• In conversation with Gospel House Handicrafts Managing Director Shiran Karunaratne

Gospel House Handicrafts Managing Director Shiran Karunaratne shares an inspiring journey as an SME entrepreneur in Sri Lanka. The story began in 1976 when his father, an electronic engineer who lost his job, turned to his passion for crafting wooden toys and cabinets. Shiran's involvement in the business started at a young age, assisting his father after school and during vacations. Tragedy struck when his father fell ill with cancer, and at the tender age of 18, Shiran took up the mantle of the family business.

With perseverance and hard work, Gospel House Handicrafts flourished, receiving bulk orders from a UK company and gradually expanding its market presence. Shiran recognised the potential in the wooden toy sector and decided to specialise, taking advantage of the growing demand from both local and international buyers. Today, the company stands as a unique entity, utilising Albasia wood, a fast-growing local resource, to craft environmentally-friendly toys.

In this exclusive interview, Shiran shares his insights on the advantages and challenges of running an SME business in Sri Lanka. He emphasises the importance of maintaining financial control, product development, and fostering strong relationships with customers. Additionally, he highlights the need for appropriate financial policies to support SMEs and calls for restrictions on certain imports, allowing locally manufactured products to flourish.

As the world faces uncertainties, Shiran remains steadfast in his commitment to growth, aiming to introduce a new green product under the fair trade certification. With an eye on untapped markets, including India, Shiran's advice to aspiring entrepreneurs in Sri Lanka is to be unique, innovative, and resilient—traits that have undoubtedly been the driving force behind Gospel House Handicrafts' success.

Can you tell me about your journey as an SME entrepreneur in Sri Lanka? How did you start your business? 

When my father lost his job in 1976, everything began. Actually, he was an electronic engineer who lost his job while working for Millers. He was at home after The Millers closed down. However, he also enjoyed making wooden toys and cabinets as a hobby. He began creating specific wooden goods and selling them in the marketplace. Because the family's income was not very high, I used to go and assist my father in his work after school and during the school vacation. I studied at St. Peters’ College in Colombo. We are Christians and are very committed in the church. A missionary once visited Sri Lanka and, upon viewing my father's art, informed us that he knew of a business in England seeking such wooden objects. The managing director of this English company then travelled to Sri Lanka in January 1976 to speak with my father and assessed the quality of the work. During this time, my father used to routinely get sick and take medication. I began working with him after school being aware of his deteriorating health.

However, this UK company gave us bulk orders such as in 300, 500, 1,000 volumes where only myself and my father were working at that time. As we were financially struggling, the company helped us with 50% of the value of the order and wanted us to manufacture it. After that, my father built one or two machines and hired a few unemployed youth from our church community to work. When my father fell seriously ill in 1978, we discovered that he had cancer. I was just 18 and had a younger brother and my mother to take care of. I started working full-time with my father as most of the time, he was hospitalised. In 1983 my father passed away at the age of 57. Thereafter, I continued the business. A Dutch organisation was introduced to us by the UK company that we were working with and another US corporation was introduced via the Dutch group. We gradually boosted the output of wooden toys. With all the positive impacts on the wooden toys sector, I thought I must specialise in the wooden toy sector since there is a steady potential market. 

What are the unique opportunities and advantages of running an SME business in Sri Lanka?

You know Large companies can find their capital and investors, but this is not the case for SMEs. Unless you go to a bank and prove that you are capable of paying it back, you are not given any support similar to what large companies receive. Moreover, It’s more in your hand to survive as an SME entrepreneur in Sri Lanka. You should have a good accounting system from the start itself. As a small company, I treat the company and myself as two different entities. I always took a salary and I always separated the company and myself.

If you have a correct product and tap on the needs of the market, there's a very big possibility for SMEs to thrive within the present scenario. For the last three years, we had good sales because of two factors. First is during Covid, all the children were at home and parents working from home so they had to get the children occupied. Therefore, we had very good sales in toys. Secondly, Sri Lanka banned importing plastic toys and that added to our advantages.

What are your thoughts on the bank interest rates where the SME entrepreneurs receive high interest rates despite the decreased interest rates.

The main issue is the lack of proper financial policies. We are in need of a  very low interest rate at present. A few years back, when we had the enterprise loan scheme through some of the state banks at a 6.5% interest rate, as a SME, I used that opportunity and upgraded all my machines and brought in new machines, new technology. Since, 6.5% is an affordable interest for a small SME and if you're exporting you have to consider depreciation of the rupee, I believe, if we can have an Interest rate for the industries between 6-8.5% Sri Lankan SME sector can be developed.

What is your view on the lifting of the import ban for all items by September?

There was a time where we imported the “Vesak Kudu”, Kites, Baby toys, Christmas ornaments, among other things, but all those things can be made in Sri Lanka. Kites are a good example. Children used to be so occupied in making a kite.

The Government must not make the biggest mistake that they did in 1977 with the open economy. I believe you need restrictions on certain items which can be manufactured locally.

For example, products needed for the early childhood education system in Montessori can be manufactured in Sri Lanka, despite importing plastic items and polluting the environment. Moreover, we will be using rupees in manufacturing, but if you import it will be in dollars. 

