Early Life Of The Dhirubhai Ambani Business Essay
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Published: Mon, 5 Dec 2016
Dhirubhai Ambani was born in Chorwad, Gujarat in India. He was the fifth child of a poor family and even as a young child found solutions for his family’s problems. At 17 Ambani set out to Aden, Yemen to work for A. Besse & Co. to supplement his family’s income. Although he would have liked to continue his studies, he was very aware of his responsibilities. He was determined to overcome all obstacles that stood before him, and learned English through leftover reading materials in the office and overcame his lack of formal education in trading by learning the intricate regulations that governed the industry and spending his lunch observing the constant negotiations. His ability to identify the obstacles in his path and find ways around them continued to be a theme throughout his life and was crucial to his success. Soon he was promoted to managing the company’s filling station at the Aden port, started a family, and enrolled in night school as well. In 1957, shortly after Yemen acquired independence, Ambani took his family back to India due to concerns facing non-Yemens in the newly independent nation. In Bombay, Ambani set up a one man company, Reliance Commercial Corporation and began spice trading. His office was set up close to the yarn market in Mumbai and Ambani soon saw the opportunities in yarn. Unfortunately he had two serious obstacles to overcome before entering the yarn industry, but obstacles were nothing new to Ambani. First, he had no experience with the industry, so he utilized the same techniques that led him to success in Yemen. He would go down to the yarn market and watched and persistently read up on global trends. Second, the yarn industry required startup funds for inventory investments. Ambani resorted to borrowing from other small traders at exorbitant rates but was attacked by the more established traders. When rumors that he was selling at a loss and his creditors would soon come calling, he took a risk and preemptively offered to pay back his debts, which convinced the lenders that the rumors were false. His leadership and decision making saved his new business. He soon cornered the polyester market and in the 90’s started a strategy of vertical integration which started first with a textile mill in Naroda. Throughout his other business ventures he was always quick to find unique solutions and take risks. He was opportunistic almost to a fault which would later bring criticism upon him but also was key to the remarkable change he brought about to the Indian business world. Even after his death in 2002, his mark can still be seen on the Indian world especially in the equity culture now found there.
A large part of being a successful leader within an organization is the ability to work with others. When interacting with employees, clients, or competitors, it is important to understand each individual relationship and act accordingly. Dhirubai Ambani had approached every situation differently, altering his actions to his surroundings. This allowed him to have a unique impact on those with whom he interacted. Ambani once said, “Between my past, the present and the future, there is one common factor: Relationship and Trust. This is the foundation of our growth.” (Where is this from?) [[[[a website with a lot of quotes, the quotes are everywhere so idk which is the best place to cite from]]]]
The study of Organizational Behavior focuses on the people within an organization and relationship based management. According to Wilson’s managerial skills, dealing effectively with people is what management is all about (Kinicki & Kreitner.) [[[What page?- i dont think i wrote down the page but i know its ch 1 right at the beginning]]] When interacting with with his employees, Ambani found trust to be at the center of his philosophy.
Often people mistake “managing” employees with “controlling” them. The negative connotation of the word “control” is well deserved. Some degree of control is necessary while working to manage an office, but you must be able to allow for freedom as well (Kinicki & Kreitner.) A lack of control may cause inefficiency or disorganization -both of which Ambani was able to prevent while still avoiding becoming overbearing. A great manager/leader can generate results and motivate while still decreasing his involvement. To accomplish this, Ambani hired the most qualified employees and compensated well for their talent (McDonald). According to him, the most valuable resource is people and this example shows how dedicated he was to having the best employees. While paying high wages may have cost him more to run his business, the innovation and efficiency allowed his business to grow.
