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The Rediff Interview/Mukesh Ambani, chairman, Reliance Industries Ltd
Mukesh Ambani on how Reliance was built
January 18, 2007
If Dhirubhai Ambani was a larger-than-life patriarch and Anil was the public face of Reliance, Mukesh Ambani was an enigma. Those who knew him well credited him with leading Reliance's turbo-charged growth over the last two decades.
But very little is publicly known of his beliefs, vision and motivation. In his most expansive interview ever to MoneyLIFE, a personal finance magazine, Reliance Industries chairman Mukesh Ambani tells MoneyLIFE editors Sucheta Dalal and Debashis Basu what drives him and his business decisions.
Here is the second part of the interview:
You were first among the new crop of licencees for Partially-Oriented Yarn.
Yes, but whoever already had a licence, had a business advantage. So, what competencies did we build? One was to get a licence in a licence-permit raj. Getting a licence is nothing; you have to build a sustainable business. Raising the money is another competence.
In the '80s, when I came in, the ground rules were made clear to me. 'Build this business from scratch, without taking anyone from Reliance.' That forced you to be very disciplined. I looked around and figured out in three months that this industry runs on heroes.
Experts came in with their notebooks on which they had written down all the process conditions, temperatures, pressures and carried these readings back with them.
Are you talking of the consultants?
Even the managers. It was all a feudal style of management. If we had accepted that style, we would not have grown. It was simply not a scalable model. Of course, the easiest thing would have been to follow it. But we had a disruptive style of management. So we said, 'we don't want people carrying their wisdom in notebooks as if it is some kind of secretive operation.'
We tried to create an open environment. In today's language, we created SOPs and SOCs (standard operating procedures, standard operating conditions) so that everybody was on the same page. We wanted an organisation where everybody contributes but the business is not dependent on a few individuals.
When our competitors were buying licences for half a million and one million dollars, we agreed to pay DuPont $5 million, because we wanted to work with the best in the world. We had limited capital but our approach was different. We got a few experts from DuPont and put some 25-year-olds with them to learn how to manage operations and sustain chemical processes.
The vision of the top person, in deciding that this was the right path, was totally different from what existed in India. It was a big thing.
Reliance went through turbulent times in the mid-80s when there was this long battle with the government and the media. Then Dhirubhai suffered a stroke. From the outside, it seemed that Reliance would be sorely tested because the perception was that so much was built by "managing the system."
This is where investing in talent works. We had different sets of competencies in Reliance. If it meant getting licences to import something quickly to reduce the cycle time or to get steel from Steel Authority -- there were people with relevant competencies handling those things to ensure that the project is completed in time.
There was another set of competencies for the operational part -- how do you run things efficiently. That strength of Reliance was underestimated.
What went on in your mind during the crisis?
We lost Rasikbhai on 30th August, 1985. That was a huge blow. Then my father suffered a stroke in February-- two major events in five months. From three of us running the business, for some time, I suddenly became alone. But my father recovered reasonably by June-July.
There was no sense of panic. The whole picture was in my head. That was the strength of the open system. If I had kept everything close to my chest, it would have been difficult. We had excellent people across the company. The polyester business was institutionalised and there was a plan in place. We just kept our heads down and executed it.
When the economy opened up in 1992, there was a lot of apprehension about whether Indian companies would survive. What was your gameplan?
We were clear that we had to be internationally competitive and were passionate about building competencies that were the best in the world even when the tariffs were very high. It was an obsession with me to beat the Taiwanese and the Koreans who dominated the polyester business in the '70s.
That was possible only when all aspects of the business were better than them. One critical factor is scale. We understood that, unless we had scale, we won't be world-beaters. Remember, with enormous effort and all the limitations of the licence-permit-raj (between 1981 and 1991), we had built a polyester capacity of 75,000 tonnes. But we had also built a different mindset by looking outside India.
