Industry 4.0: Beyond a Name

There’s been a lot of writing on the ‘Fourth Industrial Revolution’ or ‘Industry 4.0’. Nearly a year ago, I wrote about how this technological shift is ‘changing the world of work’.

This new article debates whether this is all hyperbole or what it really means for business. The article argues that for businesses to truly leverage on the fourth industrial revolution, the “devil is in the details” and the focus needs to be on the ‘mechanics’ of making it work, not just the big ideas at play…

The future is very promising and certainly there is value in Industry 4.0, but each company has to decide what it wants and find the most cost effective route to get there. In my experience a series of small incremental steps will be far more effective than trying to get to the destination in one leap.

World Economic Forum founder and Chairman Klaus Schwab has been one of the foremost champions of the ‘Fourth Industrial Revolution’ as a force for good if managed right. I’ve read his book (same title) where he reviews the biggest technological shifts taking place today and likely to take place in the future and discusses how it will shape business, society, culture, governance and humanity as a whole. Do try and get a copy, or read this well-written summary authored by him, here. Schwab has argued for a truly collaborative and multi-stakeholder approach to making Industry 4.0 work for good. In the book he argues,

[…] we must develop a comprehensive and globally shared view of how technology is affecting our lives and reshaping our economic, social, cultural, and human environments. There has never been a time of greater promise, or one of greater potential peril.[…] In the end, it all comes down to people and values. We need to shape a future that works for all of us by putting people first and empowering them. In its most pessimistic, dehumanized form, the Fourth Industrial Revolution may indeed have the potential to “robotize” humanity and thus to deprive us of our heart and soul. But as a complement to the best parts of human nature—creativity, empathy, stewardship—it can also lift humanity into a new collective and moral consciousness based on a shared sense of destiny. It is incumbent on us all to make sure the latter prevails.

Read ‘The Fourth Industrial Revolution: what it means, how to respond’


PM Says Apparel Exports Are No Longer Viable. I Disagree.

If a recent Daily Mirror news report is anything to go by, and has accurately reported his speech, the Prime Minister has stated that Sri Lanka has no future in apparels exports. The article cites a speech made by the PM at a school science exhibition, in which he has drawn from a Harvard University study done for the GoSL that has come to this conclusion.

“We asked the University of Harvard to carry out a study on Sri Lanka’s economy. The university in turn informed us that Sri Lanka should not rely on importing* apparels any more. This is a correct assessment as Sri Lanka cannot compete with countries such as Bangladesh, where the wages are lower. Therefore we need to concentrate on new export items such as electronics. We can even start manufacturing parts for mobile phones or robotic machines,” the Prime Minister said.

*seems like a mistake, and meant to be ‘exports’

I think this is an ill-informed and inaccurate statement to make. A strong cohort of Sri Lankan apparel firms are demonstrating unique and groundbreaking new capabilities in the apparel industry. True, Sri Lanka is no longer (and for a while now) competitive in the low value apparel exports (simply, ‘stitching’ operations). These are now done by Bangladesh, Cambodia, Vietnam, Laos, etc. But Sri Lankan apparel exporters have evolved substantially to be holistic service providers in the apparel industry; to be design- and technology-led apparel firms; and to co-create new products, including with wearable technology and smart fabrics. Successful apparel exporters are understanding how the retail arena in the industrialised West is shifting sharply, and are catering to that. Many are embedded deeply in supply chains, which are sticky on prices and so Sri Lanka is shed that easily. Lankan apparel firms are innovating in new product spaces of fast fashion and ‘athleisure. Sri Lanka’s leading apparel manufacturers are linked into those brands and supply chains, as I noted in a speech at the British High Commission shortly after Brexit. Ultimately it all depends on which partnerships Sri Lankan firms have – good brands that are on the right trends, and in this, Sri Lankan firms are doing well. So, the PM’s remark about Sri Lanka losing out to Bangladesh, might be true only of a few firms still pitching at a lower level, but certainly not true of the more innovative apparel exporters.

He has also said that, according to Harvard, we should ignore apparels and shift to electronics. Just because electronics exports sounds more value added, a ‘cool’ sector to engage in for the economy to, and is indicative of ‘going up the value chain’, Sri Lanka should be more concerned with more meaningful metrics – for instance, how much value is getting captured in Sri Lanka? are we able to latch on to lucrative production networks (also known as supply chains); what are the multipliers? Because then, high-value, innovative apparel exports could prove to be as value capturing as electronics. And even in electronics, theres a whole spectrum – from low value to high value. Simply saying “Sri Lanka should focus on electronics exports” is not good enough. We don’t want to end up doing simply assembly – which we probably couldn’t compete in anyway, given labour and other input costs that make us less competitive than others in the region.

