BIRLA GROUP: Diversified industrial group finds the Thai business environment to its liking, but it's always looking for the best places to start new ventures

In an era of downsizing, the Birla Group of Industries (now known as the Aditya Birla Group) is going against the trend with plans to expand in a major way. It has increased staff salaries and claims not to have not made a single employee redundant so far.

‘The biggest reason for going out of India to Southeast Asia was that there were lots of restrictions on Birla’s activities during those days, because of licensing to avoid monopolistic situations in India. Therefore Birla had a difficult time in getting licences to set up companies’
S.S. MAHANSARIA
Executive director, Southeast Asia

With 10 companies in Thailand, the group has been pressing to export up to 60% of its products to countries where economics are still healthy.

The group, which started its local operations in 1969 with Indo-Thai Synthetics, today is a diversified operator in the textile and chemical in-dustries, with an asset base of around $800 million. The Aditya Birla Group is one of the largest conglomerates in India with an annual turnover exceeding $4.8 billion, and more than 140,000 employees in 15 countries.

It has around 60 manufacturing units in India, Thailand, Indonesia, Malaysia, the Philippines, Egypt and Canada. Trading companies have been set up as well in Singapore, Dubai, the United Kingdom, United States, South Africa, Tanzania, Burma and Russia. Euromoney magazine called it a truly global multinational corporation".

Industries under the Birla umbrella include aluminium, cement, viscose staple fibre, viscose filament yarn, caustic soda, pulp, chemicals, fer-tilisers, sponge iron, carbon black, petroleum re-fining, power, telecommunications and financial services.

The group's Thai operations alone generate some 20 billion baht, and last year posted a net profit of one billion baht.

A restrictive business environment in India -the so-called "licence raj" - was what first prompted the group to look at new places to operate in 1969, and Thailand was an obvious choice, said Shyam Sunder Mahansaria, executive director for operations in Southeast Asia. He cited the country's strategic location and proximity to headquar-ters in Calcutta, its development level at the time, and a history of being receptive to foreigners.

"The biggest reason for going out of India to Southeast Asia was that there were lots of restrictions on Birla's activities during those days, be-cause of licensing to avoid monopolis-tic situations in India. Therefore Birla had a difficult time in getting licences to set up companies.

"Indonesia was not that developed t the time, the Philippines had other problems, Malaysia had a very small omestic market. Therefore, Thailand as the choice, making it the first Birla operation in the Southeast Asian market.'

Nearly three decades after settling n Thailand, the group continues to lough money back into its local op-rations, partly from retained earnings but also using some new capital.

"Our group is an industrial group, so we don't have a specific list of here we want to enter and where we wouldn't like to enter. Any viable pro-ect we are willing to enter, no matter hich sector, except agriculture," Mr Mahansaria said.

At the same time, further expansion n the textile sector in Thailand was not an option because of declining cost-competitiveness. But more ventures in chemical-related businesses ere possible, he said.

"Our aim when we established our-elves here in 1969 was that we want-ed to continue expanding as much as possible. Our aim still remains the same.... People think that we have reached our peak, but I would say that we still ave a long way to go." This year the Aditya Birla Group opened two plants to produce caustic soda and ECH (epichlorohydrin), and the current focus is on stabilising their operations.

"We will then take a look at how the economy settling down, and will start to think about how to make a further expansion plans for our existing plants. So far we have expansion plans for our sodium tripolyphosphate (STPP) plant, rid the spinning capacity of Indo-Thai Synthetics".

Indo-Thai Synthetics makes viscose, acrylic, polyester and cotton yarns and blends, with a capacity of 93,000 spindles. It exports around 60% of its products to the United States, Europe and other countries.

Thai Rayon Plc was set up in 1974 and today one of the world's largest exporters of viscose staple fibre. It produces 67,500 metric tons of viscose rayon fibre and 47,000 tons of sodium sulphate, exporting around 45%.

Century Textile, acquired in 1974, is a fully in-egrated weaving, dyeing and printing operation with a capacity of 13.4 million yards and an export base of 46%.

Thai Carbon Black Plc was established in 1978 to serve the growing rubber market in Thailand rid abroad. Today it has annual production of 45,000 metric tons and exports 75% of capacity.

Thai Polyphosphate and Chemicals was set up n 1984 and produces phosphates that are used in preservatives, detergents, paints and other prod-cts used in the food, water, metal treatment and ceramic tile industries. Annual production of odium tripolyphosphate and other speciality phosphates is around 60,000 metric tons, and exports total 20%.

Thai Peroxide was started in 1989 to make hydrogen peroxide for the textile, leather; pulp and paper, environmental, sanitation, food and pharmaceutical industries. Annual capacity is 6,000 metric tons, all for the domestic market.

Thai Acrylic Fibre was established in 1987, with its acrylic fibre used extensively in the textile, knitwear and carpet industries Capacity is 7,000 tons and exports are about 55%.

Thai Epoxy and Allied Products was established in 1990 as the first epoxy resin plant in Thailand. The resins are used in marine and container paints, protective coatings, can coatings, precision castings and adhesives. Annual capacity s 30,000 tons and exports total 90%.

Thai Sulphite and Chemicals makes sodium sulphite and sodium metabisulphate, with annual capacity of 30,000 tons, 85% of it exported.

Thai Organic Chemicals is a relative newcomer, manufacturing and distributing epichlorohydrin, chlorine, caustic soda and hydrochloric acid.

Despite showing a hefty profit last year, the Birla Group is not expecting to repeat the performance this year, as raw material costs have been rising while world market prices were dropping.

"Rayon, acrylic fibre, carbon black, chemicals 11 are going down and this is in relation to consumption, which has contracted," Mr Mahansaria said . "We are more focused on exports but they too are going down. Demand for products worldwide is don and so are the prices.

" In terms of the most profitable industry, I would say that both the chemicals and the textile businesses generate similar levels of profitability. Textile are also good for us because we are ' in what we call the basic textile businesses. The fact that we are among the market leaders also plays a vital role in generating this level of profitability.

"Take acrylic fibre, for example. We have a monopoly in the whole of Southeast Asia, so it should be profitable. The rayon plant is also an exclusive plant, and then we have Indo-Thai which is 60% export-based. Indo-Thai holds around 90% of the quota to export yarn to the United States."

Even during bad times the group has done well with textile exports to Japan and Korea. Although competition has risen, especially from In-donesia, profitability remains high.

The Aditva Birla Group realised that operating in such a highly competitive industry as tex-tiles would require diversification. It established P.T. Indo Liberty Textile in Indonesia to manufacture and distribute synthetic yarns and fibres. The company in Indonesia exports around 70% of its products.

"We have one subsidiary in Indonesia which will be expanded; with Thai Carbon Black and Thai Rayon raising further capital into the sub-sidiary company.

"We have no problems in meeting our obligations [in Indonesia] too. It's a basic structure: once you export such a high percentage of your products then it's self-hedging. In such a bad time we still don't have any problems there.

" In terms of textiles, Mr Mahansaria said the edge definitely rested with Indonesia, and the group planned major expansion. But Thailand had other pluses, he noted.

"In terms of chemicals, we are very positive in Thailand. If you ask us if we are planning on expanding our acrylic fibre plant, we will say yes. Expand our sodium metabisulphate or sodium tripolyphosphate plant, and we will say yes, be-cause Thailand still has a competitive edge as these industries are not labour- and power-intensive."

Despite the attractive points about Thailand, the group believes the country needs certain measures to attract further investment. Mr Mahansaria also cautioned that the government needed to be more careful about easing the duty structure on chemical products.

"We as a country are still very weak compared with the large multinationals, and therefore we have to be very careful in opening up the economy to global competition. We have witnessed the quick opening of the financial sector and don't want such things to happen to other sectors as well.

"If they remove all the duty structure on chemical products, all the chemical industries in Thailand would be sick. I am not saying that the duty structure should be there, but what 1 am saying is that it should be [changed] very carefully, looking to the interests of Thailand, not what the World Trade Organisation says."

He also noted some disadvantages in Thailand compared with Indonesia, chiefly power and labour costs.

"The power cost here is about 4.5 US cents per unit, while in Indonesia it is around 2.5 cents. Indonesians have not drastically increased their power costs despite devaluation, while this has helped bring labour costs down."

Mr Mahansaria acknowledged that one aspect of higher labour costs was a preference for Indian managers, who were better versed in the group's overall corporate culture and system. At the same time, though, it conducts twice-yearly training for all employees.

"There are some Indian employees at the management level of all the companies in the Birla group, due to language problems, mindsets, cultural issues, working styles and the knowledge of the system that the Birla Group operates," he said.

The group is also keen on upgrading technology, but not simply for the sake of the technology.

"Automation should make some economic sense. For example, the Thai Rayon Plant is not too automated, but then that's the way all rayon plants in the world operate. We still produce one of the best-quality products in the world and are the cheapest in terms of costs," Mr Mahansaria said.

Despite bearishness in some areas, the group expects to survive the crisis on its own, with the cashflow from Thai operations. It had $250 million in foreign loans but over the past few months it has been able to reduce the debt to some extent.

"We have no problems in meeting the obliga-tions, and we don't have any restructuring in progress," Mr Mahansaria said.

Among the best examples of the group's com-mitment was the expansion of operations into Canada this year. It bought a pulp plant, using Thai Rayon's funds. The plant will start providing raw material in October to Thai Rayon, which will be used to produce viscose rayon for export.

Birla Group of Industries
Established: 1969
Major shareholder: Aditya Birla Group
Registered capital: 17.8 billion baht
Main businesses: Manufacturer of rayon fibre, carbon black, acrylic fibre, spun rayon, fabrics, epoxy resins, hydrogen peroxide and other chemicals
Subsidiaries: Indo-Thai Synthetics Co, Century Textile Co, Thai Rayon Plc, Thai Polyphosphate and Chemicals Co, Thai Peroxide Co, Thai Epoxy and Allied Co, Thai Sulphite Chemicals Co, Thai Organic Chemicals Co, Thai Carbon Black Plc
Number of employees: 4,780
Assets at end-1997: 22.31 billion baht
1997 gross revenue: 12.75 billion baht

Worldwide
Headquarters: Bombay
Number of countries: 17
Number of employees: Approximately 140,000
1997 gross revenue: US$5 billion