1 Case Study - Slimline: Marching To A Different Drummer Page 2 of 8 Globalization means different things to different people. To the CEO of a multinational enterprise, globalization reflects the changing business world - access to new customers, opportunities to reduce production costs by locating factories in low-cost areas and the threat of competition from foreign firms. To workers in developed countries, globalization often implies job insecurities. To human rights activists, globalization implies exploitation of workers and denial of human rights. Many multinational companies have been confronted with allegations of mistreatment of workers in developing countries. Nike, for example have been the target of accusation that its sub-contractors in China, Indonesia and other Asian countries abuse their workers. One company that has never been subjected to such criticism is Slimline Limited, an apparel manufacturer in Pannala, Sri Lanka. Indeed Slimlines way of doing business stands in contrast to that of many apparel manufacturers in developed and developing countries alike. The company employees 5000 workers who produce USD50 million worth of apparel annually. Many of the employees have Bachelors or Masters degrees. Its staff also includes PhD holders, physicists and even former investment bankers. Slimline goes out of its way to provide its workers with working conditions that exceed industry standards and entry-level wages are set higher than those in the local market Slimline was founded in 1993 as a joint venture between Mast Industries, Courtaulds Textiles PLC and MAS Holdings Ltd. The plant has a feng shui-influenced layout, tiled walkways, verdant trees and bright purple paint. Slimline even has its own wastewater recycling plant. The factory opened with a ribbon cutting ceremony, and flew the Sri Lankan, UK and US flags to celebrate its multinational partnership. Slimline has benefited from the unique knowledge and expertise of the joint venture partners. Mast Industries is a US based contract manufacturer of apparels with annual sales of USD1.5 billion. Among its major customers are Victorias Secret, Marks and Spencer, Liz Clairborne, Ralf Lauren and Tommy Hilfiger. Courtaulds Textiles was the UKs largest apparel manufacturer. The third partner, MAS Holdings Ltd is a privately owned Sri Lankan company that has rapidly become Sri Lankas largest apparel manufacturer and one of the largest employers in Sri Lanka. Slimline later developed the worlds first carbon-neutral textile factory. .Like most apparel manufacturers, most of its employees are female sewing machine operators. Even here Slimline defies the sweatshop stereotypes that plague the industry. Its production workers use advanced pneumatic sewing machines instead of manual models. Work stations are ergonomically designed and the factory is air conditioned. As a result, Slimline attracts a premier workforce. The job is very demanding but the pay is good. Computers monitor the output of each worker, who must match said: Page 3 of 8 the factory-wide production standards in order to earn their monthly bonus. But contrary to industry norms, the standards are lowered down for pregnant workers. Why has Slimline adopted this approach? Slimlines managers have concluded that Slimline cannot compete with China or Bangladesh on the basis of low wages. Instead, they believe that they must focus on producing high quality goods for their customers who are brand name retailers such as Victorias Secret, Marks and Spencer and H & M. Notes one Slimline official, "In todays global economy, Sri Lankan manufacturers must tie themselves to big Western retailers to survive and the more they do that the more their factory standards have to meet the workplace norms demanded by Western consumers." In the apparel industry, most outsourced manufacturers are nameless but their brand owner customers are becoming more and more selective about where they place their business. In the late 1980s and early 1990s, labour unions, environmentalists, human rights groups and government agencies first sounded the alarm about the use of sweatshop contractors by major brands. In 1996 the United Nations introduced the Global Compact for corporate practices based on human rights, labour, environmental and anti - corruption practices. Slimline believes it is unique and should publicly advertise their compliance and good labour practices, rather than be labeled as just another global sweatshop. Slimline believes it should capitalize on the growing interest in sustainable consumption, the trend of buying in a socially responsible way, like organically grown foods or non- sweatshop clothing. Chinese manufacturing plants have a good supply chain and good manufacturing facilities. But much of the work in Chinese apparel plants is subcontracted to other plants. So the customers have no idea exactly where and how, and by whom and under what conditions, the clothes are actually being manufactured. To make sure that the difference is clear to their customers, Slimline allows customers to visit the plants at any time, and have full and transparent access to information. The driving force behind Slimline is Dian Gomes. In 1993, Gomes was 36 years old and employed as the finance director of an apparel factory when he was approached by Mahesh Amalean, the chairman of MAS holdings to launch a new business - Slimline. Gomes rose to the challenge and set himself goals that were very tough. He "I had a dream, and I set out to make it a reality at Slimline. To make an ambitious garment project a state-of the art plant, a super -efficient monolith. My aim was to be number one and stay number one." The first task confronting Gomes and his new management team was to build a state of-the art garment factory. Coutaulds sent an experienced team of production managers from its British operations to oversee the construction and start-up of the factory. Gomes added Japanese inventory control and production methods that cut costs and raised productivity. He later incorporated a USD4 million computer system into the factorys operation to monitor quality and production. The system is integrated with the computer systems of its major customers, facilitating distribution and improving service to its customers. The system facilitates communication between the factory and its customers and the marketplace, allowing the factory to quickly shift production to the styles most in demand. Companies like H&M and Zara were shortening the traditional fashion cycle from nine months to six weeks. Slimline wanted to shorten their lead times as much as possible so that their customers could work as close to the season as possible. With the new IT systems customers like Marks & Spencer can send their sales information by the end of the day at Colombo time, on a Friday. On Monday morning, the system can recommended what Marks & Spencer needs to reorder and Marks & Spencer can confirm the order when they start their day, which was 2PM in Colombo. By the end of the day, Slimline can check with the fabric mills and confirm with Marks & Spencer that they would ship the order in two weeks time. Marks & Spencer could log in to the manufacturing systems, see the production floor, see the status of their style in the factories, how much was cut, produced, packed, ready to ship, what was traveling by sea, by air and how much fabric they had. If a color or size was selling faster in the store, Marks & Spencer could change their order midstream. Although its state-of-the-art facilities and technology have played a critical role in Slimlines success, Gomes and his staff have worked hard to instill pride in the company. One way Slimline has bolstered its companys image and enhanced employee morale is by sponsoring company sports teams such as cricket and boxing. Nor has the company forgotten the community. Slimline has built an auditorium for the local high school and equipped its computer and science labs. It also provided scholarships allowing local high school graduated to attend local universities. Although Slimline is a relatively young company, it has been recognized by numerous groups for its innovative approaches and commitment to its workers and the community. The company has received many awards and recognition both from local as well as foreign countries. It has also received recognition from the International Labour Organization for its human resource practices. With such success comes growth. The company now operates four factories that produce 50 million units of womens sleepwear and intimate apparel. Q.1) Explain the concept of 'Equity Joint Venture' to a potential focal firm. What are its characteristics, benefits and pitfalls? (5.0 Marks) Q.2) Analyse the joint venture model of Slimline and discuss the benefits of this joint venture to each of the participating companies (5.0 Marks) Q.3) Why did each choose to participate in the joint venture rather than operate its own wholly owned subsidiary? (5.0 Marks) Q.4) From the perspective of each of the partners, are there any potential pitfalls to joining this joint venture