Of course, there are a host of electronics manufacturing firms producing high quality exports for the international market. We need to look at what they do, why they find SL attractive to operate in, and how we can attract more such firms and growth that industry. But there is no reason why it cannot sit alongside apparels exports, at the higher value end of the spectrum.

Very few Sri Lankan firms do simply stitching operations anymore. I hope the Prime Minister visits some of these industries and learns about the super-innovative things that our apparel exporters are doing – they truly are trailblazing. This insight will help complement the information he is getting from the Harvard studies. Then he may change his belief that ‘apparels is no longer a viable export industry’ and not do injustice to the tens of thousands of folks in this sector in Sri Lanka today, working hard to export millions of dollars of exports for the country.

Discerning, and Supporting, ‘Transformative Subsistence Entrepreneurs’

At a recent conference organised by Monash University and Institute of Policy Studies, a fellow panelist in my session – Prof. Srinivas Sridharan – made a presentation that changed my understanding of informal entrepreneurs. Srinivas, an Associate Professor at Monash University’s School of Management presented his research on micro-entrepreneurs and subsistence entrepreneurs in 3 countries, including in India. He spoke of a new framework through which to think about these entrepreneurs. I found it compelling, and can help change how we think about bottom of the pyramid customers.
The main takeaway for me was that we have to identify the ‘transformative subsistence entrepreneurs’ from the rest, and help them grow. The main point Srinivas made was that identifying this particular type of subsistence entrepreneur isn’t simply by their income alone – other metrics that determine/predict their success, come into play.
Srinivas argued that subsistence entrepreneurs are a heterogeneous marketplace. There are:
a) ‘Ordinary’ subsistence entrepreneurs
b) ‘Stability-seeking’ subsistence entrepreneurs
c) ‘Transformative’ subsistence entrepreneurs
It is c) who we need to take a closer look at. He noted that there are 3 characteristics of ‘Transformative Subsistence Entrepreneurs’
1. They experience an income spike (as they are able to move beyond ‘stability-seeking’)
2. They have personal agency – i.e., they have more control of their activities, their business, and are more aware of their rights and ability to navigate processes
3. They contribute to community growth – they employ more people, they have stronger local supply links with other micro-entrepreneurs in the community
The transformative story of these entrepreneurs isn’t so much about income at all, it is more about the increase in their personal agency and increase in community links/community growth.  They have ‘embedded assets’ – not from outside, but from within (i.e., inherent strengths)

In Conversation with Shanaka Fernando, a trailblazing social entrepreneur in Australia

Today I had the pleasure of moderating a session with the trailblazing social entrepreneur, Shanaka Fernando at the ‘International Conference on Social Enterprises & SMEs for Sustainable Development and Poverty Reduction’. Shanaka is Lankan-born and grew up in Australia, and is the Founder of ‘Lentil As Anything’, a unique social enterprise that now spans seven restaurants in Australia and beyond. He has been recognised as an ‘Australian of the Year – Local Hero’ in 2007. As the awards honour roll mentioned, Shanaka has shown that “a commercial enterprise can operate in a socially responsible and altruistic way. ‘Lentil as Anything’ is a bold social experiment that respects difference, promotes trust and defies a consumerist society.”. His model is based on a commercial enterprise with a people-centric ethos, where goodness, generosity, dignity, and business savvy come together to form a unique venture.

In our conversation (audio embedded below), we talked about Shanaka’s personal journey that brought him to where he is today and work on what he is working; his people-focussed philosophy and how that translates into his business; what ‘Lentil As Anything’ is and how the model works; and what top messages he has for Sri Lankan social entrepreneurs. He was a treat to speak with, and it was a refreshing and inspiring post-lunch session. I started with something that had been written about him, and then we took it from there,

“He’s been declared bankrupt, had his business liquidated, and been taken to court by the Australian Taxation Office. He’s had his passport suspended and his bank accounts frozen. He’s even been threatened with jail over unpaid parking fines. In some eyes, all of that would make Shanaka Fernando an inveterate troublemaker, a man who acts as if he is somehow exempt from the laws that most of us live by. But in his own view, and in the view of many others, he’s just trying to shake things up a little, for the good of us all.”

