Reliance Case Study on growth of business.pptx

Reliance Case Study on growth of business.pptx

• 1.
  Reliance Case Study PresentedBy: Group-B
• 2.
  Key Milestones inthe history of Reliance Group • 1958- Dhirubhai Ambani started Reliance Commercial Corporation in Mumbai. • 1966- Reliance entered the textile industry and set up a mill at Naroda, Ahmedabad. • 1975- World Bank team visits the mill and declares that it is as modern and well-managed as those in the developed countries. • 1977- Reliance went public with India's first IPO • 1985- Reliance total assets: $227 million. • 1986- Reliance Capital, a merchant bank was created. • .
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  Key Milestones inthe history of Reliance Group • 1988- Reliance Industrial Infrastructure, a petroleum pipeline provider, came into line. • 1988- Reliance sales exceed $404 million. • 1991- Hazira petrochemical plant commissioned. • 1992-Reliance became the first Indian corporation to raise capital from international markets through Global Depository Receipts offering, and sets a record with a Reliance issue that received over 1 million investor applications. • 1993- Reliance Petroleum went public in India's largest public offering to date. Sales exceeded $909million, making Reliance Petroleum India's largest publicly traded company. Also Reliance offered the first Euro Convertible bond issue
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  Reasons for thephenomenal growth of Reliance • Business and process innovation • It entered the business with large scale world plant far higher than its rivals. • Continuously modernise and increase capacity to mop up all incremental market growth to build a position of absolute industry leadership • That led to emerge of lowest cost polyester producer of the world .Beyond cost advantage capacity was also the key instrument for enhancing customer service • Reliance was able to interpret the prevailing government policies to their advantage. • Continuous new design ideas in textile industry.
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  Reasons for thephenomenal growth of Reliance • Technical economies from physical vertical integration of process which reduced transaction costs. • Likelihood of vertical integration where transaction specific investments are required. • Diversification-diversify its product portfolio. • obtained the license6 to manufacture 50000 MT of Linear Alkyl Benzene (LAB), an intermediate for production of detergents, following the explosive growth in the Colour TV market in India in the mid 80s, it sought and received the clearance, in 1986, from the Government to manufacture Colour Glass Shells and Colour Picture Tubes It diversified into high density Polyethylene (PE) and Polyvinyl Chloride (PVC) in 1985 RIL acquired the stake with a view to exploit this 'synergy' and to form a 'strategic alliance RIL further backward integrated its operations. It set up facilities to manufacture LAB directly from Kerosene with N-Paraffin as intermediate raw material. It also commissioned the facilities for the manufacture of Paraxylene (input material for manufacturing PTA • Exploited “exports”
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  Reasons for thephenomenal growth of Reliance Tax planning • While its profits continued to grow it had not paid a single rupee to the exchequer as corporate income tax. RIL's continuous investments in expansion/ modernisation of its facilities enabled it to set off the profits from operations against the tax credits it was allowed on the investments made ( investment allowance). • In a bid to make the companies like RIL,which had come to be known as the zero-tax companies, the Government of Indiaamended the laws which required the companies pay to corporate income taxes on at least 30% of their profits after depreciation but before seeking investment allowance and other tax benefits. RIL, however, continued to be a zero-tax company. It changed its accounting practice. As against the earlier practice of capitalising interest on long term debt obtained for procuring fixed assets till the date of commissioning of the assets, it capitalised interest for the entire contracted period of such debt on the assumption that " interest accrues at the time of availment of the loan till the date of repayment of the said loan, and all loans shall be repaid on due dates.“ Appetite for information
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  Reasons for thephenomenal growth of Reliance Great appetite for information • Speed of business • Complete all projects in time. Never delay. • Didn’t have negative people around (Du point). • Top management very critical abut speed ( machine component) • RIL’s marketing and advertising budget was highest for all the products promoted in India. A practice that it ahs maintained since then.
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  Its main capabilitiesand competitive advantage • Competitive advantage from diversification • Economies of scope and scale • Economies for internalising Transactions • The diversified firm as an Internal Market. The company also pursued an aggressive strategy of demand creation at home. It often set up special " business development groups" to create new investment opportunities that would use its own products as feedstock • RIL could achieve 100 %capacity utilization of their facilities that their rival couldn’t . • Parenting Advantage • The improvement in quality necessary for export, together with the experience with international customers, in turn, reinforced the company's competitive advantage at home • Reliance approached the investing public directly to fund its growth. Mobilising funds directly from the investing public was a departure from the prevailing practice among Indian business at that time • Exceptional Leadership • They successfully created entry barriers. (Shell need to invest $8 billion to replicate RIL).
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  Motives of Diversification •Growth • Risk Reduction • Value Creation
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  Should Reliance abandonits current growth strategy in favor of diversification into the new emerging industries? • The company took great pride in being the only large company in India to be totally focused in a single vertical value chain. • Diversification permits a firm to free itself of the restrictions of a single industry and access new growth opportunities. • So reliance must diversify into the new emerging industries. • Diversification decisions by firms involve the two issues • How attractive is the industry to be entered? • Can the firm establish a competitive advantage?
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  Which businesses shouldit enter? • Power production as they had theexperience of running our own 100 MW captive power plants at Patalganga and Hazira. We can mobilize large amounts of capital and have a demonstrated competence in managing mega projects. They had Parenting Advantage to enter into following sectors • Telecommunications • Insurance, • electronics and many other areas • Oil field development and Production. • Entry into these sectors would become far more expensive at a later stage.
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  What organizational andstructural changes will be necessary to accomplish this? • "In Reliance, the family is clearly and firmly the ultimate decision makers“. • in RIL, authority, responsibility and power have to be taken. They are never given. No one has the time to give! They were too busy growing.“ • careful planning to quantify tasks and then saturating the tasks with resources: co-ordinate horizontally, when in trouble go • vertical. That dictum - both parts of it - are also vital for speed • it was hard to draw a formal organization structure of Reliance nor was one readily available inside the company • Historically, the company had been managed along functional lines.
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  Another key constraintof the existing organisation was the lack of teamwork and cooperation within the senior management group heading the different businesses and functions. Given the diversity of their backgrounds, each of them had a different style and was the product of a different culture. The existing organization provided little incentive for them to collaborate horizontally or to build a shared culture within the units they managed. Because of the lack of coherence and integration at the top, sharing of learning and best practices within the company suffered:
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  • Individuals headingthe different business units and functions typically carried the title of President or Chief Executive and each of them reported to the " Ambanis“. • The result of such a structure was a high degree of ambiguity but also a high level of flexibility. • While this structure worked well, it did so at the cost of a severe overloading at the top. • There was a need to create a more organized process for nurturing and developing the company's human resources and this might require a far more radical change in the company's management style than any change in its strategy or its formal structure.
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  • Because ofa historical reputation for being a"sharp deal making company", it had limited success in recruiting talented graduates from Indian technical and managerial institutions. It also lacked any formal system for developing managers internally through on-going training and effective career path management.
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  Thank You