He created an environment in which employees were relied on for their integrity, strength and sureness; this environment helped boost employees’ morale and maximize their performance. A good working environment facilitates beneficial two-way communication between employers and employees. When employees do not feel trusted, it is hard to inspire or motivate them. Moreover, employees may be limited while working in a strict, professional environment. Dhirubhai Ambani trusted his employees’ skills and dedication and gave his people confidence to express any idea and use whatever skills they felt appropriate, giving his employees a sense of competence and choice (Kinicki & Kreitner.) (intrinsic motivation section) . His hiring strategy, choosing the best employees and paying them exceptionally well, is often referred to as offering an “efficiency wage,” a premium above expected salaries to attract the most qualified candidates and encourage them to work hard in order to keep their job (Mankiw). Although money may not be the best motivator, it can be used to as a tool to attract, and more importantly keep highly skilled employees.
Accessibility is one thing, approachability is another. The importance of being available to your employees is recognized by most managers recognize, but actually becoming available and generating enough good will so that employees feel comfortable approaching their superior is something few have mastered. It’s this type of communicative environment that fosters job satisfaction. Two major models of job satisfaction are centered on value attainment and equity (Kinicki & Kreitner). These are the two primary vehicles through which Ambani generated job satisfaction in his organization.
Ambani, contrary to what many would expect from a high-level business owner, enacted an open-door policy. Not only did he deal directly with employees, but he would also allow them to come in at any time to discuss their problems (Bist). He would discuss work-related and personal problems; he felt resolving personal issues was important for efficient operation of the organization also. This type of approachability and attentiveness helped to recognize employees’ values and recognition leads to fulfillment of those values.
As Ambani’s business grew, so did the diversity of his employees. Within this broad range of workers, from highly educated, upper class managers to lower class laborers, the upper management often overlooked the lower wage earners. Ambani eschewed these equity issues and unlike other businessmen of his stature, developed relationships with everyone he interacted with (McDonald). The care, interest, and respect he demonstrated when conversing with people of all backgrounds and social statuses created a sense of fairness amongst his employees. This equity in conjunction with employees’ value attainment creates motivation, job involvement, and organizational commitment (Kinicki & Kreitner).
Motivation, job involvement, and organizational commitment all boil down to the same thing: efficiency and loyalty. Satisfied employees want to keep their jobs; people who want to keep their jobs work harder. Time spent with employees discussing seemingly non-work related issues is often misconstrued as inefficient or even a “waste” of time, but can generate real results. The benefits of job satisfaction pervade an organization and improving job satisfaction is worthwhile at nearly any cost. Ambani believed that people are the most valuable resource, and recognized the necessity to cultivate and maintain this resource. Dhirubhai Ambani said: “Give the youth a proper environment. Motivate them. Extend them the support they need. Each one of them has infinite source of energy. They will deliver.”(Quote from: http://www.dhirubhai.net/dhapp/VirtualPageView.jsp?page_id=227)
Ambani’s leadership style combines characteristics of both transactional and transformational leaders. He recognized that employees can be motivated by a reward and punishment system, and in that way he was a transactional leader. However, he knew that there was more to motivation than just money. Ambani created an environment in which employees felt free to exchange ideas and identified with the company – generating loyal employees who want to see the company itself succeed. In this way he was a transformational leader – and it is these skills that made the most significant impact on his success. (Bass)
One characteristic that can contribute the success of a leader is his willingness to take risks. Leaders are inevitably faced with difficult decisions and it is their personal courage that influences the choices they make when faced with fear. The desire for safety prevents progress and initiative, however, courage opens doors of opportunity. The courage of a leader will inspire commitment from their followers. Billy Graham said, “Courage is contagious. When a brave man takes a stand, the spines of others are stiffened”(Billy Graham).
During Ambani’s business life, he created many ambitious projects that required large capital investments. Despite Ambani’s previous success’, bankers and financiers were continuously reluctant to fund his projects. Investors typically percieved these as too big or too risky. With limited options, Ambani realized that his shareholders were his best untapped resource. In order to fund his projects he turned to current shareholders, investors who already had an interest in the company and would be happy to take risk for high return. By combining traits such as trust with his courageousness to take bold actions, Ambani as well as Reliance and it’s shareholders all shared in the reward. Ambani showed his proactive personality, which is action-oriented person, identifying the opportunities, and taking action and persevere until meaningful change occurs. (Kreitner / Kinicki)
Ambani’s ability to think outside of the box and deviate from the norm further demonstrated his courageousness as a leader. Ambani realized that the shareholders, contrary to popular belief at the time, would not be satisfied with only dividends. He knew the value of capital appreciation and the value of his shareholders. In order to reward his investors he converted a non-convertible debenture into shares and produced enormous profits for Reliance’s shareholders. In doing so he violated Indian law, however, he took a risk that grew his company, his followers and eventually changed the law.
