Guess who looks more like a global, octopus-like Amazon in India? (Hint: It isn’t Amazon)

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Imagine an Amazon that, in addition to being the largest online shop in North America, was also the largest telecom company, the largest bricks-and-mortar retail chain, the biggest high-bandwidth cable outfit, and one of the largest digital media and entertainment companies with properties in film, television channels, cricket teams, and influential newspapers and magazines.

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Pretty incredible, right? (For now, let’s just assume that being such a fantastically interlocking monopolistic-looking enterprise is good for any economy.)

This is what Reliance Industries is rapidly morphing itself to become — a once textiles and petroleum behemoth that has tacked on all-of-the-below to its business model: Reliance Jio, the largest telecom company in India at 275 million customers and growing; JioGigaFiber, the largest broadband provider at 50 million customers and growing; TV stations and digital news including CNBC TV18, CNN-IBN, CNN Awaz, Money Control, Forbes India, and India Today; and a web of 10,000 of its own stores nationwide that include 5,500 Jio telecom touchpoints, its Reliance Retail enterprise with 9,156 stores in 5,800 cities (with total revenues of close to $7 billion scheduled to grow 12-fold to $138 billion in the next 10 years), BS fast growing fashion brand Reliance Trends, consumer electronics chain Reliance Digital, and well-established grocery chain Reliance Fresh, which is slated to play a part in Reliances online grocery play. 

Phew!

If research outfit CLSA’s estimate were to come true, Reliance Retail alone will be making over a quarter of all of India’s revenue from retail — both online and offline– in India, expected at about $550 billion, in the next decade. (Right, online retail is a mere three percent of offline.) At this rate, don’t rule out shuttle service to the moon for the upper middle class or flying electric ice cream vans offering door-to-door service.

This is a very different world, post the dizzy euphoria of Amazon’s $5 billion plus investments in India and Walmart’s $17 billion plus acquisition of Flipkart in 2018. It would be bad enough if things were left at that. Yet, things got considerably worse for foreign online players when the BJP government, post its defeat in three important local elections in December, woke up and decided to enforce, almost overnight, its 2016 e-commerce rules in order to appease its votebank of shopkeepers and tradespeople.

These rules disallow both entities from holding inventory. This is after all what always was Amazon’s cutting edge competitive advantage — a globally tested and vaunted logistics enterprise that no one could compete with. Also, the new rules dictate that e-commerce companies are not allowed to source more than 25 percent from any one supplier (therefore preventing themselves from becoming ad hoc self-suppliers of products that make logistics and quality control so much easier). Neither company is also allowed to fold a stake in any supplier of goods. Another masterstroke that Reliance engineered was to convince the Indian government through intense lobbying that foreign outfits should not be allowed to store their data out of India, in addition to influencing putting the choke on its foreign competitors via the new e-commerce rules.

But it gets much worse for Flipkart and Amazon. Mukesh Ambani’s grand vision for Reliance doesn’t just stop at the universe described in above paragraphs. His latest scheme, announced in end-January, connects 1.2 million small retailers and shopkeepers in his western-Indian, hometown state of Gujarat, providing a glimpse of his vaulting ambitions. In a country, where only a fourth still have smartphones (out of a population of 1.3 billion) and where households in smaller cities and towns rely on neighborhood grocery stores for their package deliveries, phone top-ups, and purchases that range from groceries to badminton rackets, you can imagine Ambani’s reach when he connects all 12 million of the country’s small and medium-sized shops to his enterprises using his goliath-of-a-startup — telecom company Jio — as a lynchpin.

In other words, when India purchases smartphones, data top-ups, vegetables and soap, fashionable clothes, movies and even the daily news, you can be pretty sure that an Ambani-linked product is arriving at your doorstep or smartphone or TV courtesy of an Ambani logistics and supply chain backbone as well as a cable or smartphone pipe.

If this makes you involuntarily blurt out big brother, well there’s probably no other more suitable term considering Mukesh has emerged the clear winner over his younger brother Anil Ambani. Both helped father Dhirubhai Ambani, perhaps India’s most legendary businessman grow his empire as young executives but became embroiled in a bitter feud for his empire when their old man passed away without a will. Mother Kokila became arbiter and Mukesh ended up inheriting his father’s textiles-to-petroleum fortune and used it to raise $40 billion of leverage so he could graft an entire ‘new-economy’ side to it in a bold and expensive gambit. His younger brother, Anil, meanwhile inherited a nascent telecom empire (in addition to finance) added a power and energy division to it and ran all of them to the ground, reducing his $30 billion fortune to a paltry $300 million in just 10 years. A breathtaking feat of collapse if there ever was one.


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CAVEATS

Before Mukesh can break out the bubbly, however, there are many hurdles that he must pass successfully. To really win in the new economy game, Reliance needs to exhibit a culture of cutting-edge innovation, like, say, a Tencent, which it is not yet known for. New economy businesses require entrepreneurs from new economy wombs who think, act, and breathe in the language and neural makeup of this new world, a world that old economy Reliance is far from embodying or engendering.

Then, there’s the synergy element — all parts of the whole need to be firing on all cylinders, and effortlessly so, for the grand vision to work, not the easiest thing considering the size of the enterprise. Also, his chief competitors Amazon and Walmart (via Flipkart) have considerable experience and competitive advantages, which are crucial to new-era businesses. Amazon is a world leader in technology both on the consumer facing front and in the enterprise space. Walmart has for ages been am expert on how to keep that supply chain humming with efficiency.

Plus, Reliance has gotten to where it is because of its vast pool of cash — its ability to use the endlessly profitable petroleum operations to raise debt for its newer forays such as telecom. How long will it be able to continue doing so? “Replicating success in the e-commerce world will take some sharp learning and a lot of spending,” said Vidhya Shankar, executive director at advisory firm Grant Thornton in Quartz. 

Now that, of course, is something Mukesh Ambani is not at all averse to doing. The question is what happens when the golden goose stops laying its eggs? By then Reliance’s new businesses would have to be solidly profitable rather than a fanciful bet on the future.

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