The Polyester Prince

1. Dhirubhai Ambani: From humble beginnings to textile tycoon

"At the age of 16, Dhirubhai was physically strong, and already possessed of the persuasiveness that was to mark his later business career."

Humble origins: Dhirubhai Ambani was born in 1932 in Chorwad, a small town in Gujarat, India. His father was a village schoolmaster, and the family lived in austere circumstances. Despite limited formal education, Dhirubhai displayed exceptional business acumen from a young age.

Early career: At 16, Dhirubhai moved to Aden, Yemen, where he worked for A. Besse & Co., a trading company. During his time there, he gained valuable experience in trading and finance. He returned to India in 1958 with savings of about US$3,000, determined to start his own business.

Textile beginnings: Dhirubhai started trading in yarn and soon established Reliance Commercial Corporation. In 1966, he set up his first textile manufacturing unit in Naroda, near Ahmedabad. This marked the beginning of Reliance's journey from a small trading firm to a textile powerhouse.

2. Reliance's meteoric rise through unconventional business practices

"Dhirubhai did not go into anything which was unlawful. But his reading of the system! You have a law, the interpretation which you make - he would take advantage of a particular system in a way which others could not see."

Exploiting loopholes: Dhirubhai was adept at finding and exploiting loopholes in government regulations. He used these to gain advantages in import licenses, excise duties, and other areas of business operations.

Financial innovation: Reliance pioneered new ways of raising capital in India, including:

• Convertible debentures
• Partially convertible debentures
• Global Depository Receipts (GDRs)

Aggressive expansion: Dhirubhai constantly pushed for growth, often undertaking massive expansion projects before securing all necessary approvals. This strategy allowed Reliance to stay ahead of competitors and establish market dominance.

3. The power of political connections in Indian business

"Dhirubhai was never simply an industrialist, a trader, a financial juggler or a political manipulator, but all four in one."

Cultivating relationships: Dhirubhai invested heavily in building relationships with politicians, bureaucrats, and journalists. He famously stated, "I am willing to salaam anyone," emphasizing his willingness to cultivate connections at all levels.

Policy influence: Through these connections, Reliance was often able to influence government policies in its favor, including:

• Import/export regulations
• Tariff structures
• Industrial licensing

Financial support: Political connections also helped Reliance secure funding from public sector banks and financial institutions, often on favorable terms.

4. Ambani's mastery of the Indian stock market and public sentiment

"Dhirubhai had suddenly emerged in October as the biggest non-institutional shareholder in the blue-chip firm."

Stock market operations: Dhirubhai was known for his ability to manipulate stock prices and create artificial scarcity or demand for Reliance shares. This included:

• Bear raids against competitors
• Supporting Reliance share prices during new issues
• Using associated companies to trade in Reliance shares

Public image: Reliance cultivated a strong public image as a company that created wealth for small investors. This was reinforced through:

• Aggressive advertising campaigns
• Regular bonus issues and dividends
• Emphasis on Reliance's contribution to India's industrial growth

Investor base: By the mid-1990s, Reliance had over 3.5 million shareholders, the largest for any company in the world at the time.

5. Reliance's vertical integration strategy in the petrochemical industry

"Dhirubhai had a simple factory built, installed four knitting machines, and appointed his brother as plant manager."

Textile to petrochemicals: Starting from textile manufacturing, Reliance gradually moved upstream into petrochemicals production. Key milestones included:

• 1982: Patalganga polyester filament yarn plant
• 1985: Purified terephthalic acid (PTA) plant
• 1991-92: Hazira petrochemicals complex

Refinery plans: In the mid-1990s, Reliance announced plans for a massive oil refinery in Jamnagar, Gujarat, further extending its vertical integration.

Cost advantages: This strategy gave Reliance significant cost advantages over competitors, as it could source raw materials internally and capture margins at multiple stages of production.

6. Controversies and allegations surrounding Reliance's growth

"Dhirubhai had suffered what he later told close confidants was his greatest defeat."

Import duty evasion: Reliance faced allegations of evading import duties by under-invoicing imports and smuggling entire manufacturing plants.

Stock market manipulation: The company was accused of artificially inflating its stock price and using associated companies to trade in its shares.

Political corruption: Critics alleged that Reliance's rapid growth was facilitated by bribing politicians and bureaucrats to secure favorable policies and approvals.

Attempts at corporate takeovers: Reliance's attempts to take over companies like Larsen & Toubro were met with strong opposition and allegations of unfair practices.

7. Ambani's legacy: Reshaping Indian business and creating shareholder value

"Dhirubhai had set the example for a host of industrial clones: 'The last decade saw the rise of an altogether different entrepreneurial breed on the industrial scene; one that was impatient to get ahead, willing to take risks and wend its way through the regulatory maze, displaying an entrepreneurial zeal that somehow seems to have evaporated in the more established business houses.'"

Entrepreneurial spirit: Dhirubhai's success inspired a new generation of Indian entrepreneurs who were willing to challenge established norms and take risks.

Shareholder focus: Reliance's emphasis on creating wealth for shareholders through regular dividends and bonus issues set a new standard for Indian companies.

Scale and ambition: Dhirubhai demonstrated that Indian companies could operate on a global scale, competing with multinational corporations in terms of size and technological sophistication.

8. The challenges of succession and professionalization in family-run empires

"The reorganisation was an effort to prevent two of the failings that hit many Indian companies once they pass from the control of the founding entrepreneur."

Succession planning: As Dhirubhai aged, attention turned to the succession plan for Reliance. His two sons, Mukesh and Anil, were being groomed to take over the company.

Professionalization: Efforts were made to professionalize Reliance's management structure, including:

• Formalizing decision-making processes
• Recruiting professional managers from outside the family
• Implementing modern corporate governance practices

Challenges: The transition from a founder-driven company to a professionally managed corporation presented challenges, including:

• Balancing family control with professional management
• Maintaining the company's aggressive growth strategy
• Adapting to changing regulatory environments and global competition

Last updated: August 30, 2024