Dhirubhai Ambani once said, “Don’t give up, courage is my conviction” (The Man). He always played an active role as a leader. During the class, team 7 discussed Stogdill’s and Mann’s Findings, “Stogdill concluded that five traits which is tended to differentiate leaders from average followers: (1) intelligence, (2) dominance, (3) self-confidence, (4) level of energy and activity, and (5) task-relevant knowledge” (Kreitner / Kinicki, 467). Ambani continuously showed his courage and always demonstrated his true spirit for risk-taking and tenacity throughout his life. He exhibited his great level of energy and activity, embraced a new version of thinking, kept trying new things and never took no for an answer. (Can this section be related to anything OB specific? Ting: I added something to connect with OB, but because of the different edition, I dunno if the page number is the same with the correct edition)
Among the many unique and remarkable traits Dhirubhai Ambani possessed, perseverance is one trait has been a crucial part of his entire life. For many young men like Ambani, growing up in poverty, dropping out of school in order to earn money for his family wasn’t really an option. However, Ambani dropped out for other reasons as well. Ambani grew tired of the laborsome and repetitive grind of the school classroom. Instead he found his time better utilized through work and soon began setting up pakora (fried treats) stands at village fairs to earn money for his family. This was essentially the start of Ambani’s long and prosperous entrepreneurial career.
Earlier in his career, while Ambani was working as a desk clerk in Aden, Ambani continued to improve himself in any way possible. He used his spare time wisely, teaching himself English with materials around his office, as well as developing his understanding of the industry. (similar to my part, how can it be more OB focused?) Ambani refused to let his lack of formal education hold him back from anything, he made sure that he would instead use his time to get what we call a “leg up” on the competition. According to Sociologist Gecas, “self-concept” can be defined as “the concept the individual has of himself as a physical, social, and spiritual or moral being”(Kreitner / Kinicki). Ambani exercised his self-esteem by actively and fully commiting to what he did and with whom he interacted.
After 10 years, Ambani returned to Mumbai to start Reliance Commercial Corporation with his partner and second cousin, Champaklal Damani. The chief business was to import polyester yarn and export spices, it was a small business ran out a 350 square foot office. Though living with his wife and two kids in a small one bedroom apartment, Ambani pressed through and made sure to continuously expand the business. His drive to succeed even came at the cost of breaking from his partner Damani because of different leadership styles. Though he was only making modest profits, Ambani continued to build inventories and stay ahead of the price rise. After cornering the market in imported polyester, he moved into textiles where he saw enormous potential.
After years of expanding and diversifying Reliance Industries Ambani saw another obstacle to push through. With his leadership and guidance Reliance was able to overcome large competitors that threatened it’s success and existence. He pushed competitors such as Swan Mills and Kapal Mehra of Orkay out of business and irrelevant among India’s powerhouse companies. There was also Nusli Wadia of Bombay Dyeing, who was for some time the largest competitor of Reliance Industries. Competing in the same market with similar political influence Nusli Wadia and Reliance battled for years. ( Very biographical up to this point.)
In addition to everything Dhirubhai Ambani has persevered through in a business sense, Ambani also had to survive and fight through numerous and near constant criticism. Often criticized for his ethical and legal actions in his business decisions, Ambani overcame years of media attacks, accusations and investigations on both Reliance Industries and himself. Despite everything Ambani went through, he built a business empire from the ground up. If one thing is clear, it is that perseverance is one trait that few possess comparable to Ambani. (this paragraph is good, but should be expanded upon and maybe renamed resilient?)
