Apparel Manufacturing: A journey to riches
Numerous pieces have been written on the success of the Sri Lankan apparel industry across all forms of media. The industry is valued at around $5 billion and employs approximately 15% of the country's workforce.
What started as a flourishing industry in the 1980's under the protectionist Multi Fibre Agreement (MFA) has today evolved into a world class operation. Sri Lanka is among the top-apparel producing nations in the world relative to its population.
Industry Consolidation
As mentioned above, apparel manufacturing went through a rapid expansion in the 1980's under the quota system. The company with the greatest quota was the winner. The period was defined by major buyers essentially chasing cheap labour at a global level.
Sri Lanka had over 1,000 manufacturing entities in this phase of rapid expansion. Most companies in the business made loads of cash and thrived under the protectionist regime of the quota system. There were two types of entrepreneurs who emerged during this phase:
1. The ones who made loads of cash and re-invested with larger than life visions and goals
2. The ones who made cash and invested in safe haven assets
Post 2005, with the abolition of the MFA, the playing field for the manufacturers changed drastically. Companies who emerged as winners were the ones who reinvested profits and who thought about the bigger picture. Consequently, what used to be an industry with thousands of business entities consolidated into not more than 10 major manufacturers. In saying this, the industry has grown substantially over the years, but growth has essentially come from major players in the industry.
Global Icons
The focus of this article will be predominantly on two companies that are industry leaders and global icons in the apparel manufacturing industry. Brandix Lanka Limited and MAS Holdings are the two companies that represent the epitome of global apparel manufacturing. Both companies generate annual turnovers of $1.5 Billion plus each and have elevated Sri Lanka's status in the global market. This article focuses on their journeys which have been similar in style and speed. Both companies have reached a stage in their evolution where they are no longer domestic giants, but rather regional powerhouses in the apparel manufacturing industry.
Both these companies started as traders, and with the open economy revolution of Sri Lanka they have become champions in their sector. Their growth has essentially made them evolve into higher spaces of the value chain and they currently project themselves as 'knowledge sharing powerhouses.' The evolution of these companies can be broken down into the following stages:
1. Large scale tailors
2. Sophisticated/large scale manufacturers
3. Sustainable supply chain companies
4. Knowledge sharing powerhouses
Large Scale Tailors
Sri Lanka's apparel manufacturing industry largely evolved and progressed as Sri Lanka's largest foreign exchange earner under the MFA. Under the protectionist regime, most companies that started evolved into large scale tailors.
Brandix and MAS were no different. They flourished exponentially in this period and matured into what they are today. In this initial phase most manufacturers operated and focused on the CMT of manufacturing. CMT stands for cut, make, trim.
This was a period where the broader value addition of the industry was under 30%. Everything, from design to specifications and technical guidelines were provided by the buyers. The role of the manufacturers was restricted to being specialist mass scale tailors. Sri Lankan companies operate in an environment where there is no raw material base, no yarn, and no cotton; hence the sustainability of the business model was questionable. What Sri Lanka offered as a competitive advantage was a highly skilled and literate workforce.
It is important to note that although the industry was flourishing in this period, companies that operated were not technologically sophisticated, nor did they have any idea about their market or customer base. Their understanding of 'speed sourcing' and fashion trends was close to nil.
Large Scale Sophisticated Manufacturers
The year 1985-1986 marked probably the most significant moment for the industry. Martin Trust, the champion of speed sourcing for American fashion entered Sri Lanka with Brandix and MAS Holdings. MAST Industries USA entered into a dozen important joint ventures with both companies that set them apart from the rest of the industry.
I truly believe this was the turning point for both these giants. Their progression into what they are today startedat this key moment. These joint ventures played a key role in getting technology access, broader knowledge of products and customers, fashion trends and international recognition in a highly competitive global business landscape. A host of top brands entered Sri Lanka through these joint ventures.
Both companies diversified into broader product portfolios, maximizing margins by focusing on areas with the highest profitability. Importantly, the diversification also enabled these companies to create a multi-skilled workforce. This happens to be one of the key strengths in this industry.
Sustainable Supply Chain Companies
Although both companies enjoyed exponential growth during the above mentioned phase value addition remained low. To counter this, both companies embarked on a journey to create a world class supply chain base to support their core business of manufacturing.
Their aggressive approach and commitment to building world class infrastructure and supply chain networks has resulted in value addition reaching 70%, while the industry average remains below 50%.
From fabrics to accessories, everything was synchronized to meet and exceed customer expectations. Both companies strived to position themselves as total solution providers as opposed to being viewed just as manufacturers.
During the next phase of their progression, Brandix ensured that the supply chain network remained sustainable. In its pursuit of becoming a world class eco-friendly manufacturer, the company delivered the world's first Lead certified eco-factory in Seeduwa.
