Birla, Mahindra defend conglomerate biz model

Vouch for this at a time globalisation demands focus for quick decisions

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Kumar Mangalam Birla and Anand Mahindra have defended the Indian business model of conglomerate structure at a time when globalisation is demanding focus so that decisions can be taken quickly.

At the Make in India summit here on Sunday, Edward L Monser, president of the US-based Emerson Electric Company, advocated focused businesses: “Globalisation has brought multiple layers of decision-making and speed has become a big issue.”

Banmali Agrawala, president and chief executive at GE South Asia, emphasised the need of being in “related businesses”, supporting Monser’s argument.

But, Indian businesses are largely operated by business houses such as Tata, Aditya Birla, Reliance Industries and Mahindra & Mahindra. These are present across various operations, which are not necessarily related.

For instance, Aditya Birla Group is present across the cement, telecom, aluminium, retail, financial services, textile and garments.

Telecom and financial services are relatively the new areas of business for the group, which it entered when the government opened these sectors for private sector.

Now, around 50 per cent of Aditya Birla Group’s revenue comes from abroad. “We have focused companies, run by independent boards,” said Birla, defending the conglomerate structure.

“And, then, we have an activist corporate centre which guides them.”

Anand Mahindra, chairman of the Mahindra & Mahindra group, prefers to call Indian business model as a federal structure than a conglomerate.

Mahindra hopes to do well in every aspect of transportation from yacht to jets, though his group’s mainstay is tractors and sport utility vehicles. The firm is also into software, retail and agri products. Mahindra cited investor Warren Buffett to defend multi-business models. “Google is a conglomerate with its diversified business operation including health services,” he said.

Success of Indian business houses in a globalised world will depend on how fast they react to global change. And, that will require spending on research and development, which focused business houses are expected to do better.