Dhirubhai Ambani and Reliance

Backward Integration

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.

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3] Patalganga is a small village, 71 kilometers from Mumbai. It takes its name from the river on whose banks it is located.

4] Reliance at that time was buying fibers from Du Pont, and since the company knew Reliance, buying technology from them was easy.

Case Details

Case Code : LDEN011
Themes: Corporate Social Responsibility, Great Leaders
Case Length : 17 Pages
Period : 1958-2002
Organization : Reliance India
Pub Date : 2001
Teaching Note : Not Available
Countries : India
Industry : Varied

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