Economic Growth in Sri Lanka
Introduction
Sri Lanka is a country with a lower middle-income with a target of becoming a higher middle-income country in the nearest future. After the end of its civil war in 2009, Sri Lanka is rapidly recovering from the post-war aftermath and has emerged as a lucrative spot for foreign investors. A primarily agricultural country in the past, Sri Lanka has now a well-developed services sector, leveraging the greatest part of its GDP with manufacturing occupying the second place and agriculture constituting only 8.7% of the GDP according to the World Bank (The World Bank 2015). However, it is rather questionable if the country has enough stability for investments, as some severe measures that have been introduced by its government are adhering to conservative, protective, and almost nationalistic policies.
The property market will be widely considered in the following paper due to a very specific situation that has appeared around it within the past few years. Being quite attractive to foreign investors, the market is still restricted by a series of incoherent acts and laws that have been passed lately and did not stimulate foreign investment but instead deterred it to a certain degree (Quora 2015). Therefore, the companies that provide services related to property had to respond to such measures that left many businesses at disadvantage. Among the organizations of this kind was Sri Lanka Registration Company. It was established in Colombo in 2010 in order to provide those who wish to start their own business in Sri Lanka with consultancy as well as giving the same assistance to the already existing businesses. At the very beginning of its existence, the company was very and consisted of only 28 people as its staff members. It has adjusted its marketing strategies with accordance to the legal acts passed by the Sri Lankan government and has demonstrated an example of the change in the organization management.
The Change of Demand Background and Company’s Response
The demand change has not been expected up until the point when the Sri Lankan Parliament has approved of Restrictions of Alienation of Land Bill in January 2013. The bill has brought a considerable amount of confusion into the property market and made it more closed for foreign businesses than ever. This bill has limited selling land to foreigners and redefined the notion of “foreign companies” in the country by imposing some strict rules on what could be called a Sri Lankan company (The Daily FT 2016). In particular, organizations, more than 50% of shares of which are held by foreign shareholders, were qualified as those that cannot possess land in Sri Lanka. Only the companies that initially had less than a half of their shares abroad were entitled to land ownership within the country. The companies that have more than 50% of foreign shareholders at any point of their existence can receive the chance to improve this situation: those represented on the stock market have 6 months and those that are not are given 12 months of time. Another strict rule was the suspension of any foreign ownership which was prior possible on condition that the owner would pay 100% in transaction tax. Currently, foreign companies are only entitled to leasing for a time period of about 99 years. Leasing is subject to 15% tax, sometimes 7.5% under certain circumstances. Such measures were not happily hailed in the country that is struggling with attraction of the foreign direct investment. However, the law is to be obeyed, so many property service firms have activated their think-tanks in order to make a transition of their strategies in accordance with the newly implemented legislation.
Identification of Early Signs of Demand Issue and Response of the Organization
Incontestably, national legislation that introduces new rules to property market urges companies for immediate changes. The organization Sri Lanka Registration Company was contacted by email and was asked to answer the questions regarding its response to the changes in legislation. First, it is necessary to outline, that the company would normally help those who only want to establish their business in Sri Lanka and have a very limited knowledge about business conditions in the country and how they are affected by the property market changes. As of January 2013, Sri Lanka Registration Company had to switch its focusing to the clients that were already existing companies in Colombo and the nearby area. Particularly, those who had more than 50% as their foreign assets had to worry: they would not be able to acquire property, as it was possible to do before. Therefore, the company initiated offshore services for those who wished to restructure a part of their foreign assets and be eligible for property acquisition under the new legislation. The organization responded to such an alteration in legislation within one month with a surprising agility: in February 2013 it was already executing consultancy for existing companies at a full capacity. They identified that with the newly implemented law they could expect a dramatic decline in direct foreign investment, since the laws were deemed nationalistic and business-unfriendly. Thus, after 3 years of following one course of assisting those who wished to establish business in Sri Lanka, the organization realized that the flow of customers from that side could exhaust. Having modified the strategies quickly, the company increased its profits by 17% percent in one year. In the first few years after the company has been established, its staff consisted of only 35 employees. However, the company further invited specialists from abroad in order to provide coaching for the employees as a part of their new strategy. In such a way, 10 new consultants in the sphere of offshore trade were involved in helping the companies to avoid selling their land in the cases when the amount of the shares held by foreigners exceeded the established 50% limit. They also provided consulting to the existing businesses regarding the ways of making request for a lower lease tax. It is thus evident that the company was eager to train its employees in a completely new domain, and the employees who expressed their wish to be re-qualified supported this initiative. It is also worth noting that this aspect is very important for the change implementation: without sufficient support of the employees of the organization, the change is impossible. Even in a small organization, strong leadership is essential in ensuring a smooth transition in strategic changes. Therefore, to win the acceptance of the employees at all levels, true leaders would have to provide an incentive of growth and personal interest in the employees.
