STRATEGIC CHOICE

Reliance Industries limited

Submitted To:
Sujit Mundul
Course Facilitator

Submitted By:
Aditya Kumar Jha (15113)
MBA 5th Term, KUSOM

Date: March 8, 2017

 Reliance Industries Limited is an Indian conglomerate holding company which owns
businesses across India in energy, petrochemicals, textiles, natural resources, retail, and
telecommunications sector. The core business of Reliance Industries Limited is textiles, oil and
gas refinery. As a decision to diversify the business of RIL across different industries, Reliance
industries invested Rs. 5730 crores in retail industry in 2006, Rs. 4800 crores in telecom sector in
2010 by acquiring 95% equity in Infotel etc. In 2010, reliance industries also invested in
hospitality chain by acquiring around 14% equity in EIH. The Rs. 14,000 crore investment is
huge for any company given the fact that if those investments fail, the company would lose
everything. The investments made by RIL in non-oil sectors left the shareholders of the company
worried about RIL strategies.

Q1. Analyze the apparently confusing strategy of RIL. Critically appreciate if the RIL
Board was correct in their non-related diversification.

The decision of RIL to invest in non-related businesses at that point in time seemed rather
perplexing. The oil and gas business of RIL is generating more and more revenues for the
company. The question here arises is that why a company will want to lose focus on its highest
revenue generating wing and invest in industries they are totally unfamiliar with. The first thing
is that the company has huge cash balance which it has to invest somewhere. Second, the growth
potential of the retail, telecommunication, aviation etc. industry is very lucrative and the
company as big as Reliance Industries can take tremendous advantage of those growth potential.
Third, with the increasing economic growth of the peoples purchasing power is increasing so
does their consumption. The overall consumption pattern of Indians are changing with the
growing urbanization of the cities. This move of RIL in investing in other sectors including
telecom, retail and hospitality is a step towards becoming the first ever conglomerate in India.
According to the report published by Boston consulting group and Retailers Association of India,
The retail market of India is around USD 300 billion and expected to increase to USD 1 trillion
by the end of 2020. The growth of retail market size is around 8% annually. This shows that the
investment decision made by RIL is quite relevant for the long term growth of the industry. The
living standard of people in India is improving with the regular growth in GDP. The users of
mobile phones and internet are growing exponentially. Thus the investments in these sectors is a
smart move by RIL to capitalize on the growth potential of the Indian market. But these
investments also have higher risks giving the fact that there are already many major market
players available in the segments where RIL has invested. RIL will face close competition and
might stand to lose if RIL strategies wont work properly.

The RIL Boards decision to invest more than Rs. 14,000 Crore in non-oil & gas sector is
aligned with RIL business strategies that has been carried out by RIL for so long. The strategy is
that RIL has moved its one value creation cycle to another every 5-6 years by introducing some
new products, oil and gas refinery etc. RIL is doing the similar thing i.e. moving to a new value
creation cycle by investing in telecommunication, hospitality, sports, SEZ, aviation and retail
sectors from 2006 to 2010. RIL had Rs. 21,874 crore in cash at the end of 2009-10. Keeping such
huge amount of cash with themselves will be the waste of the money. The board also wanted to
minimize the risk by diversifying its business to different sectors. In case the business of oil &
gas sector stagnates, it will have businesses from other sectors to recover the industries. Hence
the decision of RIL Board to invest in the progressive sectors is definitely a plus point for the
company. The board has anticipated the huge growth capacity of telecom, retail, hospitality,
aviation sectors have in the Indian market. According to a report published in 2010 by retail
consultancy, Techno Pak, Indians' expenditure on groceries, liquor, clothing and other consumer
goods totaled $258bn and is forecast to grow to $411bn within five years. The growing
urbanization in India is the main reason behind the growing and changing consumption pattern of
Indians. By investing in telecom, retail and cloth manufacturing sector, RIL will try to capitalize
the huge growth potential these sectors have.

However, the investments in non-oil sectors by RIL can backfire given the fact that its
expertise lies in textiles, oil and gas refinery business. Because unlike oil and gas business, there
are many major players available with high market shares who will readily accept the
competition of any new entrant. The retail industry in India is huge but 90% of it is unorganized
i.e. captured by small shopkeepers, large kirana stores etc. This means that in order to gain
higher market share, RIL must develop a new buying behavior among customers segments from
semi-urban and rural areas i.e. buying goods, groceries from convenience stores, supermarkets
etc. In order to achieve success in the non-oil businesses RIL will require good management
skills, who closely follow each of the business activities and timely identify and solve even the
smallest problems. The greater the number of business activities, the more difficult is the total
management task. If RIL cannot manage the resources efficiently for all of its sectors, it will
bound to fail. In case of telecommunication, RIL can target the youth who use internet and come
up with a product that provide high speed, reliable internet at very cheap price. Doing so, it will
be able to compete with the existing players in the telecom industries.

2. What would be prognosis of RILs strategy going forward?

The strategies RIL should adopt to be successful in the non-related diversification are as
follows:

RIL has already have huge market share in refinery, oil & gas business and hence
diversified its business to retail, telecom, and hospitality etc. sectors. To be the market
leader in these sectors to RIL must use its competitive advantage of having one of the
best distribution channels and capitalize on that for the successful operation of its new
areas of business. It must strengthen the supply chain to provide better service to its
suppliers as well as end customers.
To gain success in the retail sector, RIL can make strategic partnerships with the farmers
and the manufacturing industries so that it can provide best quality products to the
customers at affordable prices.
RIL can capitalize on its goodwill that is prevailing in the market to gain customers
attention at the early phase of starting any new line of business within the industry.
Reliance Industries Ltd. is also known for its qualified and experienced workforce. The
success of any business highly depends on the quality of workforce it has. RIL should
develop a good HR strategy to employ intelligent and qualified personnel so that they can
operate the business effectively and efficiently.
RIL must also adopt the cost reduction strategies because there are many players
operating in telecom, retail, and hospitality etc. sectors and RIL will face tough
competition in capturing any share of the market. On the other hand, if RIL adopts
strategies that will reduce the cost of goods and services, the consumers will get attracted
to use that product because it comes with the brand equity of Reliance.
By investing in non-oil & gas business, RIL exposed to many risks. Establishment of
effective risk department to analyze the impact of each and every decision and also the
risk caused by the unrelated investments and bring out effective coping mechanisms for
the company to manage those risks.