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Diversification strategy of Aditya Birla Group5th to 9thparaAditya Birla group of company was formed in the year 1870, whe...
Bangladesh, Hongkong and Taiwan. In 1978, Carbon black, used as a pigment and reinforcingphase in automobile tires, produc...
Exihibit 3A: Capacities of Grasim Group                                                            CapacityViscose Staple ...
Exhibit 3C: AdityaBirla GroupGlobally, the Aditya Birla Group is:::   A metals powerhouse, among the world’s most cost-eff...
Exhibit 3D: Diversified AdityaBirla Group
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Diversification strategy of aditya birla group


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Diversification strategy of aditya birla group

  1. 1. Diversification strategy of Aditya Birla Group5th to 9thparaAditya Birla group of company was formed in the year 1870, when Seth Shiv Narayan Birlalaunched a trading business of cotton & Jute in Pilani, in the state of Rajasthan. His son, BaldeoDas Birla, had moved to Calcutta which was the hub of business activity and over thereBaldeoDas Birla’s son Ghanshyamdas Birla started up a jute mill. Thus in 1919 the familysindustrial holdings were established. Then just after India’s independence, in the year 1947,Grasim weaving plant was started. Although Grasim was started as a textile manufacturingcompany 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 hasbecome one of the Indian companies to make to the list of Forbes Asias Fabulous 50 awardwinners. In 1958 rayon was added to the list of Grasim production list which had cotton and jutefiber. Rayon being a cellulosefiber has a high luster quality and was an emerging trend. It helpedGrasim industries to increase its customer base as rayon fibers can be engineered to have a rangeof 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 thestrategy of “Growth diversification”. In 1958, Birla group diversifierd to spread risk and therebyreduce 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. Gordoncopper mines in Australia, were done. This strengthened the position of Hindalco in Aluminiumand Cooper industry. The aluminium operation extends from mining of bauxite to the productionof not only primary aluminium but also thevalue added downstream products such asflat rolled products (FRP), extrusions andalso customized consumer products such asfoils. In 2007, Noveilis Inc. was acquiredwhich made Hindalco fifth largestaluminium producer in the world. As statedby the management team, “We leverage ourstrengths further when it comes todownstream strategy. The recent acquisitionof downstream producer Novelis gives us awell-diversified geographical market baseand enhances our stature in the area ofdownstreamproduction.” (Refer the fig 3a) Fig 3a: Diversification SynergiesHindalco group has a consolidated turnover of USD 15.85 billion and hence has placed itself inthe fortune 500 list.To make its presence felt in international market, in 1969, Indo Thai Synthetics was formed inThailand. Indo Thai supplies raw material to the worlds leading fabric manufacturers. 70% of itsproduct is exported to more than 30 countries including USA, Canada, Brazil, Argentina, Chile,Turkey, Greece, Belgium, France, Israel, Italy, Spain, Portugal, Germany, South Korea,
  2. 2. Bangladesh, Hongkong and Taiwan. In 1978, Carbon black, used as a pigment and reinforcingphase in automobile tires, production was launched in Thailand. This helped Birla group tospread the risk further into diversified business. The diversification strategy of Birla group wasnot only vertical or horizontal but it alsodid a forward integration by formingIndo Gulf for the production of fertilizer,in 1988. The Sulphuric acid produced inthe smelters of Hindalco group was usedalong with rock phosphate and ammoniato form Di-ammonium phosphatefertilizers as shown below(Refer fig 3b).These fertilizers are marketed under theknown brand name “Birla Balwan”.Farmers prefer this brand in Di-ammonium phosphate fertilizers category Fig 3b: Diversification - Forward IntegrationDue to the death of Aditya Birla in 1995, his son, Kumar Mangalam Birla, was made theChairman of Birla group.Kumar Mangalam Birla did a restructuring and streamlining of thewhole group. Then, Indian market was very attractive for cell phone industry;Kumar MangalamBirla formed a joint venture with AT&T group to form idea cellular. Telecom services wererecognized as an important tool for the socio-economic development of a country. Telecombeing the main supporting service for rapid growth and modernization of all the sectors of aneconomy, its growth in a developing country like India was obvious. Hence, Birla group madethe right move of applying diversification strategy of growth and entered a very attractivemarket (Refer Exhibit 3b).To continue diversifying into other emerging markets, in 1999, Birla group formed joint venturewith Sun Life Financial Inc., one of the leading international financial services organizationsfrom Canada, and formed Birla Sun Life Insurance Company Limited (BSLI). As insurancemarket in Indian had low entry barriers, the cost of entry was less and hence BSLI did noterode the bottom life of Birla group.Thus we can see that Birla’s diversification strategies include Operational relatedness when theyformed Grasim industry. Birla textile & Grasim could share resources like - plant, R&D facilities,distribution centers, etc. thereby saved cost. Diversification into metal business and formationof Hindalco was a good example of growth motive and risk spreading across businesses.Hindalco’s diversification in the upstream and downstream was to have synergies due tooperational relatedness. Diversification into cellular & insurance business gave Birla group entryinto markets which were attractive and had low cost of entry. Thus, we can see strategicrelatedness in all the Birla groups business which has made a US $35 billion corporation and inthe league of Fortune 500. (Refer: Exhibit 3D)
  3. 3. Exihibit 3A: Capacities of Grasim Group CapacityViscose Staple Fibre (VSF) 333,975 tpaJoint 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 tpaCement(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 tpaChemicals 258,000 tpaTextiles:: Yarn 8832 spindlesGrasim Bhiwani Textiles Ltd. (Subsidiary):: Fabric 146 looms:: Yarn 35,808 spindlesExhibit 3B: Growth of Idea Cellular
  4. 4. Exhibit 3C: AdityaBirla GroupGlobally, the Aditya Birla Group is::: A metals powerhouse, among the world’s 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 plantsIn 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
  5. 5. Exhibit 3D: Diversified AdityaBirla Group
  6. 6. References: