This paper examines the slow growth of local supplies to the garment industry in Sri Lanka. We have shown that the overall investment environment in Sri Lanka and international demand patterns constrain the formation of competitive local producers of fabric and garment accessories. We have also shown that building and maintaining sources of competitive advantage among producers of garment inputs are crucial to their development and viability in a highly integrated global economic environment. From the Sri Lankan garment industry experience and from the available evidence from other countries, we have argued, in general, that the emphasis on backward linkages as an important criterion in formulating policies in an open economy for export-oriented industrialization is somewhat misplaced. Changes in the global environment and international demand patterns have made backward linkages effects less powerful than they were for import-substitution industrialization strategy in a closed economy. Although local suppliers are useful and valuable, they cannot function unless conditions exist which allow them to be competitive.

by Saman Kelegama and Fritz Foley