Fast Company

The New Fabric of Success

Grupo M, the largest private employer in the Dominican Republic, makes clothes for Abercrombie Fitch, Hugo Boss, and Tommy Hilfiger. But this is no Third World sweatshop. Instead, it's stitching together a sophisticated pattern of growth.

On the floor of the brightly lit factory, Dominican salsa competes with the loud whir of sewing machines. About 200 workers, mostly women, sit at the machines in clusters assembling khaki pants. Their efforts, combined with those of a second shift, will churn out 30,000 pairs of pants today. On a wall above the women hangs a banner embroidered with the mission statement of their employer, Grupo MSA: Vestir al mundo con calidad -- puntada a puntada. To dress the world with quality -- stitch by stitch.

Strolling the wide center aisle amid this flurry of activity is Angel Lorenzo, a shift supervisor. A slight, 30-year-old man with a thin mustache, Lorenzo is effusive not just about his job, but also about his philosophy of work. "My work is my life," he says. "It's the reason that I can support my children and have a home, so I take it very seriously." He gestures toward the machine operators whom he oversees. "My job is to let them know that they are the most important people in this factory," he says. "If they don't do their jobs well, we lose clients -- and nobody prospers. But if we strive to follow the mission and the rules of the company, prosperity follows for everyone."

Lorenzo himself has prospered at Grupo M. He began as a machine operator and soon was promoted to a quality-inspection post. Now, he oversees 14 teams of machine operators, making certain that their work flow is smooth and that jobs are done on time. If his car breaks down, he can take it to the company garage, where it will be fixed for free. He bought that car with money that the company loaned him. When he gets sick, he goes to one of the company clinics for free medical treatment. His two children, now in grade school, once attended day-care facilities built and subsidized by Grupo M.

At another company, or perhaps in another country, or in another business, the benefits that Lorenzo enjoys and the loyalty that he has for his employer would not seem as startling. But consider this: Grupo M is located in the Dominican Republic, a traditionally agricultural Caribbean country where 21% of its almost 8 million people live in poverty, according to World Bank estimates (the U.S. embassy says that the figure is closer to 60%).

Moreover, Grupo M is part of an industry that is notorious for perpetuating labor abuses wherever that industry operates -- mostly in developing nations, but also in the United States. Think of children forced to work in Honduran garment factories, or Thai immigrant workers held captive in squalid conditions in El Monte, California. Since 1995, heightened consumer activism and closer scrutiny from leading apparel brands have sparked improvement, but the garment trade still remains a backwater of largely low-paying, low-skill work.

Since its beginnings in 1986, Grupo M has defied the stereotypes of both its industry and its homeland. Fernando Capellán, Grupo M's founder and president, then a 27-year-old industrial engineer and a pilot, envisioned a business that would be an innovator in the garment industry, a pillar of his hometown of Santiago, and, ultimately, an economic powerhouse for his nation. "When I make decisions, first I think of the company and the people who work for me. But then I think of Santiago," says Capellán, 41. "I'm committed to this town. These are my people; this is where I was born, where I grew up. Some people here think that I am crazy -- that I should take it easier and not invest and grow. But I say, No, that is the wrong way to do it. I think that I have the opportunity to grow this, and to put Santiago on the world map."

By many measures, he has succeeded. Grupo M now operates 26 factories in the Dominican Republic, and, with 13,000 workers, is the country's largest private employer. It is growing 10% to 20% a year, selling $200 million worth of clothing to such companies as Abercrombie & Fitch, Hugo Boss, Levi Strauss, Liz Claiborne, and Tommy Hilfiger.

More impressive is that Grupo M has earned a reputation at home and in the United States as a remarkably progressive employer whose labor practices actually strengthen its business. Last year, the U.S.-based Council on Economic Priorities (a nonprofit watchdog group at the forefront of the antisweatshop movement) gave the company a corporate-conscience award for "empowering employees," grouping the little-known Dominican company with such global multinationals as IBM, KPMG International, and Pfizer.

"We have proven that you don't have to run a factory like a sweatshop in order to be profitable and to grow," Capellán says. "In fact, we believe that we have been able to innovate, to expand, and to do what we have done because of the way that we treat our people. Everything that we give to our workers gets returned to us in terms of efficiency, quality, loyalty, and innovation. It's just smart business."

