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Home >News >India >The emergence of 4 species of Indian goliaths

The emergence of 4 species of Indian goliaths

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In a newly opened-up economy, first-generation entrepreneurs pushed forward, unsettling the traditional pecking order. Several prominent business family groups collapsed entirely, others simply slid down the rankings. Art: The Indian Ambassador by Sunil Padwal, 2020

Post 1991, Indian entrepreneurs curious to explore the world’s markets and technologies were encouraged rather than discouraged by the state

As they mature, business sectors consolidate. By its very nature, consolidation creates goliaths.

As they mature, business sectors consolidate. By its very nature, consolidation creates goliaths.

In the 1990s, four species of goliaths emerged in India. One was global: transnationals who collect companies across the world, including in India. The other three are wholly Indian in parentage, surfacing from big business family groups, fresh talent and the government. Almost every major sector has its own sub-set of two or three goliaths, drawn from any of the four parentages.

In the 1990s, four species of goliaths emerged in India. One was global: transnationals who collect companies across the world, including in India. The other three are wholly Indian in parentage, surfacing from big business family groups, fresh talent and the government. Almost every major sector has its own sub-set of two or three goliaths, drawn from any of the four parentages.

The last three decades, from 1990 to 2020, saw India face major challenges beyond unstable governments and coalition politics. A debilitating foreign exchange crisis and falling rupee led to an ignominious IMF (International Monetary Fund) bailout in 1991.

The last three decades, from 1990 to 2020, saw India face major challenges beyond unstable governments and coalition politics. A debilitating foreign exchange crisis and falling rupee led to an ignominious IMF (International Monetary Fund) bailout in 1991.

Increasing border tensions with its neighbours led to a war with Pakistan (Kargil 1999), an attack on Parliament in 2001, the Mumbai bomb blasts of 2003, 2006 and 2008, and several border disputes with China. Religious tensions (Ayodhya, Gujarat 2002) shook the country as did a string of natural disasters (Latur earthquake 1993, Odisha super cyclone 1999, Gujarat earthquake 2001, Indian Ocean tsunami 2004, Uttarakhand floods 2013, droughts in several states). And of course, demonetization in 2016.

Increasing border tensions with its neighbours led to a war with Pakistan (Kargil 1999), an attack on Parliament in 2001, the Mumbai bomb blasts of 2003, 2006 and 2008, and several border disputes with China. Religious tensions (Ayodhya, Gujarat 2002) shook the country as did a string of natural disasters (Latur earthquake 1993, Odisha super cyclone 1999, Gujarat earthquake 2001, Indian Ocean tsunami 2004, Uttarakhand floods 2013, droughts in several states). And of course, demonetization in 2016.

On the positive side was a rapprochement between India and the US. The Manmohan Singh administration launched the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) in 2005, an attempt to guarantee the ‘right to work’. Narendra Modi in 2014 added the Jan Dhan Yojana scheme to expand and make affordable access to financial services such as bank accounts, remittances, credit, insurance and pensions.

On the positive side was a rapprochement between India and the US. The Manmohan Singh administration launched the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) in 2005, an attempt to guarantee the ‘right to work’. Narendra Modi in 2014 added the Jan Dhan Yojana scheme to expand and make affordable access to financial services such as bank accounts, remittances, credit, insurance and pensions.

Transformations in banking and telecommunications helped by the growth of the internet, and the New Economic Policy, with its concomitant impacts on India’s economic, financial, commercial and corporate structures.

Transformations in banking and telecommunications helped by the growth of the internet, and the New Economic Policy, with its concomitant impacts on India’s economic, financial, commercial and corporate structures.

It was against this backdrop that India’s goliaths gained size and power. Four factors drove business consolidation: the desire to expand the customer base, acquire the latest technologies, constrain competition, and offload debt and distressed assets.

It was against this backdrop that India’s goliaths gained size and power. Four factors drove business consolidation: the desire to expand the customer base, acquire the latest technologies, constrain competition, and offload debt and distressed assets.

