Prashant
Mahesh and M Anand
Outlook Business
20 August 2007
Kumar
Mangalam Birla, the 40-year-old Chairman
of the Aditya Birla Group, was born exactly
20 years after his great grandfather, Ghanshyamdas
(GD) Birla, set up Gwalior Rayon (now Grasim
Industries) in 1947. Eighteen years after
that, his grandfather, Basant Kumar (BK) Birla
set up Century Enka. And when his late father,
Aditya Vikram Birla, set up his first overseas
venture — Indo-Thai Synthetics —
in 1969, Kumar Mangalam was just two.
In
the late '70s, Kumar Mangalam was witness
to a rare phenomenon in business history —
three generations of the Birla family were
running their own independent and flourishing
businesses. "I have had the advantage
of seeing the three stalwarts," says
Kumar Mangalam Birla, now the chairman of
the $24-billion Aditya Birla Group. "It's
like I've been in a management school since
I was 15 or 16," he adds.
The
'70s was a golden era for the Birlas. GD Birla,
though he had crossed 80 by then, was still
at the helm of Hindalco
and Grasim.
BK
Birla had established his own group of companies.
Though his companies did not match GD Birla's
in size or fame, BK Birlas' Century twins
— Century Textiles and Century Enka —
were rapidly becoming significant profit and
growth centres. AV Birla, still only in his
30s, had by then established his own fledgling
business empire in Thailand, Indonesia, the
Philippines and Malaysia. This trait defines
the character of the Birlas — every successive
generation that inherited businesses from
their parents also started own companies.
Testing
new waters
Under Kumar Mangalam, the group entered
new segments like business process outsourcing
(BPO), in which Transworks-Minacs
is the third largest third-party BPO outfit
in the country, and Idea
Cellular, market capitalisation of which
is over $8 billion, accounts now for almost
a third of the group market cap.
Similarly, if AV Birla was path-breaking
in his expansion into South-East Asia, Kumar
Mangalam has given the entire group a truly
global shade. Half of the group's revenues
now come from overseas. The $6-billion acquisition
of Canadian aluminum rolled product giant
Novelis
has been Birla's biggest statement so far.
"The seed was planted by my father.
He was the first to make significant investments
in the overseas markets," says Kumar
Mangalam. "This has given us the courage
to do some of our recent big acquisitions,"
he adds.
A
new policy
Unlike his three predecessors, Kumar Mangalam
started off with a disadvantage. He was thrust
into the hot seat very early in his career,
when his father passed away in 1995. AV Birla
inherited GD's legacy when he was 40 but Kumar
Mangalam had to take over from his father
when he was 28. The initial years were not
easy. But in the last 12 years, he has transformed
the group in terms of size, profitability
and character. Very early on, he brought in
several key managers, including Debu
Bhattacharya (now Hindalco's Managing
Director), Santrupt
Misra (the group's human resource and
IT chief), Sumant Sinha (he heads the retail
business), Sanjeev
Aga (Managing Director of Idea Cellular).
"We went in for lateral induction from
outside the group," recalls Kumar Mangalam.
"Now we have a more diverse basket of
skills in the organisation, much more than
what we had before," he adds. At that
time, the group did not have a retirement
policy. Kumar Mangalam introduced one and
over 350 managers above 60 retired.
All
this was a departure from the management style
of the Birla family till then. Earlier, whenever
the Birlas set up a new project they would
promote senior people from within the organisation.
However, Kumar Mangalam broke away from this
tradition, since he had to expand at a fast
pace. "In terms of management style,
the change from GD Birla to me was 10 per
cent; from me to Aditya was 25 per cent. But
from Aditya to Kumar Managalam it was 75 per
cent," says BK Birla, 87. "The transition
that Kumar Mangalam has brought into the group
is amazing. In terms of distance covered,
he has achieved more than the other groups,"
says a senior consultant.
Kumar
Mangalam also brought in some structure
into the group's diverse business. He structured
the group into two broad baskets —
value and growth. "The value businesses
are cash cows and do not require much investment.
