Reliance’s overarching strategy: dream big, plan perfectly and execute flawlessly
Forget for a minute the $20 billion Reliance has raised from various investors over the last few months. Think instead of the company’s announcement at its 43rd annual general meeting (AGM) of readying an entirely indigenous 5G network, ready to be rolled out as soon as it gets the spectrum for it.
Both these events would have been years in the making and what we are seeing now is only a culmination of that exercise. The first marks an idea coming to fruition. The second, the onset of a new one. In that difference lies the key to understanding the Mukesh Ambani mind and the Reliance method.
A long time ago a spice trader envisioned an India, still desperately poor, which would soon consume vast quantities of energy and set about building refineries to process the oil from abroad that would be needed to power the lives of this aspirational India. With that one leap of faith Dhirubhai Ambani set into motion the wheels of a giant business engine that would become one of India’s most successful enterprises by almost all yardsticks. Reliance today is still following that overarching strategy, dream big, plan perfectly and execute flawlessly. It seems such a simple mantra for success that it is a wonder why more companies don’t just ape it.
Instead so many of India’s entrepreneurs squander their opportunities and even early success by lurching from one business to another, sinking a billion here, a billion there, without building enough right to win in any. Reliance’s focus is razor sharp. One big idea at a time and each synched to the other by business cycles and organizational competencies. Which is why, the segue from one business to another is mostly smooth and always planned. Five years ago, all the company’s profits came from energy and petrochemicals. Today, 35 percent of the group’s Rs 100,000 crore of earnings before interest, tax, depreciation and amortization (Ebitda) is from the newer consumer business. With oil prices on a declining trend and refining margins likely to be squeezed, that ratio will rise and fits well with the narrative of the group’s move from a business that throws up substantial profits but is low on growth prospects to one that isn’t yet profitable but has huge growth potential.
Not surprisingly, Reliance rarely goes looking for money to fund its grand plans. Instead it just builds them out and then sells a share of what it has built to operationally, financially and increasingly technologically, strategic investors. It is a theme that runs through the deals with Aramco (though that’s on hold for now) in oil, the multiple partners in telecom and the yet-to-be announced investors in its retail venture. That way it ensures maximum bang for its equity. It helps that the company isn’t ever cash-strapped to fund its plans because its debt management is finely tuned. Five years after it took on what seemed to be unsustainable levels of debt, it is already net debt free and indeed after the current round of fundraising is done, it will be left with enough investible surplus for its next big idea.
That’s because Ambani has always known what doesn’t seem so obvious to many others. Globally, capital is rarely a constraint. In this environment of what consulting firm Bain& Company terms “capital superabundance”, Softbank’s Masayoshi Son has a $100 billion war chest to back even half-baked ideas like Zume Pizza, Brandless and Wag. Even a world devastated by a crippling pandemic is still awash in investible dollars. But Reliance has also had the financial and operational discipline to ensure its ideas aren’t just fantasies in the sky. The execution is key, not the idea of which there are a dime a dozen.
In this, it follows the classical business cycle approach to investments. As oil neared the end of its 30-year cycle, Reliance was already putting in place the foundations of an entirely new business, erroneously dubbed telecom at its first sighting. Its tactics of offering cut-price telecom services were branded the underhand efforts of a newbie desperately trying to gouge a share of a mature market. In fact, Jio never intended to be just another telecom company. In his speech at the company’s AGM in 2014 Ambani had said so: “Reliance Jio will leverage on the emerging data explosion concurrent with the large volume and criticality of data traffic and data-driven applications for individuals, governments, businesses and enterprises of all hues, in urban and rural areas.”
That’s the Indian market he was talking about for in the Reliance scheme of things, India is the centre of the universe. The strategic intent of the group then is to identify and address the needs of all 1.3 billion Indians, not just the 12 million who own Apple phones, not just the 50000 who earn a salary more than a crore rupees. That’s why Ambani has often spoken about the company’s goal of becoming a larger part of the economic and social fabric of India. The fortune for Reliance lies at the bottom of the pyramid moving all the way to the top. Consider the various products it announced at its latest AGM. The affordable 4G and 5G smartphones are meant for all those who are still stuck with their older feature phones while the applications with Jio glass or Jio Meet are for targeted at a different if narrower audience. To do that effectively, Jio needed the right partner and who better than Google.
Indeed, partnerships now lie at the heart of the Ambani playbook. Jio Platforms, for instance, has 20 start-up partners. Besides the technology they bring to the table, these alliances also turn potential foes into co-joined allies and help the group nullify competition on its flanks. In itself Google wouldn’t have been competition for Jio but a Google in partnership with say Airtel could. As they say in diplomacy, the more you trade together, the less your chances of going to war.
(Sundeep Khanna is a senior journalist. Views are personal.)
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