Build the People, Build the Company

The verdant hills outside the city limits of Santiago de los Treinta Caballeros (Santiago of the Thirty Gentlemen) are lush with tropical growth and coffee plants. Closer to the city, and to Grupo M's headquarters, greenery gives way to dusty streets that are lined with squat, concrete buildings painted in garish pastels. Most buildings in the Dominican Republic are constructed from cement block in order to withstand hurricanes -- a practice that gives the city the hunkered-down look of a military bunker.

The Dominican Republic's economy is in an awkward stage between its fading agricultural history and its evolving industrialized future. The transition -- and the country's prosperity -- depends on education, but because the country is so poor, there's little of that to go around. "A big role that this company is playing in this country is that of a massive school. This company teaches people about punctuality, about following procedures, about teamwork. That's the way I see it," Capellán says. "Remember, this country comes from an agricultural base. If it's raining, nobody works. If it's windy, nobody works. If it's a cloudy or a dark day, that's the day you have to put the seed in the ground -- that's the day when people work. The other days, work is over by 10 AM, because the sun is too hot. We're going through a big change of that mentality, and that's what I consider this company -- a big school."

About four years ago, ??ngela Ogando, 30, an industrial engineer for Grupo M, spent six months in Israel with a half dozen other employees taking textile classes at the renowned Shenkar School of Engineering & Design. After that, they spent three months in a textile factory in China. Grupo M, which until that time had worked with garments made solely of woven fabric, had plans to develop a factory that would produce knit material. But the company needed to train a group of experts to understand the intricacies of the new fabric -- how it withstood washing and how it held dye -- as well as how factory workers should handle it during the sewing process.

Ogando and her colleagues returned from their travels and laid down the groundwork for Grupo M's Dominican Knits business. Today, that unit is thriving, and Capellán expects it eventually to account for 60% of the company's revenue. Ogando, an industrial engineer, was 26 at the time; the most senior person in the group was just 35. "For us to be sent abroad for such a period of time, and then to be given the responsibility to help lead such an important effort, would be unheard of at other companies," Ogando says. "This is a company that believes in investing in its young people. It believes in its workers and what we can do."

That dedication to training and to educational opportunities would be impressive enough in a place like Santiago, if it were limited to professional workers. But Grupo M aims to develop everyone. It offers free English classes and a six-month training program for all new sewing-machine operators that focuses on basic writing skills, and on personal health, safety, and community awareness, as well as on-the-job skills. A literacy program initiated in 1987 is no longer necessary for most Grupo M employees, since most of them can read now. So the company turned it over to a trade organization to which it belongs. The program serves 50,000 of that trade group's employees.

And the company's benefits extend well beyond education: Since most Dominicans don't own cars and lack public transportation, a fleet of buses shuttles many employees to and from work each day. Four day-care centers, one owned by Grupo M and another built on company-owned land, are available to employees' children at subsidized rates. The company runs two health clinics offering employees and their families free services, including dental and eye care. The company also sponsors a club that teaches prenatal care.

In a country where many communities are too poor to have organized sports, Grupo M sponsors several sports leagues, as well as children's clinics. Uniforms and equipment are purchased by Grupo M, and its teams play at a recreational facility built by the company that features a gargantuan, thatched-roof outdoor pavilion (available for employee weddings and family functions), full-size sports fields, and a scoreboard. The company spent almost a half-million pesos ($31,250 USD) on its sports program alone in 1999 and an additional half-million on training programs.

Arguably more important, Grupo M pays its sewing-machine operators roughly 1,000 Dominican pesos ($62.50 USD) a week -- well above the country's minimum wage of 555.5 pesos a week. Apparel makers operating elsewhere have lower labor costs: In Honduras, manufacturers often pay their workers as little as $66.86 a month; in China, manufacturers pay as little as $32.50 a month. As a result, Capellán says, his garments cost his customers about 9 cents per minute (including benefits and overhead), which compares with 7 cents per minute in Haiti or 5 cents per minute in some Asian countries.

Yet, Grupo M can compete, even with its higher pay rates, because its workers produce more goods of higher quality. It invests in people, as well as in technology and process. "Grupo M's prices are absolutely competitive," says Bob Zane, 61, senior vice president for manufacturing and sourcing for Liz Claiborne. "If Capellán pays his workers a little bit more or if he pays somewhat more for benefits than others do, then he must be paying less for other things. The number of minutes required per garment is less than the number required for similar garments by other manufacturers, because his systems are efficient and his machines are new. He takes full advantage of whatever technological developments are available to this industry."

