But behind the glossy factory floors of major exporters lies another story: that of small and medium enterprises (SMEs) struggling to stay afloat under mounting costs, tightening regulations, and shrinking access to finance.
These smaller players form the invisible backbone of the apparel ecosystem—supplying trims, accessories, small-batch production, and specialised value-added services that help larger firms compete globally.
Yet, despite their vital role, many SME producers now feel increasingly cut off from the support they need to survive.
VAT dilemma: A blow to competitiveness
One of the most pressing challenges today is the newly imposed VAT requirement. Until recently, imported materials for exporters were exempt from duty.
Now, SMEs must pay 18 percent VAT upfront tying up already limited cash flow and eroding competitiveness.
“Earlier, raw materials came duty free for export production.
Today we’re paying 18 percent VAT, even when the end product is destined for export,” says an apparel manufacturer from Katunayake.
“Most BOI companies have fallen into the 1,300 list and are not entitled anymore.
There’s no level playing field it’s the Government’s duty to protect exporters, large or small.”
For many, this shift has created a cascading effect: liquidity constraints, delays in orders, and the inability to invest in machinery or technology upgrades.
Unlike large apparel conglomerates with established financial buffers, SMEs operate on tight margins where even small policy changes can tip the balance.
Finance: The missing thread
Access to finance remains the biggest barrier.
“Banks always ask for security.
But what we need are loans based on business projections, not just collateral,” explains another SME owner.
“In other countries, banks share the risk with entrepreneurs.
Why can’t ours do the same?”
Most small apparel producers lack the capital to invest in overseas marketing, modern machinery, or automation—factors critical to maintaining cost efficiency and labour productivity.
With rising wages and labour shortages, automation could be the bridge to long-term sustainability.
Yet, without affordable financing, it remains out of reach.
Technology and market access
Digitalisation could offer new lifelines to SMEs through online buyer engagement, transparent supply tracking, and access to design or production software.
However, few possess the technical skills or capital to adopt such systems.
Many cannot afford professional marketers or brand strategists, leaving them dependent on a handful of local buyers or subcontracting relationships that offer thin margins and little growth.
Targeted government and industry collaboration could change that. Shared R&D facilities, export promotion grants, and SME participation in global trade fairs would help smaller firms tell their stories to international buyers seeking ethical and diversified sourcing destinations.
Bridging the divide
The larger question is one of equity and sustainability : how can Sri Lanka ensure that the apparel industry’s success is shared across the supply chain from large exporters to the smallest regional workshops?
The answer lies in partnership. Stronger collaboration between government, financial institutions, and industry bodies is not just desirable it’s essential.
Policymakers must create a framework that balances fiscal discipline with export competitiveness, while banks should be empowered to take calculated risks that nurture innovation and employment.
As one SME owner puts it : “We’re not asking for handouts, just a fair chance.
When small producers grow, the entire industry becomes stronger.”
Sri Lanka’s apparel sector has always thrived on resilience and adaptability.
But resilience should not mean survival against the odds.
With the right mix of financial support, smart policy, and shared vision, the country can transform its apparel SMEs from subcontractors into strategic partners helping Sri Lanka remain a trusted, high-value sourcing hub in an increasingly competitive global market.