• Closure affects over 1,400 workers; company pledges compensation  
• High labour costs from unique collective agreement cited as primary reason
• Next unable to shift production due to owning its own facility
• JAAF, BOI confirm no signs of wider industry exits or instability

Following the closure of Next Manufacturing Ltd.’s garment factory in the Katunayake Free Trade Zone (FTZ), industry stakeholders have assured that there is no imminent threat of other companies following suit. 

On 19 May, Next Manufacturing, a fully owned subsidiary of the UK-based retailer Next, announced that it would be shutting down its garment factory in the Katunayake FTZ, resulting in the termination of approximately 1,416 employees. 

The company has pledged to compensate the employees above and beyond the statutory requirements.

Speaking to The Sunday Morning Business, Joint Apparel Association Forum Sri Lanka (JAAFSL) Secretary General Yohan Lawrence stated that the primary reason for the closure of the factory in Katunayake was the disproportionately high labour costs the company had been forced to bear.

He pointed out that this was not a widespread issue affecting the entire country, but was instead isolated to Next Manufacturing’s garment factory in Katunayake, where the company had entered into a collective agreement with the trade union that had pushed labour costs beyond sustainable levels.

“This is an issue unique to them. It is the result of the collective agreement the company had entered into, which forced wages higher and higher. Even this year, when most companies in the Katunayake FTZ provided a Rs. 3,000 wage increase, Next Manufacturing was compelled to give a Rs. 5,000 increase,” he said. 

He further pointed out that the situation in the case of Next was also unique in the sense that the brand owned the factory and therefore could not shift production to another facility to cut costs. This dynamic, he explained, was what ultimately compelled the company to shut down its factory in Katunayake.

“Since it’s their own factory, they can’t stop placing orders with it. If that factory had been owned by a different company, they could have just reduced their orders. In this instance, they can’t do that,” he stated.  

Similarly, speaking to The Sunday Morning Business, Board of Investment (BOI) Director General Renuka Weerakoon stated that the reasons behind the decision by Next Manufacturing to shut down its factory was unique to the particular company, adding that no other companies had expressed similar sentiments.

She claimed that issues faced by Next Manufacturing, which could be traced to disruptions faced during the Covid-19 pandemic, had exacerbated over the years, noting that the situation the company faced was unique and was not an indicator of a widespread issue in the industry as a whole. 

Weerakoon further said that Next Manufacturing was not ending all operations in Sri Lanka, but was merely stopping a portion of its operations in the Katunayake FTZ.

“They were severely impacted after Covid-19, and now with recent geopolitical developments, I think they are looking to consolidate their operations. Therefore, part of their operations will be stopped while the rest continues,” she said.