In this era’s first year, the P.V. Narasimha Rao administration (1991-1996) used a severe balance-of-payments crisis to introduce major structural reforms to “liberalize" the economy. In a country where business, economics, politics and the state barely mesh, spaces are limited where players share a common ultimate goal despite differences about how to get there.

In this era’s first year, the P.V. Narasimha Rao administration (1991-1996) used a severe balance-of-payments crisis to introduce major structural reforms to “liberalize" the economy. In a country where business, economics, politics and the state barely mesh, spaces are limited where players share a common ultimate goal despite differences about how to get there.

Yet, over the next three decades, different relationships developed between the state and business, relationships less antagonistic than the previous four and a half decades. India could no longer refrain from participating in the global economy. Indian entrepreneurs curious to explore the world’s markets and technologies were encouraged rather than discouraged by the state. Transnational corporations began to trickle into India. In this mêlée, a shakeout in business family groups, the traditional bedrock of entrepreneurship, was inevitable.

Yet, over the next three decades, different relationships developed between the state and business, relationships less antagonistic than the previous four and a half decades. India could no longer refrain from participating in the global economy. Indian entrepreneurs curious to explore the world’s markets and technologies were encouraged rather than discouraged by the state. Transnational corporations began to trickle into India. In this mêlée, a shakeout in business family groups, the traditional bedrock of entrepreneurship, was inevitable.

THE TELEPHONE’S CONNECT

THE TELEPHONE’S CONNECT

India used to have a robust black market for telephone lines. In March 2000, the Atal Bihari Vajpayee administration set a goal: every normal middle-class family should be able to afford a cell phone. By December 2002, the mobile subscriber base stood at 10.5 million. Fourteen years later, by December 2016, total tele-density across the entire chain of fixed lines, mobile telephony, international long distance and internet was a remarkable 1,151.78 million in a population of 1,324.17 million (older than seven years old).

India used to have a robust black market for telephone lines. In March 2000, the Atal Bihari Vajpayee administration set a goal: every normal middle-class family should be able to afford a cell phone. By December 2002, the mobile subscriber base stood at 10.5 million. Fourteen years later, by December 2016, total tele-density across the entire chain of fixed lines, mobile telephony, international long distance and internet was a remarkable 1,151.78 million in a population of 1,324.17 million (older than seven years old).

By 2020, India was on its way to becoming a challenger to the world’s biggest telecom networks. Consumers appreciated benefits from the entry of private players to some extent, but a true pricing revolution was noticeable only after the introduction of new technologies.

By 2020, India was on its way to becoming a challenger to the world’s biggest telecom networks. Consumers appreciated benefits from the entry of private players to some extent, but a true pricing revolution was noticeable only after the introduction of new technologies.

Rural communities were perhaps bigger beneficiaries than townsfolk, as the farming community now had access to price discovery for their products.

Rural communities were perhaps bigger beneficiaries than townsfolk, as the farming community now had access to price discovery for their products.

As smaller and weaker players eased out, even the Tata group, one of the bigger goliaths in India, beat a retreat after mounting losses.

As smaller and weaker players eased out, even the Tata group, one of the bigger goliaths in India, beat a retreat after mounting losses.

Consolidation left three goliaths still standing: Reliance Jio Infocomm Ltd, founded by second-generation billionaire Mukesh Ambani; Bharti Airtel Ltd, set up by first-generation entrepreneur Sunil Mittal; and Vodafone Idea Ltd, a joint venture between a British transnational and Kumar Mangalam Birla, head of the Aditya Birla Group, one of India’s oldest business dynasties. In 2018, together they accounted for more than 90% of revenue and 80% of spectrum holding. As on 31 October 2020, India’s telecommunication network was the second largest in the world by number of telephone users (both fixed and mobile phone) with 1,171.80 million subscribers .