At the same time, Grupo M has forged innovative partnerships with clothing companies and community groups in order to ensure fair treatment of workers. It participated in a Levi Strauss & Co. pilot program that hired members of local nonprofit groups to verify factory conditions. The program, hailed internationally as a model for industry reform, has pressured competing suppliers -- at least, those that want to do business with leading clothing companies that are sensitive to human-rights issues -- to open their factories to the same level of scrutiny.

"Grupo M was well ahead of the curve, in that, rather than seeking a competitive advantage based on the exploitation of workers, it has sought a competitive advantage based on its positive treatment of workers," explains Elliot Schrage, a lawyer and professor at the Columbia Business School, where he teaches transnational business and international human rights. "While its production costs may be greater, its productivity also improves sufficiently enough to maintain its competitive edge."

But to Capellán's sister, Mercedes Capellán de Lama, 38, who has worked for the company since its founding -- first as a physician in the company's clinics and now as an executive -- the decision to treat employees well has little to do with productivity. Nor is it strictly about retention. For 85% of Grupo M's employees, which includes workers and managers, turnover is less than 1% per year. The remaining 15% of the employees work on a seasonal basis, with nearly two-thirds of that group returning each year. "It's our natural way of doing things," Capellán de Lama says. "We just believe that it is right to focus on people. That's always been our philosophy. That's how we were raised."

Mr. Potato Head

It is a cold, snowy morning in New York City. And while Fernando Capellán is a frequent traveler to the United States, he admits that his Dominican blood never acclimates to winter weather in North America. "This is crazy-cold," he says with a disbelieving grin. Capellán had to interrupt breakfast at the Pierre hotel in Manhattan to dash up the block to meet someone about a contract. He apologizes for the delay, and then, unable to contain himself, he announces, "They said if I come back in a half hour, I can meet with Ralph" -- as in Ralph Lauren.

That Capellán is so visibly pleased and excited about meeting Lauren reflects his unpretentious nature. Though his company has made clothes for the Ralph Lauren label for years, he is still jazzed by the prospect of meeting the celebrity head of the company. He seems oblivious to the notion that in his homeland, as well as in many countries where garment manufacturing is a key industry, he is something of a celebrity himself.

Capellán grew up with three younger sisters in the town of Tamboril, just outside of Santiago. His father was an engineer and his mother, who earned her pharmaceutical degree at a time when few women attended college, owned a drugstore in their hometown; she still runs it today. The family, though not wealthy, was financially comfortable by Dominican standards. Capellán's parents were able to afford to send him to Puerto Rico to attend military school, a path he chose in part because of his fascination with planes and flying.

The family was close-knit, and Capellán remembers that his sisters, Dilcia, Rita, and Mercedes, were often his partners in adventure. Today, the whole family lives on a hill in the middle of Santiago, in a neighborhood called Cerros de Gurabo. All of them live within walking distance of one another's houses.

In the Dominican Republic, everyone from restaurant waiters to moped-taxi drivers knows Grupo M. Even those who have never met Capellán describe him as "un hombre tan fuerte y bueno" -- a good man with a strong character. So beloved is he in the Dominican Republic that in February, as the country's presidential elections approached, Capellán was asked by the election's front-runner, Danilo Medina, to be Medina's vice-presidential running mate. When news of that offer broke in the Santiago newspaper, the switchboard at Grupo M was flooded with phone calls from concerned employees. "No one wanted him to leave us," Capellán de Lama says. (Capellán turned Medina down.)

"Fernando and I know almost everybody in this organization," says Capellán de Lama. "People are allowed to come to our offices, no matter what position they hold. Fernando spends a lot of time on the factory floor. He has breakfast with factory workers. He gathers 15 to 20 operators once or twice a week and he talks to them to see how they are feeling, and as soon as he leaves the breakfast, he finds a way to solve their problems."

Capellán is revered by workers throughout Grupo M -- in part because he treats them well financially, but also because he remains approachable. The company's "board," which consists of an executive manager from each division, still meets every day over lunch to discuss problems. "Our board works so closely that we are more like a family than like a group of managers. We can fight and yell but still be friends," Capellán says. "We can do that because we all deeply respect each other."