Ambani also laid claim to traits such as opportunistic or imaginative. These traits are greatly correlated to his strong perseverance trait, however, cover a much deeper look into his business life and ventures. (I don’t get what this sentence means) The earliest example of Ambani seizing opportunity came early in his life while working in Aden. It all started when the Yemini administration launched an investigation to discover why their main unit of currency, the Rial was disappearing. Still in his twenties it turned out that Ambani was placing unlimited buy orders on the Rials. At the time, Rials were made of pure silver. Ambani was melting them down into silver and re-selling them on the London Bullion Exchange. Talking to a reporter later in life he was quoted,
The margins were small but it was money for jam. After three months, it was stopped. But I made a few lakhs. In short, I was a manipulator. A very good manipulator. But I don’t believe in not taking opportunities (4to40).
Ambani made it very clear that seizing every opportunity was an integral part to building his success. (Good example, maybe start section with saying why opportunistic is important/good for leaders and then go into story)
Ambani believed in always finding opportunity, he found opportunity in information. He used any information he could gather and turned it into a opportunity, a profit making opportunity. He once said that, “there is no invitation for making profits, you have to find it” (Kothari). (This quote and next two paragraphs are in Tings section, needs to be combined) That being said, Ambani was always on the search for any new news or information that could earn him a profit or give him the competitive advantage.
After Reliance’s initial switch from polyester to textiles, the company remained as a textile company for years. Ambani then began to seize alternative opportunities that the growing Indian economy was beginning to offer. By instilling a policy of backward integration, or a policy that involves purchasing suppliers of products to decreases risk and dependency. Ambani began by buying and setting up plants to manufacture polyester filament yarn as well as textile intermdiates. After some time continually expanding the backward integration of the textile company, Ambani began to diversify Reliance industries as well.
In the early to mid 80’s along with the economic opportunities, India also had openings in the regulation-driven sectors of it’s economy. Ambani began by diversifying the company into chemicals, petrochemicals, plastics as well as power. His goal was to seize any opportunity for profits and turn Reliance Industries into a well-versed global business. After expanding the company into different sectors, Ambani continued to instill the backward integration policy. Reliance set up world-scale facilities for plastics and polymer intermediates, detergent intermediates and chemical plants (Free Articles).
Dhirubhai Ambani was the a pioneer of global thinking. While his competition was still thinking local, he was thinking global and pushed to make Reliance a world competitor. While others could not meet global standards, Ambani created world-class products and factories the competition couldn’t compete with. It was once said that “nobody in India could even think about that in his time.”(Kothari)
In the midst of expansion, Ambani also took every chance he got to bend government laws and find loopholes that would benefit the company. Though he suffered extreme criticism for this, Ambani felt he was only doing what any other industrialist would do given the opportunity. In regards to these actions a leading management consultant, S.K. Bhattacharya was quoted, “the distinction between Reliance and others is that it creates the future for itself rather than waste time sobbing over government controls and insensitivity of government policies” (SCRIBD). Ambani made it clear that he would take any opportunity present in order to grow his business.
Dhirubhai Ambani was a true visionary; he would locate an opportunity and find a way to use it to his advantage. Opportunistic and imaginative together created enormous success, as traits they made Ambani who he was and made Reliance what was described as, “a business empire with an estimated annual turnover of $12bn, and an 85,000-strong workforce” (World Famous Biographies).
Law and Business Ethics:
Business Ethics is concerned with the ethical and moral problems that exist in the business environment. Business Ethics considers the conduct of individual and business organization as a whole. It is hard to understand the scope of business ethics as it covers a vast area from corporate governance, reputation management and fair labor practices to the total responsibilities the company has to its shareholders, employees, creditors etc .
Milton Friedman believed that the primary motive of the corporations is to make a profit within the framework of the legal system. This is where it is important to draw a distinction between law and ethics. Legal system deals with technical and bureaucratic rules between right and wrong where as ethics deals with voluntary and conscientious choice between right and wrong. This leads to a false implication that all illegal actions are unethical by nature whereas all unethical actions are not illegal.
