Dhirubhai Ambani and Reliance
"Our dreams have to be bigger. Our ambition higher. Our commitment deeper. And our efforts greater. This is my dream for Reliance and for India."
- Dhirubhai Ambani.
"The country has lost an iconic proof of what an ordinary Indian fired by the spirit of enterprise and driven by determination, can achieve in his own lifetime. Not only did Ambani build a large and diversified business conglomerate but also inspired many first generation entrepreneurs with his success."
- Atal Bihari Vajpayee, Prime Minister, Republic of India.
"Dhirubhai built an empire that is rock solid and he will always remain an icon."
- Kumar Mangalam Birla, Chairman, Aditya Vikram Birla Group.
The Death of an Icon
The 6th of July 2002 was a black day in the Indian corporate history. The Founder and Chairman of the Reliance group of Industries (Reliance), Dhirajlal Hirachand Ambani (Dhirubhai) died after a 13 day battle for survival. A perfect combination of entrepreneurship and leadership, Dhirubhai transformed Reliance from a company with a turnover of Rs 640 million in 1976, to one with a turnover of Rs 620 billion in 2002. Starting with a small textile mill in Naroda, in 1966, Dhirubhai took Reliance into various areas like petrochemicals, polyester filament yarn, oil and gas exploration and production, refining and marketing of petroleum, textiles, power, telecom services, information management and financial services (Refer Exhibit I for Reliance Group of Companies).
Dhirubhai never followed the textbook style of management. Instead, he evolved a unique style, which combined the American style of entrepreneurship, with the Japanese focus on the latest technology. And to this, he added the innate shrewdness of a Gujarati businessman. Analysts feel that he was a perfect manager of time, money and men and exhibited a passion to find solutions to problems. Dhirubhai started Reliance at a time when most companies in India were owned by the government, and the private players were given step-motherly treatment by the government while offering licenses and permits. Similarly, when most Indian business houses depended on government – owned financial institutions for funds, Dhirubhai raised capital from the public by offering shares of his companies.

Dhirubhai was born on December 28, 1932, to Hirachand Govardhandas Ambani and Jamunaben Hirachand Ambani. He was the middle of five children, three boys and two girls (Refer Exhibit II for the Dhirubhai family tree). His father was a local school teacher in a village called Chorwad in the Junagadh district of Gujarat. After his matriculation in 1949, Dhirubhai left for Aden, (now in Yemen) at the young age of 17. His first job was to fill gas and collect money at a Shell petrol station, earning Rs 300 a month. Within a few years, he rose to the position of a sales manager (Refer Exhibit III for Chronology of Events) in the same company.
After working for eight years in Aden, Dhirubhai decided to come back to India and start something on his own. On December 31, 1958, he came back to Mumbai and started the Reliance Commercial Corporation (RCC) with a borrowed capital of Rs.15,000.

RCC was mainly involved in exporting commodities like ginger, cardamom, pepper, turmeric, and cashewnut. Using his connections in Aden, he exported a wide range of commodities to Aden.

Aden, being a free port attracted lot of exports. In the mid 1960s, the Government of India (GoI) introduced an export promotion scheme under which the earnings from the export of rayon fabrics could be used for the import of nylon fiber.

This attracted Dhirubhai's attention and he decided to switch from spices to textiles. In 1966, he set up a spinning mill at Naroda 20 kms from Ahmedabad with borrowed funds of Rs 280,000 and registered it (Reliance Textile Industries) as a powerloom unit with a paid up capital of Rs 150,000. Another program, the High Unit Value Scheme introduced by the GoI in 1971 gave tremendous boost to Reliance textiles.

The scheme allowed the import of polyester filament yarn against the export of nylon fabrics. RCC was benefited the most from this scheme and its exports constituted more than 60% of exports under this scheme. There were rumors that the scheme was solely devised for Dhirubhai. Dhirubhai strongly denied the allegations saying that Reliance cannot be blamed for taking advantage of the scheme 'when others kept their eyes shut.' He said "I do not consider myself cleverer than my colleagues in the industry.

If there was a very large margin of profit, why did they not take advantage of it?"1 When the High Unit Value scheme ended in 1978, Dhirubhai focused his attention on the domestic market. During this time, Reliance Textiles was not a very well known name in the domestic market. His first priority was to establish the Vimal2 brand, under which Reliance Textiles sold its fabrics in India. An advertising programme was launched to facilitate its entry into the domestic market.
Dhirubhai knew that a strong brand image was crucial for winning the consumer's confidence. To achieve this objective, Reliance tried to emphasize the superior quality of its fabric in all its advertisements.

