Cost Benefit Perspectives of Backward Vertical Integration: An Empirical Study on the Textile and Apparel Industry in Sri Lanka

Abstract

Textile and apparel industry occupies a prominent position in the industrial sector of Sri Lanka generating the largest export income. Sri Lankan apparel sector positions via ethical manufacturing and sound labour practices, connecting with various renowned global super brands. The industry as a whole has to face immense competition from other global giants from textile and apparel importers in order to retain its position and enhance the market share. Improved quality as well as reduced cost are main considerations in this regard for the Sri Lankan apparel sector emphasizing the need for strategic expansion. Greater export revenue along with considerable import expenditure pertaining to importation of raw materials such as yarn, fabric etc. for apparel manufacturing is a common phenomenon in Sri Lankan apparel sector leading to less value creation in economic terms. Accordingly, this paper would focus on the Cost Benefit Perspectives associated with backward vertical integration in the apparel industry. This study was conducted adopting a qualitative embedded secondary data review at initial stage and later carried out several interviews with the Industry Experts via semi-structured interviews using open ended questionnaires in order to gather primary data. The findings reveal that the Sri Lankan giant apparel manufacturers have stepped towards backward vertical integration via fabric manufacturing and establishing joint ventures for the purpose of cost minimization