This was vindication to the status of being a truly global leader in apparel manufacturing.Brandix was no longer viewed as a domestic giant, but as the standard the rest of the world must follow to stay competitive and recognized in the business.
Knowledge Sharing Powerhouse
This is probably the most fascinating of the stages of evolution. Years of world class manufacturing, experience, a diverse product portfolio, in-depth customer/market knowledge, all contributed to this positioning.
Once again, Brandix has taken the lead in this area. While other major manufacturers such as Timex Garments Limited and MAS Holdings rely on proven Enterprise Resource Planning (ERP) systems such as SAP to integrate their business processes, Brandix evolved into being a service provider. Brandix i3, now rebranded as Fortude is a subsidiary of the Brandix Group developing and selling ERP solutions to apparel manufacturing giants the world over.
Years of manufacturing excellence and in-depth knowledge of process and knowledge of customers has been synchronized into a single technological platform, thereby creating a colossal knowledge sharing business. As Sri Lankans, we must be proud of such wonderful achievements where the world recognizes our talent and learns from our expertise.
Regional Presence
Fortunately, Sri Lanka is located in one of the most populated regions in the world, namely South Asia. It is home to one of the fastest growing consumer markets and provides the much needed raw material base for apparel manufacturing. Both Brandix and MAS Holdings defied the odds in growing in a country which virtually has no material base. However, in order to continue their growth to monumental highs both companies ventured into countries like India and Bangladesh to exert their dominance in the apparel manufacturing industry.
Today, Brandix operates an apparel city in Vizag (Andhra Pradesh, India) with state-of-the-art infrastructure and technology. In a recent statement published by the company on its social media portal, it boasts of a cumulative turnover of $1.2 billion, growing at 30% per annum based on compounded aggregate revenue growth rate. The company currently employs just under 20,000 associates and is by far India's largest underwear exporter.
Both companies have taken advantage of the raw material base, thereby reducing lead times. They have also taken advantage of the cheap labour. In addition, it also allows them to further diversify their product portfolios depending on the strength of the country they operate in.
Talent Management
During the initial phase of the industry's development, companies struggled to attract top class management talent. Both Brandix and MAS changed this landscape by branding their companies and business. They faced competition from traditional blue chip Sri Lankan companies to attract talent. However, things changed with aggressive marketing of their brands as they remodelled their business processes to attract top class talents.
Ken Balendra's appointment as the Chairman of the Brandix Group was revolutionary to say the least. Probably the most respected corporate executive in Sri Lanka, he ensured that the company expanded aggressively. Although Brandix is a privately owned company, he put in reporting structures and processes to ensure transparency in the business. It functions as a public limited company in the way it manages its business. It also paved the way to attract top class talent into the company.
Sri Lankans should be proud of the fact that because of these companies Sri Lankan executives and management talent is held in high esteem all across the world. Bangladesh, India, and Africa all rely on Sri Lankans to drive their businesses to greater heights. Industrial engineering, design, merchandising, production/quality management are business functions where Sri Lankan talent is highly recognized and preferred.
Fear of Failure
In analysing the growth and breathtaking performance of these two companies, it is clear that the fear of failure was the main driving factor. Initially, it was fear to exist post the MFA era, and then it was fear to lose out to countries with cheap labour and raw material availability.
It was the fear of failure that propelled them to develop unique capabilities and develop business models that are incomparable and sustainable. Most blue chip companies in Sri Lanka operate in what I call safety net industries. Sectors like tourism and plantations are dependent on Mother Nature for their existence. Leading companies have done little to glorify their respective industries into global prominence. For example, Sri Lanka does not have one brand of tea that is valued at $100 million despite being in existence for 150 years. It is an irony to say the least. We are not able to boast about a leading hotel chain that is comparable in size to top players the world over, despite having one of the most attractive tourist locations in the whole of Asia, if not the world.
Brandix and MAS have thrived to be global icons in the face of adversity. No raw material base, scarcity of labour, high costs, and minimum support from the government have been some of the things that they have had to deal with, and they dealt with them successfully. This makes their success all the more resounding.
The Irony
It is an irony to say the least that none of these companies are listed on the Colombo Stock Exchange. Failure of successive governments to lure such world class players to the capital market has limited its growth. The top five apparel manufacturers in Sri Lanka are capable of adding $10 Billion plus market capitalisation to the stock exchange based on their turnover figures.
All major industrialized nations in the world have their big companies listed on their stock exchanges. It is both a sense of pride and an indication of the strength of their capital markets. Does our market give these companies enough incentives to list? Is the market internationalised enough? These are some of the key questions that need to be addressed. Their presence is much needed in the market for the stock exchange to provide a fair reflection of the economy.