Capellán de Lama observes: "Everybody follows Fernando because he doesn't work for himself, he works for the team, for everybody. He never says, 'This is my place,' or 'This is my money,' or 'This is my project.' He thinks of everything as one big project that everybody is working on, so he gives credit to everybody. It's a democratic business."

Perhaps, at times, it's a little too democratic. Recently, the company was looking for a catchy brand name for a new line of clothing that it wanted to sell locally. Everyone in the company -- from operators to executives -- voted on a list of choices. Capellán de Lama sneaked a word onto the list that had been her brother's nickname when he was a teenager. To Capellán's chagrin, the surreptitious entry prevailed. Asked to explain the word's meaning, he chuckles and blushes. "When I was a kid in military school, I had to shave my head like everybody else," he says. "And my head is sort of irregularly shaped, so others in the school used to call me 'batatia.' " Translation: sweet-potato head.

Designing a New Business Pattern

Capellán de Lama's latest assignment is draped over the back of a chair in her office -- a pair of men's khaki pants. She turns the pants inside out to show off a unique feature: the pockets are made of open-meshed nylon instead of woven cotton, which means that the fabric at the hip lies smoother than cotton would, and that the pants are cooler to wear in hot weather. "Fernando dropped these off this week,"

Capellán de Lama says. "He bought them while he was traveling; I have no idea where. I'm supposed to find a source for this fabric so that we can offer it to our customers." Capellán is heading toward a new area of business: Invent new products; solve customers' problems. Once, companies such as Grupo M simply assembled garments from patterns, cut cloth, and designs that manufacturers provided. It was low-skill, thin-margin work. Now, larger apparel brands come to Grupo M with a design sketch and expect the company to source material, to cut cloth, and to provide scaled pattern sizes. That change has required a heavy investment in technology for Grupo M that includes pattern-cutting machines and design software that computes size scaling, as well as investment in training so that workers can use that new equipment.

Ultimately, Capellán believes that all garment makers will have to take on such work in order to survive. But Grupo M was one of the first. "We send Grupo M a base pattern at the beginning of the season," says Bob Zane, of Liz Claiborne, "when we're starting with a new style, and they do everything necessary to get the pattern to meet our specifications. When nobody else in this hemisphere was even thinking about providing those services, Fernando was making investments in computer equipment and hiring staff."

At Grupo M's new-products division, which Capellán de Lama runs, sketches of models and of clothing adorn the walls. The drawings are the work of employees, many of whom are graduates of a local design school. Their talents will pave the way for the next wave of innovation at Grupo M -- collaborative design. Instead of waiting for longtime customers to arrive with sketches for a coming fashion season, Capellán de Lama and her team will visit those customers -- with styles and fabric samples to suggest. A rectangular table at the center of that sample room holds several still-evolving collages that the new-products team hopes to present to its clients soon. Each poster-size collage features a sketch of a model wearing summer clothing, pictures from European fashion magazines, and a set of fabric swatches. The collages seem to imply mood more than mode.

"We would never think of trying to replace the design function for the companies we serve," Capellán de Lama says. "Still, wouldn't it be nice if you were a designer and a company that you trusted showed up with some ideas and some samples of the newest colors or the latest fabrics for inspiration? With every line that we make, we talk to sewing-machine operators about the style of that line's brand. What makes a pair of pants more 'Tommy' than 'Liz'? This is one way for us to show our customers that we understand their brands. Right now, we're doing small runs for a boutique design company that we're losing money on. But we wanted that particular customer so that we could learn from the fabric and from the style of its line."

Grupo M is moving steadily up the fashion-industry value chain. Each step promises to offer the company a greater share of profits, and better work for its well-trained employees. The progression is true to Capellán's thinking: Stick workers with repetitive, uninspiring tasks, and they'll become repetitive and uninspired. Give them something more challenging to do, something meaningful, and they'll blossom -- even in the garment trade.

For decades, the apparel industry has made clothes essentially the same way. It's a classic assembly line: Each person repeats only one task, then passes a garment to the next worker along the line. In 1994, Capellán shifted all of his production lines to a modular model. Now, teams are responsible for finished garments, and individual workers trade off tasks that are necessary to get a job done. Capellán's change increased production by 40% and also made it easier to catch errors: No longer could 400 pairs of pants be made before someone realized that a cut was wrong.

