Financial Times

Brandix may herald wave of mergers in apparel trade
Two big apparel exporters, Phoenix Ventures and the Jewelknit group, have merged to form Brandix Lanka Ltd, in what could be the start of a wave of mergers in the industry as it prepares to face the full blast of competition when quotas end in 2005.

"We're one of the country's largest exporters, with a Rs. 25 billion annual turnover, which we expect to double by 2007," Brandix chairman Ken Balendra said in an interview. Brandix director Ashroff Omar, from Phoenix Ventures, said more mergers looked possible in future as the industry consolidates ahead of the phasing out of garment export quotas.

"To survive in future, size and economies of scale will matter," he said. "Mergers will bring economies of scale and help to reduce costs." Brandix director Ajith Dias, of Jewelknit, said some smaller firms might tie-up with bigger ones.

Balendra said Brandix itself was also looking at increasing its capacity by mergers and acquisitions with the aim of doubling turnover by 2007. "It is important to have a certain critical mass in Sri Lanka for apparel buyers to focus on Sri Lanka," he said.

"We have over 20 manufacturing plants specialising in casual wear and intimate apparel, including operations in the Maldives and Madagascar, with a combined workforce of over 14,400 employees."

Omar said Jewelknit produces a range of knitted apparel and had been thinking of going vertical to survive beyond 2005 while Phoenix had investments in fabric mills but no knitted apparel. "The merger was a very good fit," he said. "Now we're vertical in knitted and woven apparel.

The compelling need for the merger was that beyond 2005 you have to be vertical to survive - if you're vertical, you're fast - it is a matter of speed." Omar said the company could not remove the disadvantage of its geographical location away from key markets.

"But we're shortening our lead times - that's why verticality is important. Instead of importing fabric from Hong Kong and China, which takes 30 days, we're shortening the cycle time."

The merger creates a fully backwardly integrated company - a key competitive advantage that will give it a decisive edge in the quota-free market. Omar said Brandix was looking at setting up plants in India, China and Mexico with the aim of sourcing raw material more easily and cheaply and being closer to markets.

"India and China are growth areas, have own fabrics and prices are cheap while Mexico is close to the target market allowing them to gain speed," he said. A presence in India also could give them variety.

Their investments in technology such as a modern fabric knitting plant and washing plant guarantees high quality, speed, and consistency. "Consistency of product is important," said Dias. Brandix also said it has modern finishing and lasering technology.

Although most of the firm's clothes are made according to designs supplied by buyers, in-house local designers do some designs for Marks & Spencer.
The family owned export venture has not decided to go public yet but is looking at the possibility of a listing in Singapore or New York.

The Brandix holding company is structured into three sectors: Brandix Apparel, focusing on manufacturing and services, Brandix Textiles, which makes fabric, thread, buttons and provides support services such as interlining, hangers and labels, and Brandix Investments, which focuses on cultivating partnerships and alliances with related businesses.

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