Our strategy is to invest from the value
businesses into the growth business,"
he says. "That is a natural sort of
a transition and that is the general construct
of the group," he adds. This overarching
philosophy led to several reorganisation
exercises, foremost among them is the formation
of Aditya
Birla Nuvo, the vehicle for the group's
many new businesses. Seven years into the
new century, it could be said that Kumar
Mangalam has put into the group the same
sense of purpose and urgency with which
GD Birla built the group in the beginning
of the twentieth century.
In the beginning, the GD Birla Group, that
has its roots in Pilani, Rajasthan, grew
primarily through trading (primarily jute)
across Mumbai and Calcutta. GD Birla's brothers
ran their own independent businesses, but
the GD Birla family clearly established
itself as the fastest growing branch. In
1918, GD Birla established Birla Brothers
& Co to trade in jute.He was dissatisfied
with trading and realised that real profits
lay in manufacturing, something that the
British would not allow. With difficulty
he entered jute mill manufacturing in 1919.
Two years later, GD Birla founded Jiyajeerao
Cotton Mills in partnership with the Maharajah
of Gwalior, thus beginning the era of manufacturing
for the group.
Global
bend
Post-Independence,
GD Birla was counted among the top industrialists.
Though the Tata Group was founded much earlier,
GD Birla substantially bridged the gap. He
ran Grasim and Hindalco (started in 1958)
with much independence, still, bureaucratic
issues and a socialist government did not
help GD expand much. "The period from
1950 to 1990 was difficult for India,"
says BK Birla. Meanwhile, in the '50s BK had
begun to get his empire underway. He forayed
into aviation by starting Bharat Aviation.
After some teething troubles the business
did turn profitable, but eventually the government
snatched it from him for a pittance in a massive
wave of nationalisation.
Even
as GD Birla and BK Birla ran their businesses
separately, the former began to take a keen
interest in Aditya Birla. It became increasingly
apparent that GD Birla's empire would pass
on to his grandson. In September 1962, Aditya
went to Boston to get a degree in chemical
engineering. GD and Aditya enjoyed a close
relationship. Often they discussed business
in the many letters they exchanged.
Even while he was studying, in 1964, Aditya
got a taste of what foreign alliances were
when he conducted negotiations in America
with DuPont for a ,joint venture in India,
recounts Minhaz Merchant in his biography
of Aditya Birla. However, the Birlas opted
but, as DuPont demanded a higher equity stake
in the venture.
But
when Aditya returned to India, he chose to
start out on his own. Though GD offered him
a seat on the board of Hindalco, Aditya declined,
recounts Merchant in his book. Yet another
generation of the Birlas had chosen entrepreneurship
over inheriting the family business.
Aditya started off with Eastern Spinning Mills
in Calcutta in 1965. However, the big opportunity
and learning for Aditya came next year, when
he took over Indian Rayon, a sick company
bundled with production and labour problems,
for Rs. 30 lakh from the Morarjee Vaidya family.
Workers went on a flash strike and there was
a fire in the plant. But he turned the company
around.
The
Indian economic environment in the '60s did
not provide enough opportunities to meet Aditya's
entrepreneurial fervour. That prompted him
to set up businesses abroad. "Bangkok
was in Asia. Travel was easy. There were a
lot of Indians there and the Thai government
was cooperative. So Aditya expanded there,"
recalls BK Birla. He expanded vigorously in
Thailand and Malaysia. By 1994, he was Thailand's
largest exporter of synthetic yarn, Asia's
largest producer of acrylic fibre and the
world's largest producer of rayon fibre.
| Birla
— Inherited and entrepreneurial |
|
companies
inherited |
companies
started/acqiured |
| Ghanshyamdas
Birla |
Trading
business |
Hindalco,
Grasim, Hindustan Gas |
| Basant
Kumar Birla |
No
major company |
Century,
Kesoram, Jayashree Tea, Bharat Airways,
Hindustan Gas, Mangalam Cement |
| Aditya
Vikram Birla |
Hindalco,
Grasim, Hindustan Gas |
Indo
Gulf, Indian Rayon, MRPL, overseas business
in South east Asia, Eastern Spinning
|
| Kumar
Mangalam Birla |
Hindalco,
Grasim, Indian Rayon |
Retail
venture, Idea Cellular, UltraTech
cement, TransWorks, Aditya
Birla Minerals, Birla
Sunlife Insurance and asset management |
Cementing the future
In 1983, when GD Birla passed away, Aditya
inherited many of his companies, including
Hindalco and Grasim. Aditya was only 40 then,
but still commanded the respect of the managers
of his grandfather's era, thanks to his overseas
success.
