Proceedings of 5 th International Conference on Management and Economics, 26 August 2016, University of Ruhuna, Matara, Sri Lanka, p. 159-176. Cultural Diversity as a Competitive Advantage for Innovation in Tourism Sector: An Exploratory Case Analysis of Eastern Province in Sri Lanka Haritha Wedathanthirige 1 and G.T.Wasantha Sriyani 2 1. Research Consultant (harithawedathanthrige@gmail.com) 2. Senior Lecturer, Department of Management and Entrepreneurship, University of Ruhuna (gtwasanthas@badm.ruh.ac.lk) Abstract Sri Lanka is now becoming one of the emerging attractive destinations in the global tourism industry. It shows a rapid and substantial growth from the end of the civil war in 2009. Sri Lanka‟s population is composed of several different ethnic groups mainly Sinhalese, Tamil, Muslim and others. Thus values, norms, rituals and culture among these ethnic groups are differed from each other which resulted to a rich cultural diversity in Sri Lankan society. Eastern province is one of the major attractive tourist destinations in Sri Lanka. All ethnic communities mainly Sinhalese, Tamils and Muslims live in this province. The Eastern province has provided a unique place for the tourists to get real-life experience with nature, cultural diversity and communities. As mentioned by Porter (1990), such specificities and unique features need to be addressed properly to gain competitive advantages as nations. However, in Sri Lanka, eventhough the cultural diversity creates many opportunities in the Tourism sector, any emphasis was not given to assess the cultural diversity as a competitive advantage. Also tourism product development and innovations have been taking placed over the past period. Hence this paper seeks to examine the affiliation between cultural diversity and innovative product development in tourism sector of eastern province in Sri Lanka. The case study approach in qualitative research methodology was applied for this research since it facilitates a thorough investigation through the acquisition of concrete, practical, and context-dependent data. Two case studies were developed through an extensive literature review, and a series of in-person interviews, observations and focus group discussions. Two types of tourism products were selected for investigation. Two case studies were analyzed qualitatively within the framework of cultural diversity and Michael Porter‟s attributes of competitive advantage to achieve research objective. Findings revealed that advantage of cultural diversity among all three ethnic communities has been in use as an opportunity to develop these two products together with destination specific resources. The cultural determinants and its diversity have mainstreamed and integrated in to a wider spectrum within these two products to bring a novelty with exiting experience and meet the current demand at the home market. Also two products have unique advantage in the eastern province and more competitive with other providers. Hence, findings provide sufficient evidence to mark the cultural diversity as a competitive advantage in developing innovative products in tourism sector at the eastern province of Sri Lanka. Key Words: Competitive Advantages, Cultural Diversity, Innovation, product development, Tourism sector Introduction As of World Tourism, Sri Lankan tourism industry is showing a rapid and substantial growth since the end of the civil war in 2009. Secondary data of tourist arrivals reveal that foreign tourist arrivals have increased during the recent past. It was recorded that 1,527,153 foreign tourist arrived in 2014 and 1,798,380 in 2015. Tourism research and statistics (2015-2016) reported that 17.8 percent increase in tourist arrivals in 2015 comparatively with 2014. Also, there is a 20 percent increase in the tourist arrivals during the first quarter of 2016 comparatively with the same period of 2015. International media (National Geographic in 2012) and Lonely Planet Magazine (2013) rated Sri Lanka as number one among the six best places to visit. Tourism industry is one of the fast emerging industries of the Sri Lankan economy with average annual revenue of US $ 500 million at present and it is the sixth largest foreign exchange earner in Sri Lanka. It has created employment for about 125,000 persons (Tourism Development Strategy, 2011-2016). Sri Lanka is now becoming as one of the emerging attractive destinations in the global tourism industry because it comprises with high level of distinctive nature-based, man-made, and culture specific features such as