Numerous pieces have been written on the success of the Sri Lankan apparel industry across all forms of media. The industry is valued at around $5 billion and employs approximately 15% of the country's workforce.
What started as a flourishing industry in the 1980's under the protectionist Multi Fibre Agreement (MFA) has today evolved into a world class operation. Sri Lanka is among the top-apparel producing nations in the world relative to its population.
Industry Consolidation
As mentioned above, apparel manufacturing went through a rapid expansion in the 1980's under the quota system. The company with the greatest quota was the winner. The period was defined by major buyers essentially chasing cheap labour at a global level.
Sri Lanka had over 1,000 manufacturing entities in this phase of rapid expansion. Most companies in the business made loads of cash and thrived under the protectionist regime of the quota system. There were two types of entrepreneurs who emerged during this phase:
1. The ones who made loads of cash and re-invested with larger than life visions and goals
2. The ones who made cash and invested in safe haven assets
Post 2005, with the abolition of the MFA, the playing field for the manufacturers changed drastically. Companies who emerged as winners were the ones who reinvested profits and who thought about the bigger picture. Consequently, what used to be an industry with thousands of business entities consolidated into not more than 10 major manufacturers. In saying this, the industry has grown substantially over the years, but growth has essentially come from major players in the industry.
Global Icons
The focus of this article will be predominantly on two companies that are industry leaders and global icons in the apparel manufacturing industry. Brandix Lanka Limited and MAS Holdings are the two companies that represent the epitome of global apparel manufacturing. Both companies generate annual turnovers of $1.5 Billion plus each and have elevated Sri Lanka's status in the global market. This article focuses on their journeys which have been similar in style and speed. Both companies have reached a stage in their evolution where they are no longer domestic giants, but rather regional powerhouses in the apparel manufacturing industry.
Both these companies started as traders, and with the open economy revolution of Sri Lanka they have become champions in their sector. Their growth has essentially made them evolve into higher spaces of the value chain and they currently project themselves as 'knowledge sharing powerhouses.' The evolution of these companies can be broken down into the following stages:
1. Large scale tailors
2. Sophisticated/large scale manufacturers
3. Sustainable supply chain companies
4. Knowledge sharing powerhouses
Large Scale Tailors
Sri Lanka's apparel manufacturing industry largely evolved and progressed as Sri Lanka's largest foreign exchange earner under the MFA. Under the protectionist regime, most companies that started evolved into large scale tailors.
Brandix and MAS were no different. They flourished exponentially in this period and matured into what they are today. In this initial phase most manufacturers operated and focused on the CMT of manufacturing. CMT stands for cut, make, trim.
This was a period where the broader value addition of the industry was under 30%. Everything, from design to specifications and technical guidelines were provided by the buyers. The role of the manufacturers was restricted to being specialist mass scale tailors. Sri Lankan companies operate in an environment where there is no raw material base, no yarn, and no cotton; hence the sustainability of the business model was questionable. What Sri Lanka offered as a competitive advantage was a highly skilled and literate workforce.
It is important to note that although the industry was flourishing in this period, companies that operated were not technologically sophisticated, nor did they have any idea about their market or customer base. Their understanding of 'speed sourcing' and fashion trends was close to nil.
Large Scale Sophisticated Manufacturers
The year 1985-1986 marked probably the most significant moment for the industry. Martin Trust, the champion of speed sourcing for American fashion entered Sri Lanka with Brandix and MAS Holdings. MAST Industries USA entered into a dozen important joint ventures with both companies that set them apart from the rest of the industry.
I truly believe this was the turning point for both these giants. Their progression into what they are today startedat this key moment. These joint ventures played a key role in getting technology access, broader knowledge of products and customers, fashion trends and international recognition in a highly competitive global business landscape. A host of top brands entered Sri Lanka through these joint ventures.
Both companies diversified into broader product portfolios, maximizing margins by focusing on areas with the highest profitability. Importantly, the diversification also enabled these companies to create a multi-skilled workforce. This happens to be one of the key strengths in this industry.
Sustainable Supply Chain Companies
Although both companies enjoyed exponential growth during the above mentioned phase value addition remained low. To counter this, both companies embarked on a journey to create a world class supply chain base to support their core business of manufacturing.
Their aggressive approach and commitment to building world class infrastructure and supply chain networks has resulted in value addition reaching 70%, while the industry average remains below 50%.
From fabrics to accessories, everything was synchronized to meet and exceed customer expectations. Both companies strived to position themselves as total solution providers as opposed to being viewed just as manufacturers.
During the next phase of their progression, Brandix ensured that the supply chain network remained sustainable. In its pursuit of becoming a world class eco-friendly manufacturer, the company delivered the world's first Lead certified eco-factory in Seeduwa.
