How to make denim in licence raj

The Lalbhai heritage traces back to Shantidas Jhaveri, a prominent merchant and major jeweler for the Mughal emperors Jahangir and Shah Jahan. In the 18th century, the Gujarati family expanded into the banking sector, providing loans to local lords seeking control of Ahmedabad. But after the British suppressed native banking after 1858, the Lalbhais turned to the cotton business.

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Global prices were at an all-time high due to the American Civil War and Kasturbhai’s grandfather Dalpatbhai made a substantial profit by offloading cotton bales in the 1860s. By the time his son Lalbhai had inherited it. business in the 1880s, the white fluff trade was not very profitable. Attracted by new opportunities in heavy industry, Lalbhai founded Saraspur Manufacturing Company in 1897, followed by Raipur Mills in 1905.

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Pushing hard into the family business, Kasturbhai developed it into the iconic Arvind brand in 1931. It remains one of India’s most successful independent companies, with a market capitalization. market is 2,514 crore and the client list includes Tommy Hilfiger, Calvin Klein, Gap and Aéropostale. Lalbhai’s journey through the 20th century is a story of India’s entrepreneurship that thrives in demanding environments, from a “raj permit-free” economy to post-liberal India. chemical.

The pinnacle of freedom (1890-1957)

In 1917, when factory owners in Ahmedabad faced a citywide labor strike, this brought business to a standstill. In Dwijendra Tripathi’s The Dynamics of a Tradition: Kasturbhai Lalbhai and His Entrepreneurship (1981), Kasturbhai recalls, “There was an epidemic in Ahmedabad… the war broke out, and the profits were pretty good. Factory owners have decided to reduce wages…[Mahatma] Gandhi… sent word from his Ashram that it would be wrong on our part. “The workers asked for a 35% increase, while the owner led by Kasturbhai agreed to 20%. The deadlock was resolved by Gandhi, who proposed an average rate of 27%. Kasturbhai will say. that he had learned the art of industrial arbitration from Gandhi.

By 1919, his Raipur Mills were making impressive profits. The family decided to build a larger factory with a capacity of 20,000 spindles and 500 looms with an initial capital of 12 thousand. Some of the top brokers from major cities, including Bombay, want to buy more valuable stocks 3 thousand at the same time. But this will be very difficult, since the small capital upfront Kasturbhai is already floating. He decided to increase his share capital 24 lakh and use the extra money to order the latest machinery from the UK. In addition to large investors, dozens of small depositors are also eager to sign up. The last factory was built in 1925 in Saraspur, just outside the city limits of Ahmedabad. That was the first step for the company’s long-term capital raising strategy. In India’s inflationary economy, debt is cheaper than equity, and an investor culture of less time makes it more profitable to raise funds from the market than from banks.

During this time, the anti-colonial resistance also increased. Kasturbhai needed a reliable workforce for its factories, and political agitation disrupted business. At the same time, when the Indian Parliament requested funds to organize party activities, industrialists like Kasturbhai joined in. In his Collected Works, Mahatma Gandhi records several letters to Kasturbhai, Jamnalal Bajaj and other business leaders asking for money.

Kasturbhai also cultivated relationships with GD Birla in Calcutta, Thakurdas in Bombay and Lala Shri Ram in Delhi, businessmen who worked with the political elite of the day to ensure their mutual interests were maintained. Each tycoon became a powerful voice for a particular region, able to influence the position of local and central government over industry during the 1930s.

Between 1924 and 1938, Kasturbhai owned seven factories, making him the largest textile tycoon in Ahmedabad, and certainly one of the largest in the country. In 1930, Britain was the tenth largest consumer of cotton in the country and by 1939 had risen to seventh. The key to his rapid growth was his belief in new machines, his interest growing when he co-founded the Ahmedabad Textile Industry Research Association in 1947.

Believing in research is one thing, but quite another is acquiring expensive equipment to modernize factories. Kasturbhai borrowed and raised funds from the public with floating stock options. The boycott of British textiles, as part of India’s nationalist strategy against colonial rule, also spurred Arvind’s growth.

The planned economy (1958-1991)

In independent India, the state sought to regulate the economy to balance growth and social development. A foreign exchange reserve crisis in 1957 led to tighter controls on imports and exports. However, despite being a scarce resource, India has developed capitalist institutions, under the watchful eye of the “raj permit”.

