Sustainability through value migration: MAS’ journey with Mahesh Amalean

The recently concluded Sri Lanka Ceramic and Glass Symposium 2018, the seventh of its kind to be held in Sri Lanka, saw a memorable and insightful keynote delivery by the renowned MAS Holdings Chairman Mahesh Amalean.

Amalean’s take on the role consisted of various aspects of various industries and how they prosper through the current changing trends and challenges in a tech-savvy, digitisation and innovation-prone era and he did this by elaborating on his story, the MAS story- MAS’ journey.

“When preparing for this address, I took time to appreciate the impact that the ceramic, glass and red clay industry has on the Sri Lankan economy and society. Your industry generates an annual turnover of Rs.43 billion, of which approximately 23 percent relates to exports,” said Amalean.

He stated that the industry provides 22,000 people with direct employment opportunities, while providing 30,000 people with indirect employment. The industry has also invested a total of Rs.7 billion over the past five years for expansion purposes.

“These numbers speak volumes for the contribution you have made to the country and the lives that you have touched, directly and indirectly, along the way,” Amalean told the audience of veteran ceramic and glass industry proprietors, dignitaries, corporate officials and media personnel.

“As a child and later as a young adult, I have always admired the craftsmanship and quality of the products that you make and have also felt a great sense of pride whenever I have seen, on the shelves of premium department stores overseas, ceramicware made in Sri Lanka.”

Amalean conceded his interest to note the similarities between the challenges faced by the apparel industry (including companies such as MAS) and ceramic, glass and red clay industry in Sri Lanka.

“At MAS, we see our business environment changing dramatically in three specific ways: first, the traditional channels of distribution such as retail outlets are being disrupted through the impact of digital technology and e-commerce; second, our customers are looking for speed to market and customisation, at affordable price points and third, Sri Lanka’s cost-competitiveness continues to be challenged by labour scarcity and increasing input costs like energy and other statutory costs.”
With such dynamic changes in the marketplace, the question is how to ensure that companies and the industry as a whole are sustainable and grow to become a meaningful global player.

‘‘When I embarked on building MAS with my two brothers and a team of smart Sri Lankans, I had two clear goals: the first was to look outwards and always consider the world as our marketplace and the second was to build a world-class company. We were able to achieve this by entering a joint venture with a company called MAST Industries, the sourcing arm of The Limited, which also owns Victoria’s Secret

“To put it more specifically in financial terms, how do you double the size of the ceramic, glass and red clay industry in the next five to 10 years – from Rs.45 billion to Rs.100 billion? It may sound like an audacious goal. However, I am certain that with the collective intelligence that we have in this room and the resource of the industry, it is an achievable one.”

Amalean went on to talk about MAS’ journey, emphasising on the key approaches and defining the moments that have, in his perspective, helped differentiate and grow the business. He shared MAS’ experience with the intention of inspiring the locality to grow their businesses and the industry.

World as marketplace

“When I embarked on building MAS with my two brothers and a team of smart Sri Lankans, I had two clear goals: the first was to look outwards and always consider the world as our marketplace and the second was to build a world-class company. We were able to achieve this by entering a joint venture with a company called MAST Industries, the sourcing arm of The Limited, which also owns Victoria’s Secret. 

For me, building a world-class organisation was more than just bringing in new technology. It was also about establishing world-class business practices and gaining access to international markets. So, when we were given the opportunity to establish a joint venture with MAST Industries, we grabbed it with both hands.”
“The point I would like to make here is that no matter how small you are as an organisation or as an industry, always aspire to be world-class and see the world as your market and not just Sri Lanka. Today, on average, over 70 percent of your industry is focused on domestic demand and as a result, your rate of growth is determined by the growth of the Sri Lankan economy. In contrast, the apparel industry is largely export-oriented and therefore, its growth is determined by the growth of the world economy and as a result, the opportunity for growth is much higher.”

After the blue-chip example, he went on to say that upon the establishment of MAS as a world-class apparel manufacturer, they realised that to ensure the sustainability and growth of their business, they needed to constantly look for opportunities, not only to add value but also to create new value.

“We achieved this in many ways: first, by investing in setting up the supply chain. By 1996, manufacturing lead time started shrinking. Our suppliers were scattered around the world and it took nearly six months to process an order. We realised we needed to be more agile; having a supply chain close to our apparel manufacturing was a necessity. This was when we began investing in an integrated supply chain and decided to bring home to Sri Lanka the best-in-class technology in textiles and trims, by establishing joint ventures with companies that were world-class in their specific field. Our first investment in the supply chain was a joint venture with Charnwood Elastic to set up Stretchline – that makes elastic – in the Biyagama Free Trade Zone.”

Amalean stated that over the years, they added to their supply chain ecosystem a vast array of companies that were world-class in their respective fields of the industry. “For your industry, this may be less of a problem, as most of your raw materials are available within the country.”

