The recent closure of NEXT Manufacturing’s production plant at the Katunayake Export Processing Zone (EPZ) has sent ripples through Sri Lanka’s apparel sector. As over 1,400 workers lose their jobs, the broader implications of this move stretch beyond a single facility shutdown—it signals deep-rooted vulnerabilities within one of Sri Lanka’s most vital export industries.
In this article, we explore what the NEXT exit means for the Sri Lankan apparel industry, how it ties into the current economic climate, and what the road ahead might look like for garment exporters navigating a shifting global landscape.
A Legacy Shuts Down: What Happened?
NEXT Manufacturing, a subsidiary of the UK-based fashion retailer Next PLC, has operated in Sri Lanka since 1994. Their facility in Katunayake, opened in 1978, was one of the earliest modern apparel manufacturing plants in the country. On May 20, 2024, the company officially closed this plant, citing unsustainable operations, rising costs, and a prolonged period of unprofitability.
The company clarified that 1,416 employees would be made redundant, although some operations such as product development and embellishment would continue at a reduced capacity. Meanwhile, other facilities in Andigama, Nawagaththegama, and Colombo remain operational.
But the question remains: what does this signal for Sri Lanka’s garment and apparel export industry at large?
- The Human and Economic Cost
The immediate impact is on livelihoods. Over 1,400 direct jobs lost means hundreds of families face economic uncertainty. The apparel industry in Sri Lanka employs nearly 350,000 people, many of whom are women from rural and semi-urban areas. Job losses in EPZs can significantly affect community well-being, local economies, and even food security for affected households.
This closure serves as a harsh reminder of how vulnerable employment in export manufacturing zones has become—especially in a climate where global retailers are tightening margins and shifting sourcing strategies post-COVID.
- Rising Costs and Declining Competitiveness
One of the reasons NEXT cited was the rising cost of doing business in Sri Lanka. This includes:
- Escalating electricity and utility tariffs
- Fluctuating exchange rates
- High logistics and freight costs
- Wage pressures and labor unrest in some zones
- While Sri Lanka once enjoyed a reputation for high-quality, ethical apparel production, cost competitiveness is eroding. Countries like Bangladesh, Vietnam, and Ethiopia now offer cheaper alternatives—often backed by government subsidies or stronger bilateral trade agreements.
NEXT’s exit raises a serious question: Can Sri Lanka still compete in the global garment game?
- A Symptom of Broader Structural Issues
The closure is not an isolated event. It points to several systemic challenges:
Trade uncertainty: Sri Lanka’s access to key markets like the EU and US is under threat due to shifting geopolitical dynamics and questions around GSP+ benefits.
Policy inconsistency: Manufacturers often cite unclear or inconsistent government policies on taxation, labor regulations, and export incentives.
Lack of innovation: The industry has not significantly diversified into value-added apparel, sustainable fashion, or tech-driven production models, which are now demanded by global buyers.
- Shifting Global Supply Chains
The pandemic accelerated the reshaping of global supply chains, with many buyers prioritizing agility, speed to market, and nearshoring. Sri Lanka’s distance from major markets and its dependence on imported raw materials make it less attractive in the new fast-fashion supply chain model.
Additionally, geopolitical shifts, including tensions in Asia and the EU’s new sustainability directives, are forcing buyers to reevaluate supplier bases. Unless Sri Lanka proactively aligns itself with sustainability, compliance, and green manufacturing, it risks being left behind.
- Opportunity for Industry Recalibration
While the NEXT shutdown is a setback, it’s also a wake-up call—and perhaps an opportunity for course correction.
a) Invest in Innovation
Sri Lanka must move from basic manufacturing to design-driven, high-margin products. That means more R&D, automation, digital sampling, and AI-based forecasting tools.
b) Policy Reform
The government must work closely with apparel sector stakeholders to implement stable, forward-thinking policies, such as:
- Incentives for sustainable practices
- Support for small and medium apparel producers
- Improved infrastructure in export zones
- c) Strengthen Local Value Chains
- Import dependence is risky. Sri Lanka must invest in domestic fabric mills, accessories, and dyeing plants to reduce external dependencies and improve margins.
- Voices from the Ground: Industry Response
Industry experts and union representatives have expressed concern:
“This is a sign of the times. If a global brand like NEXT cannot sustain operations, what does that say about our support systems?”
— Senior executive, Joint Apparel Association Forum (JAAF)
“We are worried about future closures. Workers are scared and confused(Apparel Industry).”
— Trade union representative, Free Trade Zone Katunayake
- What’s Next for Sri Lanka’s Apparel Sector?
The Sri Lankan apparel industry still holds significant strengths:
A reputation for ethical labor practices
A skilled and experienced workforce
Strong relationships with top brands like Nike, Victoria’s Secret, Marks & Spencer, and Levi’s
To preserve and grow these advantages, the sector must shift from reactive to proactive planning(Apparel Industry). Areas like eco-friendly fashion, circular economy principles, and tech-enhanced productivity must be fast-tracked if Sri Lanka wants to remain a credible player.
Final Thoughts: A Defining Crossroads
The closure of NEXT’s Katunayake plant is more than a business decision—it is a symbolic moment for Sri Lanka’s apparel industry. It highlights the fragility of relying too heavily on a few global buyers, on outdated manufacturing models, and on external market access without strong internal reforms.
If stakeholders act decisively—government, industry leaders, and workers together—Sri Lanka has the potential to evolve into a modern, competitive, and resilient apparel hub in Asia.
But the time to act is now -Apparel Industry.