Besides this, Dhirubhai also took steps to develop an efficient distribution system for Vimal as he found that the existing marketing channels were inadequate and inefficient.

However, things were not that easy. When Reliance entered the domestic market, it faced lot of resistance from the traditional cloth merchants, as their loyalties lay with the older mills. Confronted with this situation, Dhirubhai decided to move away from the traditional wholesale trade and open his showrooms to tap new markets

He appointed several agents from non-textile backgrounds for the same. Dhirubhai adopted the concept of company stores from its main competitor, Bombay Dyeing (Refer Exhibit IV), and pursued it on a grand scale. Dhirubhai toured the entire country intensively, offering franchises to shareholders.

Dhirubhai promised that Reliance would provide financial and advertising support. In his search for high volumes, Dhirubhai identified a new market - the non-metro urban segment. By 1980, Reliance fabrics were available all over India through 20 company owned retail outlets, over 1000 franchised outlets, and over 20,000 retail stores.
[pic][pic][pic]To strengthen his position further, Dhirubhai decided to integrate backwards and produce fibers. He planned to set up a polyester filament yarn (PFY) manufacturing plant at Patalganga3. Dhirubhai started work on the plant in 1981. He wanted to make it a world-class plant equipped with the best machinery and having the best faculties. The technology for the production of PFY was sourced from USA's Du Pont De Nemours.4 However, Dhirubhai did not want to make Du Pont an equity partner. He felt that when technology was easily available in the international markets, it was not necessary to enter into a 51 % equity partnership with a foreign company.
In spite of the demand for PFY being 6000 tons per annum (tpa), Dhirubhai built a 10000 tpa plant with a built-in expansion provision of 15000 tpa. However, the demand for PFY declined considerably after the government's decision to reserve PFY for small-scale weavers. As a result, the bigger mills were compelled to use cotton. To overcome the problem and ignite demand, Dhirubhai announced a buyback scheme according to which, Reliance would sell its 'Recron' brand of yarn to small powerlooms. These powerlooms would then sell the grey cloth back to the company for finishing and eventual sale under the Vimal brand name. By 1983, PYF had become a major revenue earner for Reliance. Dhirubhai continued to add new capacities and upgrade technology. All these efforts facilitated at making Reliance the lowest cost polyester producer in the world.

In 1984, Dhirubhai got the license to manufacture purified terephthalic acid (PTA), one of the chemicals from which PFY and polyester staple fiber (PSF) can be manufactured. He then integrated sideways manufacturing linear alkyl benzene (LAB) used by detergent manufacturers, thermoplastics like poly vinyl chloride (PVC), high density poly ethylene (HDPE) and low density poly ethylene (LDPE) used by plastic processors.
Gradually, Reliance started manufacturing petrochemical intermediaries like paraxylene, n-paraffin and mono ethylene glycol (MEG), and ethylene, the basic raw material for all petrochemical bi-products and intermediaries. And finally it entered into production and extraction of oil (Refer Exhibit V for Backward Integration). In 1991, Dhirubhai embarked on his most cherished project at Hazira (Gujarat)-to build the largest single multi-feed ethylene cracker plant in the world.

The plant produces ethylene (imported so far), propylene to make PP, xylene to make PX, benzene to make LAB. The Jamnagar plant commissioned in 1999, the world's largest refinery with a capacity of 27 million tonnes per annum, was the single largest investment ever made at a single location in India. Besides the refinery, the plant included India's largest port terminal, fully automated rail-road loading and product dispatch terminal, a 3.5 million tonne tank farm, a 500MW power plant, a 12 mgd sea water desalination plant, a 1000-giga byte IT network, connecting 50 servers and 2,500 terminals with 200 km long optic fibre cables. This plant accounts for over 25% of India's total refining capacity. The process of expansion revealed Dhirubhai's interest in integrating vertically and concentrating on petrochemicals and other downstream products.