Dhirubhai Ambani took advantage of the loop holes of the legal system . He was alleged to be influential in the government elections. He was known to use these political connections to suit his companies’ business policies. Another such instance is depicted when cabinet note was found in the office by a police raid.[can you elaborate on this? or at least clarify what you mean?] Thus, violating the Official Secrets Act. Reliance Industries, owned by Ambani, was critisized for not paying taxes properly .
Financial Ethics and Business Ethics:
Fair trading practices, transparent accounting, proper tax payments, healthy sales practices, appropriate internal and external audit by the organization contribute to adding value to the society . However, some of the following practices taken by the firm go against Caroll’s model of Corporate Social Responsibility (CSR).[cite?] As the text describes the ethical behavior is complex combination of both internal and external factors.[cite the text book?] Though the objective of such practices may have been attempts to please the interests of the shareholders, practices such as these contribute to unhealthy competition and monopolistic business tactics. Such business tactics also foster negative energy within the organization, where each individual gets engrossed in his own success and give employees within the organization a moral ground to justify false actions.
Insider Trading: After the sale of Grasim, Reliance Industries was accused of increasing its stake in L& T.[elaborate/clarify] The Security and Exchange Board of India inquired in to the matter and levied charges for commiting insider trading and price manipulation .
Bribery and Facilitation payment: The Reliance Yarn Industry was allowed more than twice its legal capacity of production. The company was also alleged to have evaded 1 billion rupees (24 billion dollars) in taxes on imported machinery .
Earnings Management: Raashid Alvi, a member of Parliament, distributed photocopied documents of the company requesting to settle charges by the income tax department. Alvi also accused the company for manipulating the balance sheet and account statements. Though the Department of Company (DCA) affairs rejected the allegations, DCA later agreed that the company transferred incomes between one another in a controversial manner [4, 5].
Control of Stock Exchange: Dhirubhai Ambani was notoriously known for his control over the stock exchange. The company was rumored to have taken actions such that the stock prices of the company do not slide . [elaborate?]
Ethical Decision Making Style:
Stanley Krolick describes four types of ethical decision making styles.
i. Individualist: An individualist is driven by his own reasons, motives and desires. He does not consider the shareholders, colleagues in his decision process.
ii. Altruist: An altruist is primarily concerned about others. He sacrifices his needs for others. His objective is to satisfy the needs of the population.
iii. Pragmatist: A pragmatist is concerned with the current problems and solution to those problems. He is not influenced by his needs or by the needs of others.
iv. Idealist: An idealist is driven principles and regulations. He places utmost importance to moral values and is very rigid in his decision making style. [citation?]
Dhirubhai Ambani’s ethical decision making style can be described as a mix of an individualist and a pragmatist. This is evident from his business tactics used. The business strategy employed by Reliance Industries is monopolistic in nature by controlling the resources, network externalities, regulating political activity, non- complying with the import- export laws etc.
Corporate Social Responsibility (CSR):
Reliance Industries must incorporate CSR as an integral part of its business strategy.This can be achieved by preparing corporate philosophy and the code of conduct that depict the corporate standard the company is trying to achieve. This clearly draws a line between the legal, ethical activities and illegal, unethical activities. This method is bound to work in this case study because clear statements effectively communicate the appropriate action to be taken in case of a conflict of interest . Thus it eliminates the unacceptable behavior and course of action. The figure below demonstrates the approach that could be taken by Reliance Industries.
The conclusion that can be derived from the analysis of his life is based on the relative role of companies, government and individuals in ethical decisions. The company is not entirely accountable for the unethical things done. The government regulation constraining the production, return expectations from the stakeholders etc are responsible in driving the unethical factors. It is important for the government to realize that regulations must only try to curb unethical practices but to never pressurize the companies to take up alternative loophole methods.
It is essentially important for the company and its shareholders to realize that performance on social, ethical and moral grounds is as important as the performance on the financial grounds. All of us must realize that the company can truly create value for everyone only when it turns profit by acting responsibly and staying out of unethical practices.
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