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After conducting a cost-benefit analysis, the organization has confirmed its speculations for soundness of incorporating the new strategies in their business. Its cost-benefit analysis was performed on an urgent basis and included repudiation of the existing strategy and adopting the new one. First, the alternative path was selected: the internal stakeholders of the organization included its employees, manager, and owners, while its external stakeholders were combined of customers and shareholders. All the parties agreed upon the necessity to change their strategic plan. It is notable that in this situation, the organization was lucky because it did not need new employees and a staff expansion; instead, they hired experts for a few months of coaching saving considerable amounts of money (Brent 2007). As for the client base, since the company provided consultancy mostly at the level of business establishment, the flow of clients was steady and they used company’s advice from three months to one year on average. Now, due to the necessity of restructuring client’s business through laying some of their parts offshore, the processes may take 6 months on average, oftentimes longer. With an existing customer base that has been accrued by the Sri Lanka Registration Company, they organization could find potential clients in the base considering the changes that have happened in the legal aspects of conducting business. Resources needed for advertising new services and modifying their website amounted up to USD 400. All in all, over a 3-month period, the new marketing campaign and requalification of staff cost the company USD 11 000. This is far from a modest amount on a scale of Sri Lanka, but such changes in management have leveraged considerable profits for the company. Although the exact numbers of profits are still being estimated, only the first year of operating under such new strategy has brought the company the increase in profits that outweighed the costs. In the long-term perspective, provided the laws are not altered, the company is expected to grow at a steady rate; since the beginning of the year, it has already employed two more specialists to assist the clients in the new domain.
Competitive Advantages Improvement
Generally, there are two main types of competitive advantage on the market: differential and comparative (Brent 2007). In the case with the Srilankacompany.com, one has to refer to the former. A differential competitive advantage of the given organization initially lies in its ability to analyze the situation on the market, discard what appeared to be a redundant service, and adopt a new strategy, at the same time keeping the personnel members enthusiastic about the change and involving foreign experts. Since no other firm of a kind has offered similar services as swiftly, Sri Lanka Registration Company happened to enjoy exclusiveness of providing it to customers for almost two years. Only at the end of 2014, less powerful competitors have emerged on the market. Yet, the given organization has retained its leading position, as it has earned a good reputation, thus it was time and experience in particular that has become the competitive advantage of the company.
Conclusions and Recommendations
Paying attention to the rapid but stable economic growth that has been observed in Sri Lanka for the past few years, one could speculate that property market services will continue to be in high demand. However, considering the country’s exotic location, possible language barriers, and other factors, many foreign investors that are interested in buying the property there would require professional assistance. In this regard, the company could divide its focus equally between the consultancies of existing and prospective firms. Furthermore, with rather solid base of several years of experience and trust among its customers, the organization can opt for expanding its stuff number by at least one-third.
Sri Lanka Registration Company has established its new strategies in auspicious times. Even with the recent increase in property prices in the country, it remains to be a very desirable and potentially lucrative area for investment from foreign firms. Similarly to the situation in Singapore, Sri Lanka had all the chances of becoming really powerful through the direct foreign investment. However, with current laws impeding it, businesses like Sri Lanka Registration Company should be focusing their attention back on attracting new undertakings and providing them with consultancy rather than hoping that the already existing companies would constitute their sole source of revenues.