This was vindication to the status of being a truly global leader in apparel manufacturing.Brandix was no longer viewed as a domestic giant, but as the standard the rest of the world must follow to stay competitive and recognized in the business.
Knowledge Sharing Powerhouse
This is probably the most fascinating of the stages of evolution. Years of world class manufacturing, experience, a diverse product portfolio, in-depth customer/market knowledge, all contributed to this positioning.
Once again, Brandix has taken the lead in this area. While other major manufacturers such as Timex Garments Limited and MAS Holdings rely on proven Enterprise Resource Planning (ERP) systems such as SAP to integrate their business processes, Brandix evolved into being a service provider. Brandix i3, now rebranded as Fortude is a subsidiary of the Brandix Group developing and selling ERP solutions to apparel manufacturing giants the world over.
Years of manufacturing excellence and in-depth knowledge of process and knowledge of customers has been synchronized into a single technological platform, thereby creating a colossal knowledge sharing business. As Sri Lankans, we must be proud of such wonderful achievements where the world recognizes our talent and learns from our expertise.
Regional Presence
Fortunately, Sri Lanka is located in one of the most populated regions in the world, namely South Asia. It is home to one of the fastest growing consumer markets and provides the much needed raw material base for apparel manufacturing. Both Brandix and MAS Holdings defied the odds in growing in a country which virtually has no material base. However, in order to continue their growth to monumental highs both companies ventured into countries like India and Bangladesh to exert their dominance in the apparel manufacturing industry.
Today, Brandix operates an apparel city in Vizag (Andhra Pradesh, India) with state-of-the-art infrastructure and technology. In a recent statement published by the company on its social media portal, it boasts of a cumulative turnover of $1.2 billion, growing at 30% per annum based on compounded aggregate revenue growth rate. The company currently employs just under 20,000 associates and is by far India's largest underwear exporter.
Both companies have taken advantage of the raw material base, thereby reducing lead times. They have also taken advantage of the cheap labour. In addition, it also allows them to further diversify their product portfolios depending on the strength of the country they operate in.
Talent Management
During the initial phase of the industry's development, companies struggled to attract top class management talent. Both Brandix and MAS changed this landscape by branding their companies and business. They faced competition from traditional blue chip Sri Lankan companies to attract talent. However, things changed with aggressive marketing of their brands as they remodelled their business processes to attract top class talents.
Ken Balendra's appointment as the Chairman of the Brandix Group was revolutionary to say the least. Probably the most respected corporate executive in Sri Lanka, he ensured that the company expanded aggressively. Although Brandix is a privately owned company, he put in reporting structures and processes to ensure transparency in the business. It functions as a public limited company in the way it manages its business. It also paved the way to attract top class talent into the company.
Sri Lankans should be proud of the fact that because of these companies Sri Lankan executives and management talent is held in high esteem all across the world. Bangladesh, India, and Africa all rely on Sri Lankans to drive their businesses to greater heights. Industrial engineering, design, merchandising, production/quality management are business functions where Sri Lankan talent is highly recognized and preferred.
Fear of Failure
In analysing the growth and breathtaking performance of these two companies, it is clear that the fear of failure was the main driving factor. Initially, it was fear to exist post the MFA era, and then it was fear to lose out to countries with cheap labour and raw material availability.
It was the fear of failure that propelled them to develop unique capabilities and develop business models that are incomparable and sustainable. Most blue chip companies in Sri Lanka operate in what I call safety net industries. Sectors like tourism and plantations are dependent on Mother Nature for their existence. Leading companies have done little to glorify their respective industries into global prominence. For example, Sri Lanka does not have one brand of tea that is valued at $100 million despite being in existence for 150 years. It is an irony to say the least. We are not able to boast about a leading hotel chain that is comparable in size to top players the world over, despite having one of the most attractive tourist locations in the whole of Asia, if not the world.
Brandix and MAS have thrived to be global icons in the face of adversity. No raw material base, scarcity of labour, high costs, and minimum support from the government have been some of the things that they have had to deal with, and they dealt with them successfully. This makes their success all the more resounding.
The Irony
It is an irony to say the least that none of these companies are listed on the Colombo Stock Exchange. Failure of successive governments to lure such world class players to the capital market has limited its growth. The top five apparel manufacturers in Sri Lanka are capable of adding $10 Billion plus market capitalisation to the stock exchange based on their turnover figures.
All major industrialized nations in the world have their big companies listed on their stock exchanges. It is both a sense of pride and an indication of the strength of their capital markets. Does our market give these companies enough incentives to list? Is the market internationalised enough? These are some of the key questions that need to be addressed. Their presence is much needed in the market for the stock exchange to provide a fair reflection of the economy.