Consolidation left three goliaths still standing: Reliance Jio Infocomm Ltd, founded by second-generation billionaire Mukesh Ambani; Bharti Airtel Ltd, set up by first-generation entrepreneur Sunil Mittal; and Vodafone Idea Ltd, a joint venture between a British transnational and Kumar Mangalam Birla, head of the Aditya Birla Group, one of India’s oldest business dynasties. In 2018, together they accounted for more than 90% of revenue and 80% of spectrum holding. As on 31 October 2020, India’s telecommunication network was the second largest in the world by number of telephone users (both fixed and mobile phone) with 1,171.80 million subscribers .

Lack of jobs rarely dethrone governments in India. In a country where business, economics, politics and the state barely mesh, spaces are limited where players share a common ultimate goal despite differences about how to get there.

Lack of jobs rarely dethrone governments in India. In a country where business, economics, politics and the state barely mesh, spaces are limited where players share a common ultimate goal despite differences about how to get there.

IN THE TRENCHES

IN THE TRENCHES

Liberalization challenged traditional beliefs about caste, communities and business family groups. A slow fade materialized, giving rise way to the idea of the business class. First-generation entrepreneurs pushed forward, unsettling the traditional pecking order. Several prominent business family groups collapsed entirely, others simply slide down.

Liberalization challenged traditional beliefs about caste, communities and business family groups. A slow fade materialized, giving rise way to the idea of the business class. First-generation entrepreneurs pushed forward, unsettling the traditional pecking order. Several prominent business family groups collapsed entirely, others simply slide down.

The 72% of the business family groups that dominated the pre-liberalization period dropped out of the league tables. Another set of 70% entered (family splits account for the small difference between exits and entrants) and took their place.

The 72% of the business family groups that dominated the pre-liberalization period dropped out of the league tables. Another set of 70% entered (family splits account for the small difference between exits and entrants) and took their place.

The purge was severe but it would be facile to jump to the conclusion that business families fell of the cliff and disappeared. Some companies morphed under old managements. Mergers and acquisitions thrived in this atmosphere, creating new goliaths. Resilient re-energized business families thrust themselves forward, aggressively growing existing businesses or entering new domains.

The purge was severe but it would be facile to jump to the conclusion that business families fell of the cliff and disappeared. Some companies morphed under old managements. Mergers and acquisitions thrived in this atmosphere, creating new goliaths. Resilient re-energized business families thrust themselves forward, aggressively growing existing businesses or entering new domains.

Mumbai’s old textiles mills are an example where the owners used real estate to diversify into new businesses. Most companies survived, often because they were acquired by fresh blood. A few continue to linger in pain—it’s not easy to close down a company in India. Examples of companies actually imploding are few.

Mumbai’s old textiles mills are an example where the owners used real estate to diversify into new businesses. Most companies survived, often because they were acquired by fresh blood. A few continue to linger in pain—it’s not easy to close down a company in India. Examples of companies actually imploding are few.

Most business groups underwent family separations, some more often than others, yet continue to contribute a family member to the list. For example, the Burmans developed a formal succession planning process. Loose-tight structures knit the Godrejs and the TVS group. Tight through the joint selection of the group chairman (usually the eldest family member), and keeping each other informed of important decisions through cross-directorships of boards. Loose as business operations are independent of each other.

Most business groups underwent family separations, some more often than others, yet continue to contribute a family member to the list. For example, the Burmans developed a formal succession planning process. Loose-tight structures knit the Godrejs and the TVS group. Tight through the joint selection of the group chairman (usually the eldest family member), and keeping each other informed of important decisions through cross-directorships of boards. Loose as business operations are independent of each other.

The focus of first- and second-generation business family groups on knowledge-based businesses and consumer-facing companies enabled them to seize the lead from traditional agriculture-based industries such as cotton textile mills, sugar refineries and tea plantations.

The focus of first- and second-generation business family groups on knowledge-based businesses and consumer-facing companies enabled them to seize the lead from traditional agriculture-based industries such as cotton textile mills, sugar refineries and tea plantations.