For the audio recording of the full conversation, click play below.

(image courtesy Chandula Abeywickrama, Lanka Impact Investing Network)

Power Structures


Visiting Parliament House in Canberra last weekend was revealing. The degree of openness was noticeable. We drove straight into the car park underground, no security manning the gates, and no boom gate operators. There’s usually a crescat-style entry ticket machine, but as it was a Sunday the boom gates were fully open – free parking. Entering the building, we encountered just two armed security guards, went through a thorough X-ray and metal detector check, and then inside in a flash. After that we didn’t see a single security guard at all (Of course I’m sure we were being carefully watched by a network of CCTV cameras, but nothing imposing). We walked all the way to the rooftop – which is clad with a natural garden – and then just two security guards up there.


We walked around freely, including going into the senate and house chambers. Of course, it may have been very different if we had visited on a day the Parliament was in session. The philosophy when designing the building was that regular citizens should be able to walk right up to the Parliament, walk on the grass and enjoy it. The instructions given to the architect was that all Parliamentary chambers should be below the level at which the citizens walk – so instead of climbing stairs up to the Chambers, citizens walk right up to the Parliament on the same level as the road, and they stand above it all – the Parliament chambers are below this level.

Why an OPEC Deal to Cut Oil Production Matters for Sri Lanka

Yesterday, after weeks of speculation that it may not happen, members of the Organisation of Petroleum Exporting Countries (OPEC) – a producer cartel – agreed to cut supply by around 700,000 barrels per day (bpd). In overnight trading, oil prices rose sharply by 5-6% and hovered at close to US$ 47 a barrel. By this morning the gains had somewhat tempered.

Under the agreement, OPEC oil production is expected to be reduced to a range of 32.5 to 33 million barrels of oil per day from 33.4 million. This is first time in eight years that OPEC has struck a deal to limit crude output since the downturn in 2008. The deal, including details of actual cuts, will likely be formalised at the next OPEC meeting scheduled to be held in November.

Why does this matter for Sri Lanka? The low oil prices seen throughout 2015 and early 2016 (as low as US$ 26 a barrel in February) has substantially helped oil importers like Sri Lanka. Low oil prices have meant low oil import bills, and at a time of declining export revenues, this has been much needed relief on the external balances side. Sri Lanka’s oil import bill was 41% smaller in 2015 than 2014 (US$4.5 Bn in 2014 compared to $2.6Bn in 2015). Of total imports, oil imports fell from 24% in 2014, down to 14% in 2015. Looking at 2016 (only H1 figures are available),

Oil Imports

– H1 2016 – $1.12 Bn

– H1 2015 – $1.47 Bn

– H1 2014 – $2.5 Bn

% of Total Imports

– H1 2016: 13%

– H1 2015: 18%

– H1 2014: 27%

Y-o-Y Changes

– H1 2016 Vs. H1 2015 : -20%

– H1 2016 Vs. H1 2014 : -52%

– H1 2015 Vs. H1 2014 : -40%

Of course it remains to be seen at what price oil stabilises in Q4 2016 and early 2017. It’s unclear as to whether this OPEC cut in production will be enough to drive sustained higher prices, given that a big new producer Iran (after sanctions on it were lifted) has been granted an exemption from the cut, Nigeria and Libya are also exempt, and there is substantial US shale oil and gas inventory built up that may now be even more profitable than before to come on stream. The OPEC cut could be self-defeating if there is a big drilling response from around the world, particularly from the US.

For Sri Lanka, we squandered an opportunity to reform energy pricing in the country. We didn’t take advantage of the breathing space offered by low oil prices in 2015. Against a backdrop of declining export revenue, a steady increase in the oil import bill certainty doesn’t help. The way forward strategy is to a) reform energy pricing so that its more in line with global prices and consumers and firms price that in in their consumption decisions; and b) boost export competitiveness and market access so that export revenues rise in line to support a higher oil import bill. Of course in the medium to longer term, Sri Lanka needs to strive to move towards more non-conventional renewable energy sources.

