The fight of the century
It was a corporate rivalry that defined the decade. It began with Mukesh Ambani (above, right) admitting to a TV reporter that there were “ownership” issues in Reliance Industries Ltd, India’s most valuable conglomerate by market capitalization. That was in 2004, barely 28 months after the death of his father and the company’s founder, the legendary Dhirubhai Ambani.
Soon, Mukesh was locked in a bitter battle with his younger brother Anil Ambani (above, left). The fight resonated through the media, even Parliament. The brothers settled their differences in 2005, signing an agreement whose details were not made public and which gave control of some of the conglomerate’s businesses to Mukesh, and others to Anil. Soon, however, the brothers were locked in another fight, this time over natural gas. The gas was being extracted by Reliance Industries, a part of Mukesh’s share of the empire but Reliance Natural Resources Ltd, a part of Anil’s share of the empire, staked claim to some part of it, at a certain price, citing the agreement. Reliance Industries claimed that it could not sell the gas to a buyer not approved by and at a price not set by the government. The companies went to court. The Supreme Court eventually, in 2010, ruled in favour of Reliance Industries but not before the brothers fought a pitched battle—in the courts, in the media, and again, through friendly politicians, in Parliament.
The information technology services boom
In 2000-2001, India’s information technology (IT) and back-office services industry was worth $8.75 billion in terms of revenue, with exports accounting for $6.3 billion of this.
In 2009-10, India’s IT exports were worth $49.7 billion, according to the software lobby group Nasscom, and are expected to grow 13-15% in 2010-11. IT and back-office services firms employed around 2.3 million people in the country in 2009-10 and provided indirect employment to around 8.2 million, according to Nasscom. Some of these firms have become stock market darlings and made shareholders, founders, even employees, rich. And some of them—despite the fraud at Satyam Computer Services Ltd—have set new standards in how they are managed and governed. The last decade was the one that saw them do all this, parlaying an expertise in tackling the Y2K bug into creating a global delivery model that saw them building and managing applications for customers in the US and Europe—out of India.
The telecom revolution
As of 31 October, India has 706.69 million mobile phones. At the beginning of the last decade, the mobile phone business was a fledgling one. Two key changes in telecom policy helped this growth. The first, in the early years of the decade, allowed telcos with licences to offer fixed telephony (or landline) services to also offer mobile telephony services, as long as they used a technology platform that was different from the one that companies with mobile telephony licences did. This facilitated the entry of Reliance Infocomm Ltd (now Reliance Communications Ltd) and Tata Teleservices Ltd into the business. The second, towards the end of the decade, saw these companies being allowed to offer services on the other technology platform, too. Both changes made the business more competitive, resulted in the lowest tariffs in the world, and spurred growth. The Indian government’s habit of changing telecom policies, presumably under the influence of corporate lobbies, came in for strong criticism toward the end of the decade, but ironically, for not changing a policy. In 2008, new telecom licences and spectrum (air waves) were given to companies at the same commercial terms at which they had been issued at the beginning of the decade. Many analysts, politicians and experts thought the licences were underpriced, a fact borne out by the rate at which spectrum for offering third-generation telecom services were sold. In 2010, the government raised R1.06 trillion through the sale of such spectrum to 13 companies.
It was a decade that saw the transformation of many Indian companies and business groups—a process necessitated by change and competition. While many old Indian business houses floundered, some changed, and flourished.
Two such were Avantha (the erstwhile Ballarpur Industries group) and the Mahindra Group. In 1996, when Gautam Thapar (right) was asked to take charge of Ballarpur Industries and a few other companies, the group was in a precarious position. Profits of the flagship were down to the single digit. Although the low-profile Thapar hit the ground running, it was only in the past decade that he and the conglomerate came into their own, not least because of smart diversification into power and farm produce. Anand Mahindra (left) effected a similar turnaround in the Mahindra Group’s fortunes. To be sure, the conglomerate has always been financially healthy, but the past decade saw it launch some hugely successful products (the Scorpio SUV, for one), enter new businesses (trucks, scooters), and make a big-ticket acquisition (Satyam Computer) that propelled it to the first tier of the Indian IT services business.
If the 1990s were about strategic and operational transformation for Indian companies, the 2000s were about buying firms, large and small, in other countries. The acquisitions followed a predictable pattern: roughly a third of them seem to have worked (which, management consultants maintain, is a great hit rate); most acquisitions, even the ones that eventually worked, were initially panned by stock analysts; and most of the acquisitions that worked did go through a lean period (after the initial euphoria) before adding market and shareholder value for the buyer. Bharat Forge Ltd, Bharti Airtel Ltd, Mahindra and Mahindra Ltd, Dr Reddy’s Laboratories Ltd, the Aditya Birla Group, Essar Ltd, all made acquisitions overseas, but the standout example of the overseas acquisitions phenomenon was the shopping expedition of the Tata group. At the beginning of the decade, in 2001-02, around 15% of the group’s revenue came from overseas operations. In 2009-10, this proportion was 57% of $67.4 billion in revenue.
One of the real signs of the growing maturity of the Indian financial environment in the 2000s was the role played by the country’s two main finance regulators, the Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI). If RBI managed to achieve a balance of sorts between growth and inflation in the years between 2004 and 2008 when the Indian economy expanded rapidly, and also managed to insulate the country from the impact of the global financial crisis, then Sebi managed to oversee two stock bull runs, at least one settlements crisis, several corrections and a few minor frauds and one major one involving the creation of fake demat accounts—all the while ensuring that the Indian stock market remained among the best regulated.
ITC Ltd and Larsen and Toubro Ltd (L&T) are old and respected companies that are, effectively, run by their boards. All companies, of course, are board run, but these boards almost invariably have either the founders, or their descendants on the board (unless the company is state-owned). The boards of ITC and L&T do not have any. That makes ITC’s Y.C. Deveshwar (left) and L&T’s A.M. Naik (right), professional chief executives (and chairmen) in the true sense of the word. For the record, both CEOs did well in the 2000s, taking their respective companies into new and lucrative fields, but this isn’t really about Deveshwar and Naik. It is about the trend they exemplify, one that became stronger across Indian companies through the 2000s. To be sure, 17 of the 30 companies whose stocks constitute the benchmark index of the Bombay Stock Exchange, the Sensex, and 21 of the 50 companies whose stocks constitute the Nifty index of the National Stock Exchange, belong to family business groups. Yet, many of these companies have a CEO who does not belong to the founding family.
Decline of the South
Sometime in 2009, Southern Petrochemical Industries Corp. Ltd stopped producing fertilizers. At one level, the move, which almost went unreported, marked the continuing decline of the MA Chidambaram group of companies. At another, it reflected a trend that emerged in the last decade: the marginalization of family business groups from southern India. In the 1990s, the TVS group, the MA Chidambaram group, the BPL group (from Bangalore), the Amalgamations group and the Murugappa group were among the biggest in the country in terms of revenue. Many of them were (and continue to be) the best managed and governed. A combination of competition, the emergence and growth of new companies and business houses in other parts of the country, and conservativeness in tapping new opportunities and acquiring companies saw the importance of these family business houses decline in the 2000s. Andhra Pradesh and Hyderabad bucked the trend to some extent, with several family business groups diversifying into infrastructurerelated businesses.