Sri Lankan auto-parts maker rides global demand wave

sri-lanka-flagAcross a brightly-lit factory floor in a free trade zone in Biyagama, a commercial town on the eastern fringes of the Sri Lankan capital, Colombo, workers in white baseball caps are hunched over long tables, methodically threading wires into matchbox-sized containers. The factory, which makes impact sensors for seat belts and vehicle airbags, enjoys the automobile industry’s much-sought-after 1PPM (parts-per-million) quality safety standard, meaning that only one defect is permissible for every million parts produced.

Lanka Harness Company, which owns the factory, trades on this record as its calling card. “This is the global standard for a critical component in a car that can decide between life and death for a passenger,” Rohan Pallewatta, the company’s executive chairman, told the Nikkei Asian Review. “It requires the highest quality level; there can be no exceptions.”

That may explain a remarkable surge in orders since October 2015 for this 11-year-old company, which had a turnover of $40 million last year. To cope with demand, Pallewatta has expanded into an adjoining building, sharply increasing his army of nimble fingered workers to 1,000.

The new orders have nearly doubled monthly production to 2 million sensors, from a previous average of 1.2 million a month. The surge in demand followed a global scandal that has shaken the automobile industry: defective airbags in millions of vehicles, which continue to be recalled following a string of deaths and injuries of passengers.

Most of Lanka Harness Company’s fresh orders are for Takata, a Tokyo-based auto-parts company that supplies impact sensors to Toyota, the world’s biggest car maker, which is one of the automobile companies affected by the faulty airbags.

Sri Lankan analysts have noted the niche that Lanka Harness Company enjoys, despite its location in a country with no automobile sector to speak of. “It is amazing for one company in Sri Lanka to be part of such a high-value chain in the car industry,” said Anushka Wijesinha, chief economist of the Ceylon Chamber of Commerce, a Colombo-based business body. “Catering to Japanese quality standards and retaining such a market share is unusual.”

But there is something even more noteworthy about Lanka Harness Company: It belongs to a small but growing number of medium-sized enterprises in Sri Lanka’s free trade zones that are tapping into the growth of global production networks, often producing highly specialized components.

“A country does not have to produce a whole car to reap the gains from the rapidly expanding global demand for automobiles,” said Premachandra Athukorala, professor of economics at the Australian National University in Canberra. “It can specialize in a given slice of the production process of automobiles, as the Lanka Harness case vividly illustrates.”

According to Athukorala, who specializes in global production networks, this shift in the global supply chain is fertile ground for emerging economies with relatively cheap but skilled labor. Sri Lanka has companies supplying knitted components to multinationals such as Nike, the U.S. sportswear supplier, electronic components for lighting devices to Japanese companies, sensors for Airbus, and metal components to other companies in the European Union.

All this is part of the development of a system of “international production fragmentation” that is replacing much bilateral trade between countries, Athukorala said. (Nikkei)

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