizer) didn't have a case at all," said Rheyas. "They had no product patent rights for Viagra."

The dispute arose after Julius and Creasy wrote to Harcourts on August 13 saying Pfizer holds the patent for sildenafil, a key ingredient in the drug, and told Harcourts to stop selling Edegra or face a legal suit.

Harcourts in response said it referred the matter to the Edegra manufacturer in India, Sun Pharmaceutical Industries, which having studied Pfizer's claim – noted that the preparation of sildenafil in Edegra was different to the patent rights held by Pfizer. It said it would re-launch the product after September 5 if there was no response from Julius and Creasy.

A spokesperson for Julius and Creasy said they were still awaiting a reaction from the Ireland-based Pfizer's research unit on the Harcourts response.

Edegra sells at 75 rupees a tablet compared to Viagra which is marketed at 880 rupees per tablet.

"When the US sneezes…

Dushanta Wijesinghe, research director at Asia Securities, said the impact would essentially be on slower trade guided by lower consumer spending since defence spending is set to rise there. US interest rates are also likely to go up.

He said the US economy has so far held, despite a slowdown in the corporate sector, mainly due to consumer spending. "If consumer spending is affected, it could hurt our garments exports."

Hundreds of people perished in New York and Washington in terror bombings last week with the two towers of the World Trade Centre collapsing and damage caused to the Pentagon . Arjuna Mahendran, research director at Singapore-based SG Securities, said Sri Lankan garment exports would take longer to recover from currently low levels and credit defaults from foreign buyers of Sri Lankan goods could be higher. Inflation could emerge as a major issue as global liquidity levels increase due to central banks pumping liquidity into all major markets, he added.

Most analysts, however, said it was still to early to assess the fallout on the Sri Lankan economy. Dushni Weerakoon, a senior research fellow at the IPS said there could be short-term repercussions, but unlikely any long term problems.

"I don't see any major fallout. The US is too big an economy and can take shocks like this. Garments, as far as Sri Lanka is concerned, was already feeling the pinch of the US economy," she said.

Rohan Masakorala, chairman of the Sri Lanka Shippers' Council, also felt it was too early to assess the impact on the local economy. Consumer spending in the US on clothes and food is unlikely to change, as these are basic needs in a high-income country. "If garments are affected, if would be more to do with not being price competitive against other suppliers to the US," he added. But Ajith Cabraal, a top accountant and former president of the Institute of Chartered Accountants, believes US growth is likely to be revised downwards to 1-1.5 percent from an expected two percent this year. 

In such a case there would be a domino effect on other economies with imports by the US and transportation being affected. "When the US sneezes, the rest of the world catches a cold," he said.

Mahendran said expectations of a recovery in US growth late this year or early next year have been dashed by this event for a number of reasons including the psychological impact on US citizens who will cancel overseas travel plans and be less confident of going to crowded places such as shopping malls.

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