Some of the characteristic features of the Reliance group were:
(i) Continuous vertical integration;
(a) From synthetic textiles into the manufacture of polyester fibre and filament yarn;
(b) From yarn and fibres to intermediaries like purified terephthalic acid and mono-ethylene glycol; and (c) Further upstream into basic building blocks like paraxylene;
(ii) Consolidation of internal capabilities generated in this process through related horizontal diversification into petrochemical end-products such as detergent intermediates, for example, linear alkyl benzene (LAB), or thermoplastics like high density polyethylene (HDPE), low density polyethylene (LDPE), polyvinyl chloride (PVC), polystyrene (PS), polypropylene (PP) and styrene butadiene rubber (SBR - synthetic rubber) and their intermediates and basic building blocks; and
(iii) Efforts to complete this process of integration through investment in an NGL/naphtha cracker and in oil extraction itself.
Dhirubhai's biggest contribution to the nation was the development of an equity culture. Having understood the psychology of the Indian capital markets and the mindset of Indian investors, he was instrumental in introducing the equity culture in India. Dhirubhai gave importance to the small investor and his contributions, and by doing so, he involved millions of middle class investors. Reliance went public in 1977 and had its first annual general meeting (AGM) in 1977. Reliance Industries had 58000 investors in 1977. So large was Reliance's investor base that at times executives had to go to small cities, with the share certificates, annual reports and other such correspondence, as personal luggage, and post them locally.
Reliance holds the record for bringing out the single largest domestic issue of more than Rs 21 billion in convertible bonds for Reliance Petroleum in 1993. The market capitalization of Reliance was Rs 1.2 billion in 1980, which rose to Rs. 9.96 billion in 1990, and shot up to 96.2 billion in 1995, making Dhirubhai one of the richest men in the world. The end of the High Unit Value scheme of 1978 brought about a dip in the profits of Reliance. In spite of this, Dhirubhai declared a dividend of 27 %. Whenever Reliance needed money to fund its expansion purposes, Dhirubhai opted for a public issue. From 1979 to 1982, Reliance brought out several issues for different purposes like: financing a worsted spinning mill, modernizing its already existing textile mill, financing a PFY plant, and to overcome the bear syndicate crisis respectively.

The 1979 issue of Reliance introduced an innovative financial instrument, the partially convertible debentures. However Dhirubhai found it difficult to get permission from the controller of special issues. Dhirubhai argued that this instrument would give investors a guaranteed return and capital appreciation. He lobbied the government until it accepted the concept. This issue was over subscribed 6 times and soon convertible debentures (both partial and whole) became instruments of choice.

The 1982 issue generated Rs 500 million. It was the biggest issue in those days. In 1982, Dhirubhai faced threat from a Calcutta based bear syndicate. The bear syndicate sold 1.1 million Reliance shares worth Rs 160 million on March 18, 1982. This was all a part of their shortselling strategy wherein they planned to buy the same shares at a later stage for cheaper rates, making considerable profits.
The Stock Market Adventure:
However, the bear syndicate seemed to have undermined Dhirubhai Ambani's capabilities. When the bear syndicate sold Reliance's shares in bulk, Dhirubhai's loyal brokers bought back all the shares, which led to an increase in the share price. The buying took place for 3 consecutive days and forced the scrip to go up. For the purpose, a new company called the "Friends of Reliance Association" was registered because according to the then Indian stock market regulations, a company could not buy back its shares. It bought 857,000 shares out of the total 1.1 million shares sold by Reliance.
After this incident, Ambani was only waiting for an opportunity to take revenge on the bear syndicate. The association which bought the shares, sought delivery on 30 April 1982, a Friday.5

But as the bear syndicate did not have the shares it asked for more time, which the association refused and demanded a Rs 50 badla6 charge. The Bombay Stock Exchange had to be closed down owing to the situation.

The exchange authorities tried in vain to bring about a compromise between the two parties. And then began the panic buying of Reliance shares and the share prices soared to an all time high. By May 10th, the crisis ended. Dhirubhai finally succeeded in taming the bulls.

Corporate Battles of Dhirubhai Ambani:
Despite his unprecedented corporate velour, some corporate bigwigs considered Ambani to be a manipulator. Critics accused him of using the "more than the usual" ways of obtaining licenses, getting quick approvals for public issues and capital goods imports, and of getting policies formulated in favor of Reliance. Dhirubhai and Reliance were accused of manipulating tariffs to suit their needs and outsmart their rivals.
He was considered to be a symbol of all that was wrong with the Indian economy. It is said that Ambani used his connections with key politicians and bureaucrats to obtain licenses and approvals for projects. He is also said to have induced government intervention by offering bribes and using other forms of lobbying prevalent in the US. Reliance was known to engage politicians, journalists, and others to increase its sphere of influence. Some businessmen described Reliance as "an out of control monster, a bubble that would burst any moment."7 However, not all analysts would agree to that. They felt that Dhirubhai was quick to recognize and exploit opportunities. Dhirubhai believed that "business is nothing but a web of relationships and obligations."

