Core Complexities

The success trap of Bharat Synthetics

Business venture not based on environmental scanning and vision but because of governmental policy.

Operating in a sellers market under a regulated market condition

Functioning on a cost plus pricing, which permits costs to escalate

No worthwhile synergy between the products of the company

Artificial barriers for protection from foreign competition

Management of the company was complacent and so did not augment capacity even after liberalization of the economy.

 Flop of rights issue to fund expansion plans

None of its products at an industry level is doing very well

Even the initiatives being taken to improve operating performance seem to very incremental as the growth rate and market size of the new applications being developed is suspect.

What should Mr. Raj Bahadur Singh do? 1. 2. Talk to creditors and restructure the debt of Rs. 330 crore. Scale up operations of PFY (target foreign markets): Via a combination of acquisitions as well as green field projects focused on best-in-class-technology preferably with a foreign tie-up. Revenue for this purpose to come from sale of unproductive assets and negotiated sale of underperforming businesses (nylon cord, nylon filament yarn, rayon yarn).

3.

Integrate forward into branded textiles and garments : Competency in manufacturing textiles will be improved due to action taken in point 2. Further, there is need to invest in state-of-the-art textile manufacturing plant. Funds for this purpose will come from sale of equity to a foreign joint venture partner (who may bring in technology from abroad).

Then develop capabilities in marketing and distribution , which is essential to be a branded textile and garment company. Since textiles are a must for humans and the population is exploding in India, this is a safe area.

Further, the company has to purchase brands (AV Birla Group purchased the Madura Coats brands for Rs. 236 crore in the late 90s) as well as develop them in-house and make it one of their most valuable resources. This can be done later as the economic performance of the company improves and creditors will be willing to lend at attractive interest rates. 4. Become a contract manufacturer: to use excess capacity (if any) 5. Professionalize business: Mr. Raj should step out of his executive role and become non executive chairman. An experienced and proven professional manager from the textile industry has to be brought in an ED and CEO. He should be given a clear mandate for an initial period of three years to be extended by another 2 years, with scope for further renegotiation subsequently solely based on performance. Additional performance bonus should be promised to the new ED cum CEO if he exceeds set targets.