“Second, by providing design and product development to our customers: While consolidating our supply chain, we felt the need to simultaneously strengthen our design function to transform MAS from a contract garment manufacturer to a design-to-delivery solutions provider. The design capability within Sri Lanka at the time wasn’t the strongest, so we enhanced our teams with expertise from overseas while investing in the development of our local design talent.”

“Third, by continuous improvement through our lean journey: By the year 2000, we had grown to be a US $ 200 million business. But for some reason, I was feeling uncomfortable; something was not right. The business was growing but our margins were coming down and there were subtle signs of us getting fat and comfortable; productivity was plateauing and waste was creeping in. 

It was during this period that I got the opportunity to visit Japan in 2002 as part of a donor conference. I took the time to visit Toyota (Nagoya), Nissan, Brother and Juki. Having spent a week visiting these plants, I was kicking myself at the end of the trip as I felt that I was 10 years too late. There was so much richness in the Japanese manufacturing industry that we could bring into our business, making a significant improvement to our manufacturing operations.”

Having come back, the team piloted the operation at their best performing plant – Linea Clothing, in 2005. They did so, knowing that if they could improve the performance of their best plant, there would be no question that it would benefit all their plants across the group. Three years later, Linea Clothing was 80 percent more productive within the same footprint.

“Fourth, by providing our customers with a speed to market solutions: With this ‘continuous improvement’ mindset, we created an innovative business model called ‘Rapid’ – bringing down the lead time from 60 to 14 days – on the platform of an integrated supply chain and manufacturing excellence.”

‘‘No matter how small you are as an organisation or as an industry, always aspire to be world-class and see the world as your market and not just Sri Lanka. Today, on average, over 70 percent of your industry is focused on domestic demand and as a result, your rate of growth is determined by the growth of the Sri Lankan economy. In contrast, the apparel industry is largely export-oriented and therefore, its growth is determined by the growth of the world economy and as a result, the opportunity for growth is much higher

Mecca of innovation 

“Fifth, by providing our customers innovation in product and technology: With innovation in product and technology starting to play a huge part in business and our day-to-day lives, we asked ourselves, if Nagoya was the Mecca of lean, where was the Mecca of innovation? All arrows pointed towards Silicon Valley, so that’s where I went to next.”

The purpose of the visit to Silicon Valley was to get a better understanding on how the world-renowned organisations approached innovation and what should be done to become an innovative company. “We visited companies like Google, Facebook, Microsoft, HP and Stanford University and 3M in Minnesota.” Some of the most innovative companies in the world have embraced a concept called ‘open innovation’ or collaborative creation.

“Sixth, using automation and robotics to address two of the biggest challenges faced by our industry, which are rising labour costs and scarcity of labour: Through autonomation (intelligent automation), we are now focusing on reducing labour content and enhancing productivity within our manufacturing footprint. Last year, our organisation saved approximately US $ 9 million through our autonomation efforts and so, we ensured the sustainability of our business through value migration by focusing on the six areas,” said Amalean, concluding MAS’ journey.

“Well, what about the future? In the past, our industry was disrupted by low labour cost countries who took business away from us by offering lower prices. It was all about labour arbitrage. Today, we stand in the middle of a world where industry after industry is being disrupted by digital technology and not only that, it is also altering the way we live, work and relate to one another.

The world’s biggest hotel chain does not own a single hotel (Airbnb) and the biggest taxi company does not own a single vehicle (Uber). In the apparel world, pure play digital brands like Amazon, Alibaba, Asos and Zalando, are completely disrupting the retail landscape. While on the one side digital technology is a disrupter, it can also provide small companies and countries like Sri Lanka enormous opportunities for growth.”

Digital technology also gives rise to data analytics, artificial intelligence and robotics that can be used by businesses to enhance competitive advantage in the future. MAS’ adoption of innovation, autonomation and digitisation is helping solve some of their biggest challenges and helping them grow their traditional business, as well as providing themselves with adjacent business opportunities for growth.

“So, in conclusion I would like to take you back to the question I posed at the start of my address: How do you double the size of your industry? My experiences that I have shared with you can offer a few suggestions. Think of the world as your market and invest in becoming a world-class company. Constantly find ways to create new value for your customer. Be proactive and continuously improve to stay relevant. Leverage technology and make it a strategic differentiator.”

“I believe that for any business to be sustainable and successful in the long term, it is important to allocate a disproportionate amount of mind time and resources to these four areas. This is what we have done and I am confident that with the breadth and depth of knowledge as well as experience that the people in this room have, together with the opportunities that new technologies like digital have unleashed, Sri Lanka’s ceramic, glass and red clay industry can double its size and become a Rs.100 billion industry in the next five to 10 years.”