How Vertical Integration Is Reshaping Sri Lanka’s Market and Threatening Its Diversity

In recent years, Sri Lanka’s business landscape has undergone a quiet yet powerful transformation. The trend is not merely about competition or market share. It is about dominance, control over not just a single link in the supply chain, but the entire chain itself. This strategy, known as vertical integration, has been embraced by several of the country’s largest corporations. And while it can bring operational efficiency and price competitiveness, it is also creating a business ecosystem where smaller players are increasingly left with nowhere to stand.

The consequences go far beyond economics. This shift affects employment opportunities, innovation, entrepreneurship, and the cultural character of local communities. In short, it is changing what it means to do business in Sri Lanka.

The Rise of the All-in-One Business Model

In its purest form, vertical integration is not new. Globally, companies have long sought to streamline supply chains by owning everything from production to distribution. The logic is compelling: cut out middlemen, reduce costs, and ensure quality control. In a developing economy like Sri Lanka, where logistics and supply chains can be unpredictable, vertical integration can seem like a smart business move.

But what is unfolding today goes beyond operational efficiency. Large companies are not only producing their own goods but also controlling the platforms through which those goods are sold. In some cases, the same company is manufacturing products, importing alternatives, distributing them to retail outlets, and selling them directly to consumers, all within its own corporate ecosystem.

This creates a situation where smaller producers, service providers, and distributors must compete for shelf space, visibility, and customer loyalty on platforms owned by their competitors. Unsurprisingly, they are often priced out or pushed aside.

Take the case of ready-made food sales. When large retail chains begin producing their own takeaway meals and selling them at lower prices than local eateries, the smaller outlets, without the advantage of economies of scale or in-house retail distribution, find themselves unable to compete. What may seem like healthy price competition in theory becomes, in practice, a market chokehold.

The Cost of Consolidation

The problem with such consolidation is not just that it squeezes smaller players; it reshapes the very nature of the market.

First, it diminishes diversity. Small and medium-sized enterprises (SMEs) bring variety to the market. They experiment with products, recipes, services, and approaches that large companies might not consider profitable. When these SMEs disappear under pressure, consumers lose choice, and the market becomes homogenized.

Second, it undermines entrepreneurship. A healthy economy thrives on new entrants with fresh ideas. But when the barriers to entry are this high, when the distribution channels, shelf space, and advertising reach are monopolized, new businesses often fail before they can gain a foothold. This is particularly damaging in Sri Lanka, where entrepreneurship is already challenged by high capital costs, regulatory hurdles, and limited access to financing.

Third, it affects the social fabric. Many small businesses are family-owned and deeply rooted in their communities. They hire locally, support other small suppliers, and contribute to the neighborhood economy. When they close, the impact ripples outward, jobs are lost, local suppliers lose clients, and money that once circulated locally is absorbed into corporate balance sheets.

From a policy perspective, unchecked vertical integration can become a form of market capture that skirts dangerously close to monopoly behavior. While it may not violate competition laws outright, it can undermine the principles of a free and fair market.

A Question of Balance

To be clear, vertical integration is not inherently bad. It can lower consumer prices, improve efficiency, and raise quality standards. In some sectors, it may even be essential to compete globally. But in a small economy like Sri Lanka’s, where market size is limited and business ecosystems are fragile, the unchecked expansion of vertically integrated giants risks creating a monoculture.

The question, then, is how to strike a balance. Other countries have used a mix of policy tools—competition laws, SME protection measures, and local sourcing requirements—to ensure that the playing field remains level. For Sri Lanka, this might mean revisiting antitrust frameworks, incentivizing corporate partnerships with smaller suppliers, and creating tax or marketing support programs for SMEs.

Consumer awareness is also key. Price is not the only measure of value. By supporting local producers and independent service providers, consumers can help maintain market diversity. The challenge is ensuring that they have access to those options in the first place, a task made harder when the biggest players also own the channels of sale.

In the end, a market dominated by a few vertically integrated giants may look efficient on paper, but it is less resilient in reality. Innovation thrives in diversity, not in uniformity. If Sri Lanka’s business leaders, policymakers, and consumers want an economy that is both competitive and sustainable, they must ensure that the giants do not own the field entirely, and that smaller players still have room to play.