Struggling Apparel SMEs Warn of Crisis behind Export Success Story

For decades, Sri Lanka’s apparel industry has been a national success story, built on foreign investment, ethical manufacturing, and global export credibility. Yet beneath the polished operations of large exporters lies a less visible reality: hundreds of small and medium enterprises (SMEs) that form the supply-chain backbone are now struggling to survive amid rising costs, new taxes, and limited access to finance.

These SMEs provide trims, accessories, small-batch production, and specialised services critical to the competitiveness of larger firms. Despite their contributions, many feel marginalised. A pressing concern is the new 18% VAT on imported raw materials, previously duty-free for exports. SME owners say the upfront tax strains cash flow, delays orders, and limits investment in machinery or automation. “Most BOI companies are no longer eligible. There is no level playing field,” said one Katunayake manufacturer.

Liquidity constraints exacerbate the problem. Large exporters have financial buffers; SMEs operate on thin margins where small policy changes can tip the balance. Access to finance is another barrier, as banks require heavy collateral rather than evaluating business projections. Without affordable funding, SMEs cannot invest in automation or overseas marketing, limiting cost efficiency, productivity, and competitiveness.

Technology adoption could offer relief through online buyer engagement, supply tracking, and design tools. Yet most SMEs lack capital, skills, and marketing support, leaving them dependent on a few subcontracting clients with low margins. Shared R&D facilities, export grants, and global trade fair participation could help SMEs reach new markets and attract international buyers seeking ethical, diversified sourcing.

The broader challenge is equitable growth. Large exporters thrive, but SMEs supporting the sector face mounting hurdles. Policymakers, banks, and industry bodies must collaborate to create a framework balancing fiscal discipline with export competitiveness. Stronger support for SMEs ensures the entire sector benefits, not just the largest players.

As one SME owner said, “We don’t want handouts. We want a fair chance. When small producers thrive, the whole industry grows stronger.” Resilience alone should not mean survival against the odds. With financial support, smart policies, and collaboration, Sri Lanka can transform SMEs from invisible subcontractors into strategic partners, sustaining the country’s status as a high-value apparel sourcing hub in a competitive global market.