By
1994, the last full year of Aditya Birla's
life, it had manufacturing operations in five
countries — Thailand, Egypt, Malaysia,
Indonesia and the Philippines. In VSF, the
group was the world's largest producer. In
Malaysia, his Pan Century Edible Oils was
the world's largest. From 1969, when Aditya's
first overseas venture was set up in Thailand,
to October 1995, the global revenues of his
companies nearly equalled that of its Indian
operations. In that sense, it could be said
that what GD Birla created in India, Aditya
Birla equalled in South-East Asia.
Aditya was equally adept at handling the companies
he had inherited from his grandfather. Take
Hindalco
after Aditya took over, its net profit increased
from Rs. 2.43 crore to Rs. 401.15 crore by
1995-96. In 1990, Hindalco was the first company
to raise capital at a premium of Rs. 100 per
share. Subsequently, it raised $100 million
and $108 million through two Euro issues.
Similarly, in Grasim, he tackled the viscose
dumping problems. He lobbied with the government
against the import policy and simultaneously
diversified Grasim's product range. Cement
was given emphasis and would in future become
a significant profit centre. By 1988, Grasim
was the world's second largest producer of
viscose staple fibre.
Though most of his trusted aides were from
the Marwari community, Aditya gave
complete freedom to his chief executive officers.
"My father was a great incubator of talent,"
recalls Kumar Mangalam. Perhaps the best talent
that Aditya ever incubated was Kumar Mangalam
himself. Aditya groomed Kumar, just like he
was groomed by GD Birla.
Aditya
started involving Kumar in the family business
when he was in college. As a college student,
Kumar would hang around his father's office
watching him at work. When Kumar Mangalam
returned from London with an MBA, he was sent
to Hindalco's Renukoot plant in UP for a brief
stint. After his MBA, Kumar regularly sat
with Aditya in his meetings with his key executives.
Before Aditya's demise, Kumar Mangalam was
independently handling Grasim's cement division,
the fertiliser business of Indo Gulf, and
also a newly setup carbon
black unit in Egypt. Though the media
was not aware of Aditya having cancer, in
the last two years he set about teaching everything
he knew about running a business to Kumar.
Among the many lessons he learnt, Kumar Mangalam
has perhaps benefited the most from his father's
visionary approach to globalisation. "Globalisation
is a way of life. We will see much more global
character coming forth in the next few years.
This is the natural growth trajectory for
our businesses," he concludes.
| Milestones |
| 1857 |
Seth
Shiv Narayan Birla laid foundation of
Birla Group |
| 1947 |
Grasim
incorporated. Group into jute business,
started by GD Birla, for 28 years |
| 1958 |
Hindalco
incorporated |
| 1962 |
Hindalco
commenced production at Renukoot, UP
|
| 1965 |
Aditya
Birla started Eastern Spinning Mills
and Industries |
| 1966 |
Indian
Rayon acquired |
| 1969 |
Group's
first overseas company, Indo-Thai Synthetics,
set up |
| 1985 |
Indo
Gulf Fertilisers went on stream in Uttar
Pradesh |
| 1986 |
Birla
Growth Fund set up |
| 1988 |
MRPL,
a JV with HPCL, set up |
| 1990 |
Kumar
Mangalam got actively involved in the
Group's operations |
| 1995 |
A
JV with AT&T formed |
| 2001 |
Grasim
acquired over 10 per cent in L&T.
Indian Rayon picked up a stake in PSI
Data Systems |
| 2003 |
Indian
Rayon bought TransWorks. Birla Copper
acquired Nifty Copper |
| 2007 |
Novelis
now Hindalco arm. Hindalco now largest
aluminium company |
|