How do you navigate the regulatory and legal landscape for SMEs in Sri Lanka? Are there any specific challenges or considerations you face?

If an SME entrepreneur applies to the bank for funding, the collateral is a big problem. For example, if the entrepreneur places a land as an asset worth about 1 million, the bank values it only at 60% Instead of giving a real value and helping the SME. With such drawbacks, we cannot develop.

Financial regulations and laws are necessary, but it is equally important to maintain a good cash flow for the SMEs to keep money at hand and for this lowered interest rates of loans would help. 

Also being overly concerned on environmental issues and various pollution types has also created a challenge for SMEs. For example a small SME who has been operating for years and suddenly a house is built next to the factory and the house owners start complaining about the noise and the dust. These are issues that the SMEs find difficult to fight with. 

Moreover, at times the electricity cost is unaffordable. Then the electricity bill is comparatively increased, earlier we paid 10 rupees and 25 cents per unit, now it has increased to 29 rupees. Additionally, we were taxed only 15% of the profit and now we are taxed 30% of the profit. 

The other situation is the appreciation of the rupee. Under the prevailing situation, by the next financial year, the exporters will be at a loss. There won't be even a profit where the SME exporters will be able to cover their tax. I'm struggling with the business and my currency loss is about 4.8 million for the last two months. It's because we exported our toys when the dollar rate was at Rs. 369. But when we receive the payment after the shipment the exchange rate of the dollar is Rs.292 making our income a total loss. The big exporting companies, they must be very exorbitant currency losses. Recently I was talking to a Sri Lankan shipping company and they said their currency loss per day is over 100 million. The country is suffering at the moment and It's not easy.

Moreover, the construction industry has come to a standstill. You will notice heaps of tiles in stock. People do not have money in their hands to build new houses or anything. And I heard that lots of people have lost their jobs.

How do you manage and overcome common obstacles faced by SMEs, such as limited access to capital, skilled labour, and market competition?

We have to pay the staff anyway. When things were getting tough and the prices of essential goods were rising up. I decided to give my staff a Rs. 4,000 worth of a food pack apart from the salary. I have been continuing that up to now. It shows the consolidation of the organisation.

Since we are exporting and dealing with foreign currency, the banks have confidence but for others, it's really difficult to access capital.

I don't look at my market competition. I don't think I had a competition because we are unique. We use the Albasia wood which is the cheapest in the whole world and 100% local raw material.

Even for the packaging, we use corrugated boxes and corrugated paper which is locally produced. Except the paint pigments which are imported.I have a good product development team in-house. So, their target is to come out with a new product every month. They come out with at least a good 10 or 15 good designs. Product development is the key, actually.You have to be unique.

How do you foster innovation and creativity within your SME business? Are there any strategies or practices that you find particularly effective?

We are a fair trade organisation. We are a certified, guaranteed organisation. In fair trade, they look for environmental aspects, child labour and more. I have a green product working in my mind which is my next target. I need at  least a good Rs. 22 million for the project. I'm waiting for an opportunity from a bank for a lower interest to finance this.

Then I'll have a green product with a fair trade certification. It's a green toy, an environmentally-friendly product. 

For the last five years. We could not strategise anything in our situations. But I have a business growth  target. I'm expecting a growth of at least 8-12%. And also to find new markets, the untapped markets like India which is a very big market. 

Does Sri Lanka have a good production for your main raw material, the albesia wood?

The big, huge tree in the middle of the plantation is called Albesia wood. The tree grows within about five to six years. You've got to cut that tree off within about five to eight years.

It’s not planted on a big scale, but every tea plantation has since the tea plantation needs this tree. The story goes like this; when the British came and planted tea, they found that the sun was too strong. But the climate was nice and cool. So,they planted this Albesia tree in the midst of the plantation as a cover for the tea plants. Moreover, this tree was imported from Malaysia. It's a Malaysian species, which starts growing very fast. It is not hardwood. It's a very softwood tree. So, I use this slogan, as long as Europeans drink tea, I have the Albesia wood.

We have a very good supply of Albesia wood in this country.

How do you ensure customer satisfaction and maintain strong relationships with your clients or customers as an SME entrepreneur in Sri Lanka? Do you sell your goods at the local market as well?

When we started way back in 1976. This company that my father started trading with the International markets. They virtually became like a family.I have buyers who have been buying from us for the last 40 years. The key to ensure customer satisfaction and maintain strong relationships with your client has been product development.We always offer the buyer something new.It's a toy, but it's a new toy, with new concepts. Moreover, if they see something that is good in the market they ask us to manufacture it. That is communication. We have a very good communication system with the buyers.

We have connected with Daraz to sell our products for the local market on an online platform.

If we have an export order volume of  200, I will produce about 5% extra for the local market. Currently, we have spoken with two local distributors and very soon our toys will be also in the local market.

What advice would you give to aspiring SME entrepreneurs in Sri Lanka, based on your own experiences?

Have tight controls on your finances. Don't let finances control you. You control the finances. Do not spend the company funds. Keep a separate salary for your service to the company. 

And also, you have to be unique and map new inventions and new product development. Opportunity is everywhere, it’s your courage, determination, commitment, and uniqueness that is more important.