Keeping this principle in mind, Dhirubhai managed to create favorable centers in all the important areas – among the bureaucrats, the ruling politicians, as well as the media. These were the areas where power vested.

Dhirubhai was of the opinion that business was not all about ethics and morality; it was about expansion and success. His amazing ability to use the state and its policies to his advantage was responsible for the expansion of Reliance.

Be it licenses, foreign exchanges or quotas, he always succeeded in making the best out of most difficult situations. However, his immense success earned him a number of enemies.

The fight between Nusli Wadia, the Bombay Dyeing chief and Dhirubhai is well known in the Indian business circles. Both of them were adept in using their business and political connections to suit their ends. During the Janata Party rule (1977- 1979), Nusli Wadia obtained the permission to build a 60000 tpa di-methyl terephtalate (DMT) plant. However, before his letter of intent could be converted into a license, the government changed and when the Congress government came to power, his license was being delayed (until 1981) with one pretext or the other. This was the same time when Dhirubhai obtained license to build a PTA plant. Dhirubhai was also contemplating on building a Paraxylene facility.
All this infuriated Nusli Wadia and marked the beginning of one of the major battles in the history of Indian business, which lasted for several years. In the 80s, Ramnath Goenka, (Goenka) the proprietor of the Indian Express Group8 which was into news publication, had often tried to act as a mediator and solve the conflict between the two corporate giants; but in vain. Goenka backed Nusli Wadia. He considered the latter his son and at times, urged Dhirubhai to bring the rivalry to an end.
Even though Dhirubhai promised to do so, he continued his fight with Wadia and Goenka felt betrayed. Soon, Goenka turned against Dhirubhai and launched a series of press campaigns against Reliance.

Goenka always promised Dhirubhai that he would put an end to the campaigns being held against him in the press. But the very next moment, he would scheme another plot against him.

The assaults did not stop even when Dhirubhai was hospitalised after his first stroke in 1986. Newspapers, magazines and weekend tabloids continually attacked Dhirubhai.

To counter these attacks, a few weeks later, Reliance issued 15 advertisements in leading newspapers of the country including the Indian Express. The advertisements contained key statements like "concern for truth", "allegiance to ethics", and "commitment to growth". Goenka formulated a fresh assault issuing a statement that Reliance had smuggled extra machines into the country, and therefore had excess built capacity.

This resulted in a show cause notice from the customs, and a duty and penalty claim of Rs. 1.19 billion on Reliance. In spite of all these attacks, Dhirubhai never failed to retain public confidence. Slowly, tables started turning against Goenka. In September 1987, there was a nationwide raid on the Express group, and a number of cases were filed against it. Dhirubhai was victorious for once. After Goenka's death in 1991, his son, Vivek Goenka took over. But he did not see much sense in lobbying against Dhirubhai and this brought to an end the big battle.
Political Battles of Dhirubhai Ambani:
Dhirubhai maintained good relations with Mrs. Indira Gandhi and obtained several licenses and permissions during her primeministership. However, after her assassination in 1984, her son Rajiv Gandhi became the prime minister, and things changed drastically. In May 1985, Vishwanath Pratap Singh (V.P.Singh), the Finance Minister in Rajiv Gandhi's cabinet, decided to shift PTA imports from the open general licence (OGL) category to the limited permissible list.9 This could be the beginning of a new problem for Reliance as it solely depended upon PTA imports for its PFY plant. Dhirubhai sniffed the news about the imminent change and moved very fast.
Between May 27th – 29th, he tied up with a host of banks, like the Bombay branches of the Standard Chartered Bank, Société Générale and the State Bank of India, the Canara Bank and the Banque Indosuez to issue letters of credit for almost a year's supply of PTA, which was approximately 60,000 tonnes. These banks issued LCs worth 1.1 billion.

