[Mukesh Ambani does not speak much in public; this column in Business Standard of 26 September 2000 was provoked by one of his speeches.]
A rival your size
It was a curious forum to choose: a conclave
organized by the Civil Service Officers’ Institute, Department of
Administrative Reforms and Public Grievances and the Andhra Pradesh government.
And the proposition was one that would have made waves in any management
school, but scarcely caused a ripple in that forum. For Mukesh Ambani told this
gathering of miscellaneous bureaucrats that he did not believe in core
competence. Who is right? C K Prahalad or Mukesh Ambani?
It is said that those who can, do; those who can’t,
teach. Mukesh might say that he does it, whereas Prahalad teaches it. And there
is no gainsaying that Ambanis do it extremely well: they are by far the most
successful entrepreneurs in India. But that would not settle the argument.
Prahalad may well argue that on the average, companies that stick to their core
competence do better. If he were in a more catty mood, he might say, the story
has not ended - just wait till the Ambanis fail.
But the issue cannot be settled by anecdotes or
figures. Obviously there are businesses that have done extremely well by
sticking to their knitting. But they are not the only ones to have done well;
some have done well precisely by going on to something different – or
“reinventing the future”, as a management guru would say it. Any business has
an advantage in an area in which it has competence. and would be well advised
to exploit the advantage to the full. But the value of that advantage depends
on how lucrative that market is, and how fast it can be made to grow. If the
market itself is declining, core competence is not going to be enough: the
company would have to go and become competent at something else if it was to
maintain its growth.
That is precisely what Reliance did. Mukesh referred
to the migration of the company from its original field of synthetic fibres to
oil, and on in the future to telecommunications. In each it had started at the
grassroots and built up competence. In this transformation, however, Reliance
was helped by two factors. One was mentioned by Mukesh; he said that almost
two-fifths of the labour force in Reliance was hired from the public sector.
For this, there had to be a public sector – to be more precise, there had to be
an Indian public sector. In no other country could Reliance have had this
honeycomb full of skilled, little-used and less paid labour available. Nehru
made the mistake of building the temples of modern India without the idol of
Lakshmi in them; the numerous priests they recruited were lured away by the
Lakshmi of the Ambanis. Nor has it been only the Ambanis; public enterprises
have been the favoured raiding grounds of many private businesses. The only
difference is that the Ambanis have built up an awesome database to track and
evaluate the baboos, and have consequently taken away the best.
The other factor is the market: Reliance has largely
relied on the protected Indian market, whether in fibres, fabrics, oil or
telecommunications. Mukesh talked of being competitive; but being competitive
with Modis and Singhanias is somewhat easier than with Du Pont and GE. It is
rumoured that the Ambanis put spikes in the wheel fn Du Pont’s efforts to ride
into India. It may or may not be true. What is true is that Reliance has chosen
its competitors with care, and made sure they were not too difficult to
vanquish.
In these circumstances, it is not surprising that
Reliance has been able to build up competence in completely unrelated areas.
And there is at least one area in which it has not been able to do so. When D V
Kapoor left the public sector, Reliance employed him with the obvious intention
of making an entry into the power sector. To this end it has bought up shares
of BSES. It also bought its way into L&T. L&T has built quite a few power
plants, and at one point, contemplated going to power generation itself. But it
did not; it is rumoured that the Reliance members of the L&T board vetoed
the move.
So does the example of Reliance prove that core
competence is irrelevant? Is Mukesh right to assert “We believe in building
competence around people and processes to create value”? Or has the success of
Reliance been due to special circumstances and has little international
relevance?
I think that the managerial model of Reliance would
succeed in many countries and circumstances. But it would have faced tougher
competition elsewhere. In particular, the governments’ xenophobia gravely
truncated the market for businesses. In effect, Indian companies could be sold
only to other Indians. They were all pretty short of cash; so takeovers would
have required the say-so of the government financial institutions, which were
always unwilling to give it. So there was virtually no market for companies in
India; that is why Reliance found it easy to vanquish them. If India had opened
up to foreign investment, the competitors of Reliance would have been taken
over by stronger foreign companies, and Reliance would have had to work harder
to achieve the same competitive success.
If it had had to do so, it would not have gone so
readily into unrelated grassroots projects, where the risks as well as capital
costs are higher. If it had had to face competition from BP or Exxon, it would
have thought twice before going into refining without any experience at all.
By the same token, it would have had a larger market
for companies to buy from, and would not have needed to go into grassroots
projects. And if India had been more open, Reliance would have commanded a
larger market, and its managerial competence would have brought it greater
returns. In other words, core competence pays off better in larger, more
integrated, less protected markets.