So, when the deregulation came, we were ready. By the middle of '95, we were producing 1 million tonnes. A spring was released. Tariffs also fell sharply from 150% to 30% and later to 10%. We wanted to be internationally competitive even when the tariffs were 300%, but being based in India became a competitive advantage when the tariff level fell to 30%.
By that time, we had developed superb project execution capability. We had more than 300 top quality people to execute the projects. From the '80s till today, we have not struggled to start up any plant. The biggest companies in the world do not have this kind of record.
How did Reliance develop this mindset? There was hardly anything, except some public sector companies as a reference in India.
My reference points were US companies. We were hugely influenced by large US chemical companies, especially DuPont. It was a very open company and we could take advantage of their learnings. The US is also a very open society. I could to go the US Association of Chemical Engineers and get the standards, data, etc.
It was not the Internet age, but it was easy. It sometimes cost us money to buy what we needed but the investment was worth it to put the right thought process in place.
Critically, some of the leadership came from public sector managers. For instance, KK Malhotra, who was with us for 15 years from 1985, made a fantastic contribution. He was my guru. He ensured that we imbibe all the best practices.
You see, all the right things are written in books and research papers. The trick is to ensure that there is no gap between what is written in the books and your vision; from what is happening on the shopfloor and what is going on in the marketplace. That is execution. That is what makes the difference.
So, in short, we had a huge US bias and great public sector talent. It was not a large group, just 5-6 outstanding people. I always believe that so-called ordinary people can achieve extraordinary results as long they are given a sensible framework. We have been able to do it in industry after industry.
Till 2000, Reliance always said it wanted to capture the entire value of the oil and petrochemicals chain, but after 2000, you have gone in different directions. What caused the change in thinking?
We had three thoughts. One was the fundamental belief that we will invest in businesses of the future and we will invest in talent. We clearly saw that from oil to fabric was a value chain of opportunity and it will remain so for many future decades.
We executed that well and created enough disruptions in the polyester, plastics, refinery and the upstream business of oil and gas. We had very good cash flows. In late '90s, we had two options. One was to make the current business more global, bigger and better. The other option was to use our cash flows to do something else.
We were sitting right in this room and my father said 'now it is your call, what you would like to do.' I said, 'we must use the competencies and cash flows to make a difference to millions of Indians'. He said, 'that's exactly what I had mind. Let's do it.' The strategy was: while we strengthen our current business, we will use our cash flows to invest in the businesses of the future. That's how Infocomm was born.
There is a sense that, in the early 1990s, you missed the bus on the biggest opportunity of the future -- the IT business.
We saw the IT business coming. I lived in Silicon Valley. I knew it was a big opportunity. I mentioned it in a speech in 1995 -- the clear arbitrage opportunity for software development. But for us, it was a question of focus and trade-off.
I was very focussed on building various competencies in Reliance and we were not ready to do two things at the same time. It was a big risk for us to get into IT, especially because it was hugely effort-intensive. In my language, I said we have too much soap on our body and we need to take a bath in the chemicals business.
We had signed a JV with Microsoft, but decided to pass up that opportunity. To my mind, I was right. We still needed to build that focus.
So, in the late '90s, you zeroed in on telecom, life sciences and retailing. . .
Actually, my father was very keen on the agri-business. He said, that is the real big business in India. We looked at three or four businesses. We got into life sciences as a defence mechanism in the late '90s. In 1996-97, we were big in plastics already when Dow announced that they would make plastics from E Coli.
It looked like our business would be ruined because we would buy naphtha and these guys would make plastics from salt and water. We quickly put four or five guys together to understand what Dow Chemicals was doing. That is when we started the industrial biotech business.
Then, we stumbled on human and plant biotech. We were fortunate to have some good people and decided that Reliance can build this business over 5-10 years without any great revenue pressures. In the mainstream business, there was telecom or what I call infocomm.
We got into telecom in the '90s by bidding for cellular licences. But I felt that the real value is in the convergence of information and communication; pure communication will not deliver a sustainable value; that is why we called ourselves infocomm. It was learning a whole new domain. We brought in experts from the outside but we essentially did it with proven Reliance people.