Dhirubhai Ambani and Reliance
Details
Themes: Great Leaders
Period : 1958-2002
Organization :Reliance India
Pub Date : 2001
Countries : India
Industry : Varied
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Case Code : LDEN011
Case Length : 17 Pages
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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, 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. |
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Background 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 Patalganga.3 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.
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.