How did Arvind overcome the regulatory challenges — when permits were needed to set up factories, import raw materials, manufacture products, and export finished products? First, the Lalbhais have been very wise to avoid any businesses that subject them to state scrutiny, including cement, oil refineries, steel and telecommunications. Second, they choose businesses that are driven by science and technology, and only expand into industries adjacent to their core competency of textiles. For example, they have worked effectively with the US Cyanamid Company to develop Atul, a dye, chemical and starch manufacturing plant in India, all essential products in the textile value chain. .

“My grandfather taught us that you have to be unaffiliated. So your business shouldn’t be based on any form of political patronage,” said Sanjay Lalbhai, grandson of Kasturbhai, in a recent interview with this writer for the project ‘Make emerging markets’ at Harvard Business School.

In markets characterized by volatile political circumstances and unclear institutional norms, political disjunction has become key to Arvind’s success. The same goes for the strategy of raising capital through debt, as any equity expansion could undermine the family’s control over the company.

Global Thinking (1991-present)

Sanjay Lalbhai joined the family business in 1977 in a small role. In his spare time, he collaborates with friends on a number of adventurous projects. Most failed, except for one air conditioner distribution company. “My father doesn’t give me capital because he thinks I shouldn’t get involved in too many things… But honestly I’m a businessman… So I took out a loan in my own name,” he said. speak. The name is like “gold.” “I take money from private citizens and I put that money in equity. So there is 100% debt and then we can borrow from the government or the bank. goods with very high interest rates.

Like his grandfather, Sanjay leveraged his family’s reputation in the market to raise capital. This was important to Arvind in the 1980s, when the electric loom sector challenged large factories by circumventing labor laws and manufacturing standards to produce garments cheaper. In contrast, Arvind factories have a large fortune and are slower to adapt to fashion trends. And so Sanjay teamed up with in-house scientists to develop the next generation of textiles, which electric looms cannot easily compete with.

Increasingly popular through Bollywood and international cinema, denim jeans have become Sanjay’s million dollar idea. But there was no way Lalbhais could have imported or domestically produced the product in the 1980s. Sanjay innovated by printing indigo on twill for a denim-like feel and look. He worked with his brother-in-law, Rajiv Badlani, to put together a memorable ad campaign for their new Flying Machine jeans. The slogan “Who Needs Phoren!” By 1987, Arvind produced their first meter of genuine denim through new machinery imported from Germany.

Those were the years at the height of liberalization. In New York, Sanjay used a series of legal procedures to set up a subsidiary and build his first international partnership with Arrow, the first foreign clothing brand to come to India.

However, entrepreneurship is always fraught with risks. In 1995, Arvind faced its first major crisis with a drop in demand for denim and an appreciation of the rupee negatively impacting their exports. Sanjay relied on financial restructuring to save the company from bankruptcy. The family’s reputation made creditors more willing to work with the company, and Arvind learned valuable lessons in the process, such as not overcharging.

There are several challenges facing the company in 2022: rising cotton prices, environmental exit due to textile production, competition from mills globally and domestic problems such as unemployment. To enhance Arvind’s position as a truly global corporation, Lalbhais has taken several steps. First, the company was split into multiple units in 2019 and has had a new focus on branding and retail. The company sells in more than 1,300 independent stores and 5,000 department stores across 192 cities and towns in India.

By building a portfolio of brands, Arvind’s strategy is to divest assets and manufacturing plants, adopting a clear asset approach to up the value chain. The company is abandoning high-water-strength organic fibers like cotton in favor of easier-to-use synthetic materials. The recent classification is also in line with the way Kasburbhai reorganized his family businesses at the turn of the 20th century – to inherit companies for his son. Over the years, Arvind has adapted corporate governance standards, combining modern management with a deep family understanding of long-term trends. “When you do that, you’re more active, and it gives you a better chance of surviving,” says Sanjay.

Arvind’s journey is a story of both opportunity and difficulty, one of the hardships faced by generations of entrepreneurs who have built lasting businesses despite the unpredictability of the business landscape. Indian economy. “India is unique as the home of a group of businesses that are both innovative and socially responsible across generations. Arvind is a prime example,” said Geoffrey Jones, a professor of business history at Harvard Business School. Like their colleagues are running companies under the Bajaj, Cipla, Birla and Tata brands. , Lalbhais not only inherited their business intelligence but also a willingness to change, which puts them in a great position to navigate market fluctuations and political life for the next 75 years. of India’s economic journey.

The writer is a historian at the Lauder Institute, University of Pennsylvania

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