"With the old way, an operator could work for days and still never see a completed garment," Capellán says. "With the modular way, each team is responsible for the quality of every product that it makes. I'm asking them to use their judgment as well as their experience to help figure out whether a garment is up to Grupo M standards."

Though the modular model of production is common in many types of heavier assembly, no more than 10% of Liz Claiborne's garment-manufacturing suppliers use it, Zane says. Many of the suppliers that have moved to that method of production are in the Dominican Republic. Why? Because Grupo M was one of its earliest adopters. To compete, rivals had to match Grupo M's system.

This is Fernando Capellán's legacy: Cheap labor doesn't necessarily yield competitive advantage. Productivity matters, but so does human dignity. Training and education, employee morale, retention -- these issues determine success in the global marketplace.

As rivals rush to catch up with Grupo M, Capellán pushes further ahead of them. Recently, the company started a reforestation project that will cost millions of pesos annually, and it has built a $12 million (USD) plant to purify detergent- and dye-laden water that its finishing factory pumps out. Capellán sees these projects as actions of a company that wishes to be a role model to the rest of the country. That's why he has turned down political opportunity: For now, for him, business represents a more potent vehicle for change. "I think that my contribution is where I am right now," Capellán explains. "I think that I can do more for my country as a businessman than as a politician."

So Grupo M is where he will remain -- knitting the future of his country. Puntada a puntada.

Cheryl Dahle (cdahle@fastcompany.com) is a Fast Company senior writer. Contact Fernando Capellán by email (fcapellan@grupom.com.do), or visit Grupo MSA on the Web (www.grupom.com.do).

Sidebar: Fernando's Code of Conduct

Most clothing companies that use manufacturers located outside the United States now have codes of conduct that prescribe working conditions for factory workers. Fernando Capellán, founder and president of Grupo M, has his own code of conduct for how he thinks a leader should behave."

Listen -- then act.

"You can't understand what's happening at a company unless you hear it from workers themselves. I spend at least three hours a week on factory floors, speaking with people -- asking them about our process, about what's working and about what isn't. My people know that I care about them and their needs because I listen to them, and then I do something about their concerns."

Let people know that they matter.

"Even though we have thousands of employees, I want them all to know that, individually, they matter to Grupo M. We show that by doing little things like posting each worker's birthday on the factory walls. Then, each month, we have cake and we celebrate the birthdays in that month."

The best ideas come from the front lines.

"Good ideas can come from anywhere: Our customers have taught us new methods of quality control. But the best ideas often come from sewing-machine operators themselves. Last month, one of them asked why we couldn't buy groceries and supplies in bulk and then sell those items at a discounted rate to employees. We could, and so we did. That's a great idea that will make a huge difference."

Sidebar: Fernando's Fast Factories

When Fernando Capellán opened his first garment factory back in 1986, all of his cloth was cut in Miami. Thread was shipped in from Charlotte, North Carolina, and zippers were brought in from China. The logistics of managing the company's inventory were brutal. Buttons and thread had to be ordered as much as 12 weeks in advance.

"We were always waiting for materials," Capellán says. "And we were also paying a premium to get those goods imported."

His solution was good for Grupo M, and good for the Dominican Republic. Grupo M has forged eight partnerships with suppliers that are willing to set up subsidiaries in the island nation. Grupo M helps fund the new operations, and it buys big chunks of their output. The result: Grupo M's product-cycle times and inventory stockpiles have shrunk dramatically.

For Grupo M, the materials it needs to do business are now only a mile and a half down the road, instead of an ocean away: The proximity yields not only cost savings but also greater flexibility and faster turnaround. Part of Capellán's motive for striking up the deals was to bring more jobs to his country through businesses that he knew the Dominican economy could support. As the garment industry changes and as his country grows more prosperous, Capellán says that there will be an unmet need for businesses that provide higher-paying jobs. His solution? To court high-tech and electronics companies that will bring their production facilities to his industrial park.

"If this country's economy keeps growing at the current rate of between 7% and 8%, we're not going to reach the level of efficiency that we will need in order to be able to pay our people enough to keep the garment industry alive here," he says. "The industry is going to fade away faster than most people think it will. We have to be ready to diversify."

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