Brexit and Sri Lanka – Remarks at the British High Commission

Here are some fast facts about Sri Lanka’s trade relationship with the UK as it stands today:
  • Sri Lanka’s exports to UK have been stagnating for about a decade now – at around the US$ 1.1 billion level.
  • UK is one-tenth of our total exports – but lower than when we had under GSP Plus (was closer to 14%)
  • Even after GSP Plus was suspended for SL (so roughly the last 5 years), exports to EU grew at about 4%, while exports to UK was just 0.2%.
  • Exports to US and exports to ROW grew at over 10%
  • 80% of our exports to UK are apparels (to the rest of the EU its around 60%)
Given that it is 80% of our exports to UK, its worth talking a bit on prospects for apparels:
  • Pressure is coming from the depreciation in the Sterling. According to economic historians, GBP to Dollar is now at its lowest level since 1792.
  • Immediate term – orders up to December are pretty much set. So no immediate fallout from the substantial depreciation of the currency (roughly 13% depreciation since Brexit)
  • But the pressure is now building – buyers are repricing their orders, and this will squeeze margins for Sri Lankan suppliers – its already happening in the new orders
  • At the moment, the order books are holding. Some softness is seen, as UK consumers are uncertain and consumer spending was down over the last couple of months. But its not too bad yet
Level-playing field
  • There is a lot of optimism that once Article 50 is triggered and everything is gone through with, post-Brexit the level playing field will be a significant advantage for Sri Lanka
  • Let me explain for anyone not familiar – Bangladesh, a key competitor to Sri Lanka (apparels mainly, but also ceramics, travel goods, etc), currently has an EU scheme that is more generous than GSP Plus – called Everything But Arms – EBA. Its a duty free quota free scheme offered to LDCs
  • Once UK leaves, B’desh loses EBA access to the UK. This can level the playing field for Sri Lankan suppliers.
  • Those I have spoken with argue that the business climate in Sri Lanka, dealing with Sri Lankan companies, the design and delivery competencies of our firms, the quality, environmental and labour standards all of these tip the scales in our favour.
  • But the key will be whether Britain extends a generous trade package to B’desh post-Brexit.
  • Which is why Sri Lanka needs to use this new goodwill and do a deal with the UK soon, to get ahead.
  • If we get GSP Plus again, we have about another year or two of preferential access to the UK, before Brexit happens – so lets use this breathing space.
The broader point on apparel exports to the UK is this:
  • Regardless of Brexit, here are some other factors with regard to exports to UK
  • ‘Fast fashion’ brands are fast gaining ground in the UK (like Uni Qlo), and this will likely grow if UK consumer sentiment remains down. But not much supply linkages to these brands from Sri Lanka
  • But the good news is that categories like ‘Ath-leisure’ – like Beyonce’s IvyPark collection with TopShop – are really growing fast. And the good news is Sri Lankan leading manufacturers are linked into those brands and supply chains
  • Ultimately it all depends on which partnerships Sri Lankan firms have – good brands that are on the right trends, and we are fine.
So here are somethings that any Sri Lankan business trading with UK would need to look at:
  • What is the deal that the UK manages to strike with the EU? Access to the single market without agreeing to movement of people, seems untenable.
  • Cost of trade with the UK – UK has to figure out what to do with 13,000 EU regulations – adopt, amend, or give up? Remember that a big war cry in the referendum was burden of EU regulation
  • What will be the impact on UK economic growth and consumption from 1) a continued weakness on the GBP; 2) shifting out from the UK of manufacturing and services to other parts of Europe.
  • On the growth and consumption side – consumer confidence indicators were sharply down in July, but were down a bit less in August. Manufacturing PMI has also shown recovery up in positive territory of 53.3 in August, from 48.3 in July, same with services PMI.
  • On the shifting of businesses. Some banks like JP Morgan and HSBC have said they are considering it strongly – going to Dublin, Frankfurt, Paris. But this can’t happen quickly – because of a practical reason a banker told me the other day – there is literally no office space in these cities to accommodate 5,000, 10,000 new financial industry workers and offices
  • But its a real concern, because a key reason that the UK is such a hub of activity is because of free movement of people. This is a key consideration for firms. Figures from the Financial Regulatory Authority show that 5,500 UK registered companies rely on EU passports to do business in Europe from the UK.
  • Of course there is a risk – extreme end – that UK goes through a ‘Hard Brexit’ – complete departure from the EU, no single market, no movement of people, no customs union, etc etc. But I think rationality will prevail and this scenario is unlikely.
Final comments – thinking beyond Brexit
  • Ultimately, it all comes down to industry competitiveness. There is much to be gained from having a preferential trade deal with the UK, but if we dont have competitiveness and innovation in our products, then we will lose out.
  • Apparels is a classic example – yes, it is 80% of exports but it may also be the one that can weather the storm. And this is because of innovation and competitiveness. The brands in the UK would continue to want to work with SL because of the competencies they find here and the partnerships they have forged. Look at Brandix, MAS, Hirdaramani, and Hela Clothing.
  • Also, we should focus on the suite of other FTAs – for instance with China. The apparel industry has much to gain from the Chinese FTA – many suppliers to China are having to produce in China. But if we have preferential market access via an FTA, several of them have already indicated they are keen to shift those lines to Sri Lanka. many of them already source from us, so they prefer to produce the European and American market orders as well as the Chinese orders in one place. Their factories are seeing substantial wage increases (15-20%).

