Dhirubhai - The Man - Yarn Years

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Yarn Years

After a few years, the thrill of trading in commodities began to wear out. Dhirubhai began to feel that trading in commodities would not take him far enough. Just about this time he made friends with some yarn traders in the chawl where he lived. They told him that there was big money to be made in the yarn business.

Yarn trade was complicated, highly speculative and dominated by some big firms like Forbes, Forbes & Gokak who had been long in the import-export business. Price fluctuations in the yarn market were vast which made the business extremely risky. Besides, yarn trade required a large amount of cash.

But, if the risks were high, so were the margins for a man of daring. Dhirubhai liked that. He began frequenting the yarn market where he stood quietly at a corner during business hours and observed how the trade worked. Gradually, he began buying and selling different types of yarn, first in small quantities, then in ever-increasing volumes.

As business grew, so did his need for funds. He resorted to his Aden formula. Many of the small Gujarati building contractors, merchants and brokers were flush with funds. They used to lend their savings and surplus money at a high interest. They never lent a large sum to any single person. Dhirubhai offered them staggering rates of interest. When a deal turned out to be especially great, he topped the sum with some icing as bonus. To some others he offered his Aden terms - "loss is mine, profit I share."

From there on he had no dearth of funds. Actually, every evening builders and merchants thronged his office with huge bundles of notes to lend. He came to be known as the man with the golden touch. He now began making huge deals in yarn, often booking lots on the high seas. As business grew, he shifted to a larger office. His two brothers, Ramnikbhai and Nattubhai, and some friends from his Aden days, joined him.

Then one day someone set off a bombshell of a rumour in the yarn market, a rumour that Dhirubhai had gone bust and that all those who had lent him money were sunk. Panic gripped his lenders and the brokers who had sold him yarn but not yet received their dues. The funds involved were large. Even Dhirubhai's brothers and friends who knew the rumour was false were shaken. Dhirubhai was caught unawares. When he reached office that afternoon, he was told about the rumour and the calls that were pouring in from panicky creditors. He was advised to stay away from the office for a few days until the rumours died down.

"No," said Dhirubhai, "My staying away from office will serve only to fuel the rumour further and embolden those who have spread the rumour. I better take them head on. Go out and tell everybody whom we owe any money to come to our office at four in the afternoon and take their money back. Write that on the market notice board too."

"But, Dhirubhai, where do we have the money to pay them?" asked his brothers. "Don't you bother about that. Do as told!" said Dhirubhai gruffly, and went off. It was not possible to arrange so much of cash so quickly. However, Dhirubhai was sure that not all his lenders were going to ask their money back. A few troublemakers might, but most others would be happy just to see him there in his office. Then, as promised, sharp at four in the afternoon Dhirubhai took his chair in his office to face the creditors.

For half an hour nobody turned up. Even the phone stopped ringing up. The notice pasted at the market meeting place had had its desired effect. Once he had offered the money back, nobody wanted it any more. Quite to the contrary, several big lenders came to his office and assured him that, far from wanting their money back, they would be happy to lend him more if he needed.

That was the first vicious campaign and inspired market raid Dhirubhai faced, and overcame. He would face several similar attempts to bring him down in his long business life in later years. "I was stepping on too many shoes then," he once said, "Such fast growth as mine was bound to cause envy. It is but natural. It is human. To grow the way I have one must be ready to pass through hell, the fire of envy and opposition, criticism and attacks."

Soon after, Dhirubhai was elected a director of the Bombay Yarn Merchants Association. Those days there existed no rules or norms in yarn market about payments for deals made. Also, brokerage rates were arbitrary. That was a major cause of altercation among sellers, brokers and buyers. Dhirubhai moved to clear these grey areas. The association also regulated the wages of mathadi labourers (handcart labourers who move goods).

By this time, Dhirubhai had earned a name for himself in the Mumbai yarn market and at different handloom and powerloom centres of the country. But, recognition to him as the lion of yarn traders came when in the early sixties he introduced a new viscose-based yarn called bamber or chamki (shiny). The filament yarn was named Bemberg after an Italian company of that name which had first developed it. Bemberg sold the technology to Asahi of Japan. Bamber had a distinct shine and lustre well suited for saris and dress materials. Bamber filament made fabrics last longer than ordinary nylon.