In the pharmaceuticals sector, we saw the emergence of first-generation businesses while the second generation expanded existing businesses.

In the pharmaceuticals sector, we saw the emergence of first-generation businesses while the second generation expanded existing businesses.

The third, and perhaps the most important difference between the two generations, is while many in the second-generation group continued older manufacturing traditions, the first-generation group mainly launched consumer-facing businesses .

The third, and perhaps the most important difference between the two generations, is while many in the second-generation group continued older manufacturing traditions, the first-generation group mainly launched consumer-facing businesses .

New, homely, entrant offerings such as glue, batteries, healing balm, television programmes, text messages and toothpaste tubes translated into billion- dollar companies and pan-India brands with pan-India availability.

New, homely, entrant offerings such as glue, batteries, healing balm, television programmes, text messages and toothpaste tubes translated into billion- dollar companies and pan-India brands with pan-India availability.

Rapidity, scale and success is as extraordinary as was the journey of the Lever Brothers in the colonial era.

Rapidity, scale and success is as extraordinary as was the journey of the Lever Brothers in the colonial era.

These once-small businesses benefitted from key external factors. GDP growth combined with good monsoons enabled higher per capita income, which in turn sparked consumer spending.

These once-small businesses benefitted from key external factors. GDP growth combined with good monsoons enabled higher per capita income, which in turn sparked consumer spending.

Banking, telecommunications networks and the internet provided critical backbones for business growth. Equally important was the logistics revolution as inter-state borders became easier to navigate. Early entrants such as Hyderabad-headquartered Gati, set up in 1989, and older firms like Patel Roadways expanded road and air transport and invested in warehousing and IT solutions. It became far easier to build distribution networks.

Banking, telecommunications networks and the internet provided critical backbones for business growth. Equally important was the logistics revolution as inter-state borders became easier to navigate. Early entrants such as Hyderabad-headquartered Gati, set up in 1989, and older firms like Patel Roadways expanded road and air transport and invested in warehousing and IT solutions. It became far easier to build distribution networks.

THE FUTURE OF COMMUNITY, CLASS

THE FUTURE OF COMMUNITY, CLASS

Being part of a business family group or business community remains a key competitive advantage. Even entrepreneurs such as Nandan Nilekani, part of the founding team of Infosys, agrees. Trusted family members are a source of management talent as well as of market and technical knowledge within an industry or trade. In addition, if buyers and sellers are from the same community, it creates an environment of trust which lowers transaction costs and time.

Being part of a business family group or business community remains a key competitive advantage. Even entrepreneurs such as Nandan Nilekani, part of the founding team of Infosys, agrees. Trusted family members are a source of management talent as well as of market and technical knowledge within an industry or trade. In addition, if buyers and sellers are from the same community, it creates an environment of trust which lowers transaction costs and time.

“People talk about business communities. I talk about business class," countered the late historian Dwijendra Tripathi.

“People talk about business communities. I talk about business class," countered the late historian Dwijendra Tripathi.

“When you come from a particular community, and you are involved in business, willy-nilly you get concerned with business strategies which have nothing to do with community but which have something to do with the kind of business environment that prevails," Tripathi said. “People talk about the Parsi business community, Marwari business community so on and so forth. Today, the complexities are such that no community can finance an enterprise. The result is that business strategy completely cuts across the community barriers. We are so preoccupied with certain folklores about Indian business that we can’t get away from it."

“When you come from a particular community, and you are involved in business, willy-nilly you get concerned with business strategies which have nothing to do with community but which have something to do with the kind of business environment that prevails," Tripathi said. “People talk about the Parsi business community, Marwari business community so on and so forth. Today, the complexities are such that no community can finance an enterprise. The result is that business strategy completely cuts across the community barriers. We are so preoccupied with certain folklores about Indian business that we can’t get away from it."

Gita Piramal is a writer, business historian and senior fellow at Somerville College, University of Oxford

Gita Piramal is a writer, business historian and senior fellow at Somerville College, University of Oxford

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