Read the passages and answer the questions that follow:
Even as its rivals have been battered by the cyclical downturn in petrochemicals and by Asia’s financial troubles, Reliance has gone from strength to strength. Its latest results show a robust 18% rise in net profits and a 37% rise in sales over the same period a year earlier. Average annual growth in the firm’s sales since it went public has been over 25%.
The way in which Reliance has achieved such results is, however, rather less impressive. Its success has arisen largely from its iron grip on its home market, source of 05% of its revenues—a grip that it retains in part through close links with Indian politicians.
From its very beginning, Dhirubhai Ambani. the firm’s founder, wooed politicians to secure the licences he needed to expand his business from a small textile concern into a big petrochemical one. Many analysts suggest that the Ambani family (Dhirubhai’s Sons Mukesh and Anil, who attended American. business schools, run most things today) has advanced largely thanks to such contacts. “The first call the mandarins in Delhi make after every cabinet meeting is to Reliance” claims one
The firm has benefited from a curiously favorable regulatory regime. For example, it pays very little income tax (1997 was the first year in which it paid any). The firm has also long benefited from the Indian structure of import duties.
If Reliance owed its success only to such factors, it would be just another oligopolist using influence to compensate for inefficiency. These are, sadly, all too common in India. Shumeet Banerji of Booz, Allen and Hamilton, aconsultancy, calls India ‘the Galapagos of capitalism”, populated by strangely mutated firms that have adapted to the whims of the “License Ra”, and could never survive in an open economy. But Reliance is more than that. The Ambanis have in fact built a thoroughly modern, efficient business.
A visit to Hazira, a parched corner of northwestern India, tells the tale more eloquently than any earnings report. The first thing you notice walking round the Reliance site there is how spiritless it is: no rubbish or legions of people hanging about. You might be in Switzerland or Delaware; not perhaps surprising, since the equipment is all the latest stuff.
In another part of the complex you see fine polyester yarn for weaving into fabrics like sarees. But do not touch: the yarn is so delicate that it is packaged by robots that whistle “Zip-Dee-Dah” as they zoom around doing the work of 700 men. Even more striking are the attitudes at Hazira. Reliance dared to build in this dusty town what was at its inception the world’s largest ethylene “cracker”. Despite widespread scepticism, boasts the site manger, it did so in record time. Every other employee seems to speak earnestly about how his job is “benchmarked to the wrld’s best”. It is this pursuit of world standards, not merely those good enough for the cosy local market, that sets Reliance apart from the flaccid family empires that still dominate Indian business. A recent study of competitiveness by Arthur D. Little, a consultancy, ranks Reliance as the most competitive firm in India and among the top ten in Asia. Paul Bernard of Goldman Sachs, an investment bank, thinks that it is the most competitive petrochemicals firm in Asia.
Mr. Ambani had the insight to realize that a firm which helped to foster India’s then puny petrochemicals market could come to dominate it. In the 1980s, for example, he built a polyester plant with an annual capacity of 40,000 tons at a time when that was equivalent to India’s entire annual consumption. He integrated backwards from textiles to synthetic fibers to petrochemicals themselves. Now Reliance has gone further upstream: it is building a massive new refinery in India and it is exploring for oil.
Another consideration is the skill with which the company manages its finances. Mr. Ambani, often spurned by banks when young, was one of the first Indian industrialists to turn to small invesars for funds. The initial flotation of Reliance and its rise to capitalization of over $ 3 billion today, have made him the hero of millions of small shareholders.
It is curious that Reliance should be so well run, given that it need not be. Part of the explanation lies in the fact that the Ambanis are not like other established dynasties. Dhirubhai Ambani started out as a lowly yarn trader, and through decades of hard work forged his empire. His sons still work 12-14 hours a day, including weekends. Unlike many family firms, they have an experienced and long-serving team of professional mangers: over 100/0 have worked overseas, and half have worked outside the firm. Reliance pays well and, unusually for India, poaches from rival firms
In other words, Reliance has what it taken to be a world- class player. Yet ask the Ambanis about their ambitions and they do not once stray from their home turf, Mukesh Ambani talks grandly of his “endgame” of turning Reliance into an “Indian energy major”. He has new ventures in telecommunications and power generation, and hopes to expand into roads, ports and other infrastructure, The only common thread, argues Manoj Badale of Monitor, an Amercan consultant who knows the firm well, is a focus on capital-intensive industries in which success turns on the ability to get round regulators—and that, it seems, is what the Ambanis reckon is Reliance’s core competence.
That is a pity, and it may turn out to be bad news for Reliance. As India’s petrochemicals sector liberalizes—high tariffs and other trade barriers have been falling slowly, prodded by commitments to the WTO—the day will come when Reliance must face foreign rivals on something resembling a level playing- field. Remaining ensconced in India may provide’ a few more years of fat profits such as those announced recently. But it may not help to prepare Reliance for a more serious endgame: unfettered global competition.
Why does the author say that Reliance’s achievement is less impressive?
- it has an iron grip on its home market and has operated in monopoly conditions
- it has 95% of its revenue from the home market
- the firm has benefited from the Indian structure of import duties
- it has used political influence for its success