Diversification strategy of Aditya Birla Group

5th to 9th para

Aditya Birla group of company was formed in the year 1870, when Seth Shiv Narayan Birla launched a trading business of cotton & Jute in Pilani, in the state of Rajasthan. His son, Baldeo Das Birla, had moved to Calcutta which was the hub of business activity and over there Baldeo Das Birlas son Ghanshyamdas Birla started up a jute mill. Thus in 1919 the family's industrial holdings were established. Then just after Indias independence, in the year 1947, Grasim weaving plant was started. Although Grasim was started as a textile manufacturing company it has diversified itself into various other industries like Viscose Staple Fiber (VSF), cement, chemicals and sponge iron (Refer Exhibit 3a). Now, Grasim Industries Ltd has become one of the Indian companies to make to the list of Forbes Asia's Fabulous 50 award winners. In 1958 rayon was added to the list of Grasim production list which had cotton and jute fiber. Rayon being a cellulose fiber has a high luster quality and was an emerging trend. It helped Grasim industries to increase its customer base as rayon fibers can be engineered to have a range of properties so that different demands of a wide variety of end customers can be met. Up till now Birla group had diversified and expanded in the textile industry. This was the strategy of Growth diversification. In 1958, Birla group diversifierd to spread risk and thereby reduce it by establishing Hindalco - An aluminium facility at Renukoot in eastern Uttar Pradesh. To add value, acquisitions and mergers, with Indal, Birla Copper and the Nifty and Mt. Gordon copper mines in Australia, were done. This strengthened the position of Hindalco in Aluminium and Cooper industry. The aluminium operation extends from mining of bauxite to the production of not only primary aluminium but also the value added downstream products such as flat rolled products (FRP), extrusions and also customized consumer products such as foils. In 2007, Noveilis Inc. was acquired which made Hindalco fifth largest aluminium producer in the world. As stated by the management team, We leverage our strengths further when it comes to downstream strategy. The recent acquisition of downstream producer Novelis gives us a well-diversified geographical market base and enhances our stature in the area of downstream production. (Refer the fig 3a) Fig 3a: Diversification Synergies Hindalco group has a consolidated turnover of USD 15.85 billion and hence has placed itself in the fortune 500 list. To make its presence felt in international market, in 1969, Indo Thai Synthetics was formed in Thailand. Indo Thai supplies raw material to the world's leading fabric manufacturers. 70% of its product is exported to more than 30 countries including USA, Canada, Brazil, Argentina, Chile, Turkey, Greece, Belgium, France, Israel, Italy, Spain, Portugal, Germany, South Korea,

Bangladesh, Hongkong and Taiwan. In 1978, Carbon black, used as a pigment and reinforcing phase in automobile tires, production was launched in Thailand. This helped Birla group to spread the risk further into diversified business. The diversification strategy of Birla group was not only vertical or horizontal but it also did a forward integration by forming Indo Gulf for the production of fertilizer, in 1988. The Sulphuric acid produced in the smelters of Hindalco group was used
along with rock phosphate and ammonia to form Di-ammonium phosphate fertilizers as shown below (Refer fig 3b). These fertilizers are marketed under the

known brand name Birla Balwan. Farmers prefer this brand in Diammonium phosphate fertilizers category
Fig 3b: Diversification - Forward Integration Due to the death of Aditya Birla in 1995, his son, Kumar Mangalam Birla, was made the Chairman of Birla group. Kumar Mangalam Birla did a restructuring and streamlining of the whole group. Then, Indian market was very attractive for cell phone industry; Kumar Mangalam Birla formed a joint venture with AT&T group to form idea cellular. Telecom services were recognized as an important tool for the socio-economic development of a country. Telecom being the main supporting service for rapid growth and modernization of all the sectors of an economy, its growth in a developing country like India was obvious. Hence, Birla group made the right move of applying diversification strategy of growth and entered a very attractive market (Refer Exhibit 3b). To continue diversifying into other emerging markets, in 1999, Birla group formed joint venture with Sun Life Financial Inc., one of the leading international financial services organizations from Canada, and formed Birla Sun Life Insurance Company Limited (BSLI). As insurance market in Indian had low entry barriers, the cost of entry was less and hence BSLI did not erode the bottom life of Birla group. Thus we can see that Birlas diversification strategies include Operational relatedness when they formed Grasim industry. Birla textile & Grasim could share resources like - plant, R&D facilities, distribution centers, etc. thereby saved cost. Diversification into metal business and formation of Hindalco was a good example of growth motive and risk spreading across businesses. Hindalcos diversification in the upstream and downstream was to have synergies due to operational relatedness. Diversification into cellular & insurance business gave Birla group entry into markets which were attractive and had low cost of entry. Thus, we can see strategic relatedness in all the Birla groups business which has made a US $35 billion corporation and in the league of Fortune 500. (Refer: Exhibit 3D)

Exihibit 3A: Capacities of Grasim Group

Capacity Viscose Staple Fibre (VSF) Joint venture
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333,975 tpa

Birla Jingwei Fibres Company Limited Rayon grade pulp Harihar, Karnataka AV Cell Inc AV Nackawic Inc.

70,000 tpa

70,000 tpa 122,500 tpa 189,000 tpa

Cement (through its subsidiary UltraTech)

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Grey cement Ready-mix concrete White cement

51.9 million tpa (including 3.0 million tpa overseas capacity) 9.9 million cubic metres 560,000 tpa 258,000 tpa 8832 spindles 146 looms 35,808 spindles

Chemicals Textiles
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Yarn Fabric Yarn

Grasim Bhiwani Textiles Ltd. (Subsidiary)

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Exhibit 3B: Growth of Idea Cellular

Exhibit 3C: Aditya Birla Group Globally, the Aditya Birla Group is:
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A metals powerhouse, among the worlds most cost-efficient aluminium and copper producers. Hindalco-Novelis is the largest aluminium rolling company. It is one of the three biggest producers of primary aluminium in Asia, with the largest single location copper smelter. No.1 in viscose staple fibre The largest producer of carbon black
The fourth-largest producer of insulators

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The fifth-largest producer of acrylic fibre Among the top 10 cement producers Among the best energy-efficient fertiliser plants

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In India, the Aditya Birla Group is::

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A top fashion (branded apparel) and lifestyle player The second-largest producer of viscose filament yarn The largest producer in the chlor-alkali sector Among the top three mobile telephony companies A leading player in life insurance and asset management Among the top two supermarket chains in the retail business Among the top 10 BPO companies

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Exhibit 3D: Diversified Aditya Birla Group

References: http://www.grasim.com/about_us/index.htm http://www.hindalco.com/about_us/overview.htm http://www.theoriginof.com/birla-group.html http://www.hindalco.com/strategy/strategy.htm http://www.indo-thai.com/aboutus/cmppro.html http://en.wikipedia.org/wiki/Carbon_black http://www.birlacarbon.com/about_us/carbon_black_business.htm http://www.ideacellular.com/wps/portal http://www.businessworld.in/businessworld/content/Idea-Can-Bring-Growth.html http://bimtech.wordpress.com/founders/birla-family/ http://www.birlasunlife.com/ http://www.adityabirla.com/the_group/index.htm