The last LC was opened just a few hours before the government announced the changed policy. The Finance Minister was not too happy with Dhirubhai and the result was a 50 per cent import duty on PTA. This further nullified Dhirubhai's gains. In June 1986, Reliance was considering the conversion of its non-convertible debentures into convertible ones for the second time.

This would help improve the company's debt equity ratio, reduce the outflow of interest, and increase the inflow of funds. But V P Singh was against it. But once V.P Singh was transferred from the Finance Ministry to the Defence Ministry, the conversion of the debentures into shares was permitted and the pending licenses were cleared. October 1986 turned out to be quite favourable for Reliance. The debenture conversion move proved highly beneficial. A secret meeting between Dhirubhai and Rajiv Gandhi seemed to trigger off a series of decisions in favour of Reliance. Some more pending licenses were cleared. The customs levy of Rs 3 on each kilogram of PTA was abolished, and the Patalganga complex was granted refinery status thus, enabling it to pay a low level of excise duties for raw materials like naphtha.
Reliance without Dhirubhai:
In 2002, the Reliance group with a turnover of Rs 620 billion, assets worth Rs 564.85 billion, and a work force of over 85,000 people accounted for 5% of the Central Government's total revenue. It contributed 3 % of India's GDP, 5 % of the total exports, and 9 % of the GoI's indirect tax revenues. Reliance also accounted for 25 % of India's total private sector profits. Reliance secured nearly 10 % of the profits of the entire corporate sector in India. Moreover, one out of every four investors was a shareholder of Reliance. Reliance acquired IPCL10, the Indian petrochemical giant. This acquisition gave Reliance a sound footing in the global petrochemicals market.
By 2004, it plans to take over more than 35 % of the global market. This would make Reliance the 11th largest polymer producer in the world. With the amalgamation of RPL with RIL, Reliance became the only company in the world to have fully integrated world scale operations in oil and gas exploration and production, refining and marketing, petrochemicals, power and textiles.

Presently Reliance enjoys global ranking in all major businesses and its shares lead the domestic market. According to the global Fortune 500 rankings, Reliance ranks amongst the top 200 companies in terms of net profit, amongst the top 300 in terms of net worth, amongst the top 425 in terms of total assets, and amongst the top 500 in terms of sales.

Reliance Mobile, the new venture of Reliance provides cellular telephony services in 13 Indian states, and Reliance Basic holds the license to provide fixed line telecom services in the state of Gujarat. With the launch of Reliance Infocomm, Reliance has taken another major step in its continuous search for growth and excellence. It was Dhirubhai's dream to provide information technology and communication facilities to the common man, at affordable prices. The Infocomm revolution will cover thousands of villages across the country by 2003. Reliance Power intends to pursue opportunities in the power sector with an objective to achieve over 10,000 MW in the next decade. With Reliance General Insurance and Reliance Life Insurance, the group has also entered into the insurance sector. Dhirubhai's entrepreneurial abilities enabled Reliance to progress on the roads to success both in the licensing era as well as in the era of liberalization, privatization and globalization.
He faced the toughest battles with the toughest of politicians and bureaucrats and was eventually successful in gaining a victory over all his political and corporate rivals. His business ideologies have been praised and are being emulated the world over (Refer Exhibit VI, for Management Mantras of Dhirubhai and Exhibit VII for achievements of Dhirubhai). Some skeptics believe that Reliance would no longer be the same after Dhirubhai.

The extraordinary growth of the company was based on the vision, energy and lobbying power of Dhirubhai as well as the willingness and ability of the Indian government to promote its expansion. The competition now is with major multinational players whose ability to influence governments in various ways is well known. Right from the time he suffered his first stroke in 1986, Dhirubhai groomed his sons Mukesh and Anil Ambani to take care of the day-to-day operations of Reliance. It was from Dhirubhai that his sons imbibed the quality to think big. Mukesh's skills were quite evident from his successful management of the Patalganga and Jamnagar projects and Anil was adept at the finances. Despite their elite education, their most important training came from Dhirubhai.

He provided them with a strategic vision. His sons always considered themselves as co – builders rather than inheritors of Reliance. Dhirubhai's words way back in 1993 reflected the immense confidence he restored in his sons, "Reliance can now run without me." After his demise, Mukesh was appointed the Chairman and Managing Director of the Reliance group while Anil became the Vice Chairman. It remains to be seen whether Reliance will maintain its lead and growth over large multinationals in years to come.