Limited Brands, the Ohio company that owns America's most popular intimate-apparel brand, has long known that Victoria's Secret's best-kept secret weapon isn't sex, satin, or sauciness. It's Sri Lanka, the Indian Ocean island where the largest private company, MAS Holdings, has overcome 20 years of civil war to become Victoria's Secret's biggest supplier.
MAS has its own secret, and it's not just the low cost of operating in a war zone shunned by foreign investors. It's called "quota hopping." When Sri Lanka's textile exports to the U.S.--of which MAS accounts for most--bump up against Washington's limit for the island, MAS switches production to quota-surplus sites in Indian Ocean neighbors like Mauritius and the Maldives. That makes MAS a rare thing in one of the world's poorest, most economically devastated nations: a truly global corporation. The company also has plants in India and China and offices in Europe and New York, where executives can often be found in the women's underwear section of department stores, scrutinizing labels. "It's market research," says MAS board member Dian Gomes, "but sometimes we get very strange looks from the sales staff and security in Macy's."
A tour with Gomes through the Unichela bra-making facility in Colombo's southern suburbs is a surreal study in East-West contrasts. About 3,000 Sri Lankan women, from 18 to 22, earning between $ 80 and $ 110 a month, work at the modern, air-conditioned factory. Clad in Sri Lankan saris or plain MAS uniforms, they stitch away beneath giant photographs of supermodels wearing the very same thongs and bras being assembled at myriad workstations.
"It's all part of brand reinforcement," Gomes says. "It's very unlikely our ladies would wear these items in Sri Lanka, but the staff have to understand where and how their work will be appreciated." That appreciation is probably best felt a world away from Colombo, in Columbus, Ohio, where Victoria's Secret has long been Limited Brands' star performer.
MAS--each letter is for one of the three founding Amalean brothers--set up shop in Colombo in 1986, a difficult time for the island. Sri Lanka was three years into a civil war between the island's Buddhist Sinhalese majority and its Hindu Tamil minority. While the main battleground was 200 miles away, Tamil Tiger suicide bombers would often wreak havoc in the capital.
"I have lost count of the times we have had bombs around our building over the years," says MAS chairman Mahesh Amalean. "One gets used to war, sadly, and we have had to find a way of operating around it, trying to insulate ourselves from it." One way is not to display the flags of its customers at its facilities lest it offend Sri Lanka's anticolonial factions, now part of the government. Another is to fashion its own shipping systems--and not rely on state facilities.
"Peace is a new environment for us, and we are learning how to respond to it," says Amalean, who hopes that MAS's brand roster of Nike, Banana Republic, Gap, Old Navy, Reebok, and Triumph will double 2003 sales of $ 472 million by 2010. Profits are "very good," he says, although he won't reveal what they are, and a public listing is in the offing, more likely on the Nasdaq than on Sri Lanka's tiny, illiquid bourse.
Even though Sri Lanka is two years into a tentative peace process, the conflict still poses problems. When President Chandrika Kumaratunga, then the opposition leader, launched a constitutional coup last November, MAS customers from Texas, who had arrived the night before, were suddenly under orders from anxious head-office counsel not to leave the Colombo Hilton. The crisis soon passed, but the buyers returned to the U.S. without seeing MAS's facilities.
If civil war is a challenge for Amalean, next year's WTO-ordered scrapping of clothing quotas worldwide will provide a greater one. China, the goliath of textiles, could easily swamp MAS. "China of course poses a problem," says Amalean, "but we have no alternative. We just have to compete on price and quality." --Fortune International:
