Can you give us some background information on the Company, its historical background, structure and main activities?
This Company started, as a subsidiary company of Ceylon Ceramics Corporation, which was a State, owned enterprise.
Sri Lanka's industrialization that began in earnest in 1956 was really controlled by State owned enterprises, then and the Government set up huge manufacturing ventures like Steel, Petroleum, Construction and many other things.
Ceylon Ceramics Corporation itself had many subsidiaries producing earthenware ceramics, porcelain, tiles and refractory materials. This included a subsidiary, which was a joint venture with Noritake of Japan. The Government, realizing the potential for the ceramic industry in the country because of an abundance of good quality raw materials, formed Dankotuwa Porcelain Limited in 1984, first as a subsidiary of Ceylon Ceramic Corporation. Later it separated from them and had two main shareholders, the Treasury and the Employees' Trust Fund Board, which is somewhat like the Pensioners Fund. Initially the Company did not do well because Porcelain needed time to find expertise and develop. Then we began exporting and we were doing well. By 1990 it had become fairly successful with several export markets especially in Europe.
It was around that time that the Government decided to privatize it with the Treasurery shares being sold to a Japanese Company, which took 50% in December 1990. Their involvement increased with more technical and managerial inputs and assistance in marketing. We began exporting to a large number of countries and we had our best years in 1995 and 1996.
In early 1995 we obtained a listing from the Colombo Stock Exchange and now we are a fully-fledged public listed company with over 3,000 shareholders. The Government has no shareholding now. We were also the first ceramic tableware Company in Sri Lanka to obtain ISO 9000 certification and also won the Presidential Export Award and the Chamber of Exporters Export Award on several occasions.
Today we face very severe competition from East European and also from Asian countries. Many feel that there is an over supply situation in the porcelain industry and our profitability has come down. In 1999 we had a huge drop but in the year 2000 we managed to recover again. But we will perhaps never reach those good years.
There is a great demand for us to reduce the prices, but the cost of production too is going up. But with all those drawbacks, we have been able to maintain very high quality, which as best as any European manufacture and we have not compromised our quality. Unfortunately we are unable to get the correct prices for our products because there is no perception of Sri Lanka being a high quality producer. This is unfortunate because Sri Lanka really is a high quality producer with good management systems, modern quality management methods and a highly literate workforce far above the rest of South Asia. Unlike garments, porcelain goes to the ultimate purchaser, who looks at the brand name and where it is made. Although we sell under different customer brand names, the moment they see the tag made in Sri Lanka they discount the price, even though they know it's being a good quality product. This is the major problem our buyers have.
Given this new increased competition, what is the strategy you have to adopt to face the new situation while adding value to your Porcelain?
We have decided to expand and this month we commissioned a new Kiln, which is a state of the art one and officially commissioned our new Printing Plant. Our production policy is that we never compromise on the quality of the equipment. So we went for the best quality German Kiln as most of our machinery is from Germany and Japan. Even though approximately 50% of our share capital is Japanese, if we feel that German machinery is the best we go for it.
We are now hoping to branch off into different type of products. Earlier we had made a reputation as a manufacturer of finest producers of very heavy gold and platinum work designs. But we found out that the demand for very formal dinnerware has decreased and people want more casual things which are bright colors and in glaze, like oven to table or to microwave. So the new kiln is able to produce this "in glaze" type of products.
Our strategy is to lose on our margins and we will try to recover on volume and try to do new innovative products. Still we are not going to have it easy since we know that Chinese products will come up very fast in terms of quality. But still we believe that we can be successful in certain niche markets, as we are certainly not a producer marketing on terms of cost. We are not a price merchandise producer but a quality merchandise producer. Ultimately we believe that there will be some kind of stabilization amongst the international producers and we feel we can survive the storm, although we are aware that many factories in Germany, the UK and Japan have closed down. So it is a tough time for Porcelain. However, we have an added advantage compared to our Asian competitors, it is that Sri Lanka, having been a British Colony in the past has English as a commercial language. Even in our Company, all our management communication is done in English. Most of our workers understand English. This is a tremendous advantage for our buyers, because we can communicate effectively with them and even when they visit Sri Lanka, they feel very comfortable here which always adds to the feeling of security that investors demand.
This is the situation and now we are also trying to target countries like India, where we believe the population will very soon become more sophisticated. We went on a visit to Chennai (Madras) in the Southern State of Tamil Nadu and if you go to the top-level corporate organizations, they are still very traditional people. They do not spend money on plush offices or on fine dining and things like that. We believe that the situation is changing very fast even there. May be in the course of five years from now, they will become more sophisticated and go in for more quality porcelain. When we showed our products in India every one agreed that there is nothing in India to match our quality. But they say that nobody will pay that price to buy it, since they are happy with the products they have. The only hope is that this will change soon.
A sign of the good quality of your products is shown by the fact that your porcelain was used to during the Oscar awards ceremony this past year. How did you accomplish this and what significance does this have for the image of your product?