While most mill-owners were yet to see the wonder that bamber could do Dhirubhai was quick to see its attractive features for saris and dresses. He took the next flight to Japan and booked a big huge lot of bamber filament for import. By the time his first bamber shipment arrived, the first few mills that had made saris and dress materials from the wonder filament were overwhelmed by the craze customers were showing for the new-look fabric. Dhirubhai's first bamber lot sold like the proverbial hot cakes at a big premium. Over the next few months Dhirubhai had the chamki market in his grip. As the demand for chamki soared, so did Dhirubhai's profit. That was where the first big flush of capital for the future Reliance Textiles came from.

Another big flush came from a government scheme in the mid-sixties for import of nylon yarn, then much in demand, against export of rayon fabrics. Rayon, commercially developed by Sears in 1930 in America, had been made in India since 1954 and was used mainly for saris. Rayon was used for making other fabrics too. Excise duty on rayon was low and, with low Indian labour costs, rayon fabrics could be sold at competitive prices in the overseas markets.

Nylon was developed in 1938 in Germany and about the same time in America. Nylon's advent created a revolution in several consumer industries, especially in fibres and fabrics. Nylon was a synthetic fibre, the first to be drawn entirely from petrochemical, whereas rayon was derived from a natural source, plant cellulose. In the 1960s nylon was just coming into fashion in India, though in America it had gained respect a decade earlier.

Nylon was not yet being produced in India and, as a craze for nylon fabrics, was growing in the country, it had to be imported at a considerable outflow of foreign exchange that was becoming increasingly scarce from the middle of the 1950s. Also, smuggling of nylon from neighbouring countries was growing menacingly. Because of these reasons, the government went in for the nylon for rayon scheme. Although the government scheme for import of nylon against export of rayon was a common knowledge, again Dhirubhai was the first to make use of it in a big way. He took to export of rayon fabrics in right earnest. Once again his Aden contacts came in handy. A lot of textile exports from India as also yarn imports were routed through Aden. Dhirubhai made the best use of his Aden connections. As in spices, so in rayon fabrics too he was quick in delivering orders. He also began seeding new markets in Eastern Europe that would prove to be of immense potential when he would launch himself into textiles a few years later.

Dhirubhai was mostly outsourcing rayon fabrics those days. Outsourcing was a headache. Also, Dhirubhai felt that the nylon for rayon scheme might not last for long. He was making big money selling nylon yarn but he felt that he could make a lot more money if, instead of selling the yarn to mills, he himself converted the yarn into the material. The nylon craze was fast spreading from big cities to small towns and villages thanks to Mumbai films.

So, he began playing with the idea of establishing his own independent manufacturing unit. He had built enough capital during trading in yarn to be able to launch himself into the new orbit of manufacturing. That was his first major step towards what would later come to be hailed as his farsighted strategy of "backward integration."

During the seven years between 1958 and 1965, Reliance Commercial Corporation (RCC) kept growing as more and more of Dhirubhai's friends and colleagues joined him. Most of them were from Aden where word had reached that Dhirubhai had done well in life and had a growing business of his own. Therefore, everybody returning home from Aden and looking for a job in Mumbai sooner or later landed at his door. He put them on to whatever job they were good at.

Most of them had little or no formal education. Only a few were matriculates and just two or three had had a college education, of whom one was a chartered accountant. All of them, however, had some grassroots work experience from their Besse days in Aden. "I didn't need clean shirts for the sort of business I was doing," said Dhirubhai recalling his Bhat Bazar days, "I needed gutsy, street smart guys with a lot of common sense and bazaar skills."

Dhirubhai ran his team more like the head of a joint Hindu family than as a chief executive. He was friendly, flexible and forgiving in his conduct with his staff, showed understanding of human weaknesses and shortcomings, even in case of a major error of judgment, and often went out of his way to help them in their hour of need. In return, he got immense loyalty from his people.

They were more than willing and happy to do his bidding, come what may, day or night, hail or storm. They were a rough, tough and an aggressive lot in Bhat Bazar. They had full authority from Dhirubhai to act as they thought best when the need arose. "Profit shall be ours, loss mine; credit yours, discredit mine," he would tell them. "Use my name, even misuse it if necessary, but get the work done," he exhorted them, "Blame it on me if things go wrong, but act and act quick!" In a few years, he built an immensely loyal, dedicated and highly motivated team.

In the meantime, Dhirubhai's family had also grown bigger. Mukesh D. Ambani was now in his ninth year and going to school. So was the second son, Anil D. Ambani, born in 1959. Two daughters, Dipti and Nina, had arrived in 1961 and 1962, respectively. He had by now moved into a better and bigger apartment at 7, Altamount Road in South Bombay.