Diversification Strategy of Aditya Birla Group: Baldeo Das Birla, Baldeo

Diversification strategy of Aditya Birla Group
5th to 9thpara
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
BaldeoDas 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 cellulosefiber 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
downstreamproduction. (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 Di-
ammonium 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) 333,975 tpa
Joint venture
:: Birla JingweiFibres Company Limited 70,000 tpa
:: Rayon grade pulp
:: Harihar, Karnataka 70,000 tpa
:: AV Cell Inc 122,500 tpa
:: AV Nackawic Inc. 189,000 tpa
Cement
(through its subsidiary UltraTech)
::
Grey cement 51.9 million tpa (including 3.0 million tpa
overseas capacity)
:: Ready-mix concrete 9.9 million cubic metres
:: White cement 560,000 tpa
Chemicals 258,000 tpa
Textiles
:: Yarn 8832 spindles
Grasim Bhiwani Textiles Ltd. (Subsidiary)
:: Fabric 146 looms
:: Yarn 35,808 spindles
Exhibit 3B: Growth of Idea Cellular

Exhibit 3C: AdityaBirla Group
Globally, the Aditya Birla Group is:
:: 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
:: The fifth-largest producer of acrylic fibre
:: Among the top 10 cement producers
:: Among the best energy-efficient fertiliser plants
In India, the Aditya Birla Group is::
:: 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

Exhibit 3D: Diversified AdityaBirla 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_blackhttp://www.birlacarbon.com/about_us/carbon_black_busine
ss.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

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Diversification strategy of Aditya Birla Group

Fig 3b: Diversification - Forward Integration

Exhibit 3B: Growth of Idea Cellular

Globally, the Aditya Birla Group is:

:: No.1 in viscose staple fibre

:: The largest producer of carbon black

:: The fourth-largest producer of insulators

:: The fifth-largest producer of acrylic fibre

:: Among the top 10 cement producers

:: Among the best energy-efficient fertiliser plants

In India, the Aditya Birla Group is::

:: 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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