Scope for Sustainable Development in Global Value Chains: An Examination of the Sri Lankan Apparel Industry
Navam Niles*
Karin Fernando**
The Fourth Industrial Revolution (4IR) is another cycle of creative destruction. While it originates in developed economies, it is extending to developing economies through Global Value Chains (GVCs). These GVCs have allowed developing countries to create integrated specialised industries based on their comparative advantage across the value chain. By virtue of their integration into GVCs, however, these industries are highly exposed to the impacts of the 4IR. In Sri Lanka, the apparel industry is perhaps the best example of a link in a GVC. It is an industry that has been highly exposed to the demand and supply impacts across the value chain. From the demand side, the industry has evolved to take advantage of changing consumer trends, especially associated with the design, delivery and marketing of fast fashion. From a supply side, the industry has been forced to transform its pre-production and post-production capabilities to reduce costs through automation and to improve value-addition through R&D, marketing, and supply chain management. However, it has done so within the framework of economic, environmental, and social institutions of a developing country. Thus, its ability to achieve sustainable development depends on the GVC. While the industry has been a net-beneficiary of the 4IR, the opportunities and losses have been distributed unevenly across firms and different types of labour. Small and medium firms lack the economies of scale or the capital necessary to take full advantage of increasing demand side opportunities. More importantly, however, the supply side transformation has been disproportionately beneficial to high-skilled labour, especially those engaged in cognitive and non-routine labour. These workers benefit from the 4IR, which increases their share of value-addition. However, low-skilled workers, most of whom are engaged in manual and routine labour, have seen their share of value-addition decrease. As low-skilled workers lose their comparative advantage due to automation and broader innovation, public institutions in developing countries are often ill-equipped to provide support for education, re-skilling, migration, and broader social welfare. The lack of appropriate institutions extends to the GVC, which is under increasing scrutiny for its social and environmental sustainability. The lessons learned in the apparel industry’s GVC provide valuable insights into emerging impacts of the 4IR in other industries.
* Mr Navam Niles is a Research Associate with Centre for Poverty Analysis, Sri Lanka. His recent work focuses on the impact of 4IR on sustainable development. This includes the provision of public goods to manage the disruptions caused by creative destruction, especially for low-skilled labour engaged in routine work.
** Ms Karin Fernando is Senior Research Professional at the Centre for Poverty Analysis, Sri Lanka.