19 Notable Quotes of #SLES2016

The Sri Lanka Economic Summit produced many incisive insights, revealing research, but most of all some memorable and thought-provoking quotes. Here are 19 of my favourites.

1. “The unprecedented concessions granted to favoured enterprises by the previous government have created a nightmare for the present government” – Hon. Ravi Karunanayake, Minister of Finance

2. “Professional advice needs to mix with political realities” – Hon. Ravi Karunanayake, Minister of Finance

3. “Sri Lanka is an island of poverty in an ocean of prosperity” – Hon. Ravi Karunanayake, Minister of Finance (on Sri Lanka needing to latch on to Asian economic growth)

4. “Sri Lanka must move from potential to performance, issues to solutions, rhetoric to action” – Samantha Ranatunga, Chairman, Ceylon Chamber of Commerce

5. “Businesses need to recalibrate their risk and take a long view on investment” – Dr. Indrajit Coomaraswamy, Governor, Central Bank of Sri Lanka

6. “Expectations of the new government have not been met. In fact, they got a kick in the stomach” – Prof. Razeen Sally, Chairman, Institute of Policy Studies

7. “There has been the supreme idiocy of imposing price controls, which I thought was something we had left behind in 1977” – Prof. Razeen Sally, Chairman, Institute of Policy Studies

8. “Sri Lanka needs to tell people the growth story, captivate them, and get on board with reforms” – Dato Sri Idris Jala, CEO of PEMANDU, Malaysia

9. “PPPs are a good option for countries with limited fiscal space and can bring down project costs” – Kamal Dorabawila, Investment Officer, International Finance Corporation

10. “If I was to promote any country outside of Australia, Sri Lanka would be it!” – Andrew Fairley, Deputy Chair of Tourism Australia

11. “Research, taking the temperature of what travellers actually want give a huge impetus to developing strategy. Sri Lanka needs to find out what people actually want in the markets that they are selling” – Andrew Fairley, Deputy Chair of Tourism Australia

12. “Bringing private partnerships will helps improve viability and accountability of public infrastructure projects, and avoid another Mattala” – Hon. Eran Wickramaratne, Deputy Minister of State Enterprise Development

13. “It takes two hands to clap. The government alone cannot eradicate corruption” – Hon. Eran Wickramaratne, Deputy Minister of State Enterprise Development

14. “Sri Lanka cannot become a hub by  building infrastructure alone, liberal trade and investment policies are key” – Dr. Saman Kelegama, Executive Director, IPS

15. “To avoid the low equilibrium trap, Sri Lanka must shift away from debt financed investment-led growth to FDI- and export-led growth” – Dr. Saman Kelegama, Executive Director, IPS

16. “Sri Lanka must attract non-Sri Lankan talent and build regulatory frameworks that make it the hot bed for next generation businesses” – Rajan Anandan, Managing Director, Google India

17. “We should be thrilled that people in this country are not queuing for jobs. But this is tough for business. We must build businesses that can pay higher wages” – Ashroff Omar, CEO, Brandix

18. “On average an Indian start up will work twice as hard as a Sri Lankan start up. We need to create that hunger in the workforce” – Rajan Anandan, Managing Director, Google India

19. “I don’t want to own your land. I want to make money!” – Desmond Sheehy, Duxton Investments (responding to EDB Chairman’s assertion that foreign land ownership would be prohibited)


Cover image courtesy Ceylon Chamber of Commerce Facebook page