Actually the USA is already our biggest market. We sell through our Japanese Company, ICICI, and USA, which have an office in New York. We produce for them under their brand names. We sell to other Department Stores under their brand names. Still the USA is our biggest market. This is the third time our products were used for the Oscar Awards Dinner.
| Hopefully it is going to happen again?
Yes. It's probably because we are famous for producing very intricate type of designs and we are also a very flexible type of manufacturer. This is one advantage I think we score over Chinese companies because they are mass producers and lack our careful touch. I think American and European customers feel comfortable dealing with us. We also respond very fast to our customer inquiries. That level of comfort is there and they know that they are dealing with a company that can honor their choice. I do not think that they will find this kind of confidence with many other Asian companies.
Can you tell us how many are employed in your company and how many plants you have, and also details about your last financial year?
We have only one plant and we have a work force of around one thousand. Our turnover was Rs. 624 million. We did 9 million pieces in 1996 and we have done only 6.5 in 2000.
Are you looking for joint ventures, going into new markets and perhaps acquiring new partners to expand your business?
Yes we are. At the moment we have good distributors in the UK, Italy and the USA. But in the recent past some of our Agents have shifted to cheaper products and we have lost them.. However those who buy the higher priced more complicated designs are still with us. We certainly are on the look out for new agents.
You have around 1000 employees, how does this contribute to the economy?
In term of earning foreign exchange we make a useful contribution to the economy. In addition we contribute to the area of Dankotuwa, as most of our employees are from around the area. Unlike garment factories our average wage rate is very high. We pay the highest in the entire Ceramic industry and we provide a range of welfare benefits.
You have a history of producing good quality porcelain and winning awards How would you describe the image of your company and to what extent do people identify Porcelain with Sri Lanka. Do people who buy from The States know that these porcelain is coming from Sri Lanka, since it is under a the Japanese brand name?
What we find according to impressions given to us by our agents is that in the States the end user is not too much concerned about the producer. If they know that it is a quality product they are willing to pay. Europeans on the other hand are much more brand conscious. Therefore any thing produced in Sri Lanka will be discounted a lot even if it is very nice looking or have very high quality.
But if you look at some parts of Europe like Italy most retailers know us. The word Dankotuwa is fairly known in Italy but may not be in other parts of Europe.
So in Europe the Distributor will use its brand name rather than the original?
Yes that is true but not in Italy. We hope to sell under our brand name in Italy, very soon.
Where do you see the Sri Lankan Economy and where do you see yourself within the next three years?
It is very difficult to predict where the Sri Lanka Economy is going right now. I do not think that any one in the Sri Lankan Business Community is happy the way things are moving right now. Certainly we like the economy to develop faster and steadily.
But quite apart from the Sri Lankan Economy, (since we sell very little in the local market) we like if the Government would do something to project Sri Lanka as a high quality producer and as a country that is quality conscious. I believe that we can get better prices if that happens and if the country image improves I think we have a much brighter future.
Some times it is frustrating to find that we have such a quality product, as good as a European producer, but cannot get our real value, because the country's image is not what it really is. If we have this same kind of factory in Europe perhaps we would get five times the price we get now. Sri Lanka is no longer a low cost producer. Our labour is not cheap any more I think we should be projected as a high quality producer and not a low quality producer.
There is a well-known Group of Companies, which produce lingerie for the export market. They produce top quality garments, which command a very high price. Their factories are as good as any world-class factories. This is the image we want to create.
Could you give us some Background information on yourself?
Basically I am an Engineer, and also qualified in Management Accountancy through CIMA, UK. I have also done my MBA. I have been involved in a lot of public enterprises like being the General manger of Ceramic Corporation and as a Chairman of a Pension type company and this is probably my sixth employment.
I started life as an industrial engineer and rising up to general management. Also I have been involved with lot of quality and productivity promotions in Sri Lanka by being a president of a quality related Association. I was also one time part-time consultant to the Ministry of Industries and launched the national productivity campaign in the country for which I received some recognition by the Asian productivity Organization of Tokyo (APO). They have an award scheme, where they recognizes individuals from countries once in five years and year 2000 award I was selected as the Sri Lankan candidate and I received the award last month from the Ministry at a ceremony. I am also on the Boards of several other companies, which include a Bank and the Colombo Stock Exchange.
Basically if one looks at my hobby, I have been promoting quality and productivity related things in Sri Lanka.
I also travel to many Asian countries as a resource person in the field of Quality & Productivity.
How about a last message to our readers who are decision makers, potential investors, and business people who will read about Sri Lanka through our report?
I would say that in Sri Lanka we have a very highly skilled work force and we have very well managed companies. Being a small country we have a much more international outlook than larger countries. Therefore investors or foreign buyers have found it very convenient to interact and deal with us as business partners.
I would also like to say that Sri Lanka should be recognized as a very high quality producer because we are producing very high quality products, we are just not credited with it. We are certainly not in the business of producing cheap and shabby things. We have the capability and we do produce quality products.
I like Sri Lanka to be recognized and remembered as a high quality producer.
NOTE: World Investment News Ltd cannot be made responsible for the content of unedited transcriptions |
