Asian Strategies Group


2. Credibility Assessments

Credibility Assessment of an

Indian Conglomerate

(First part of a 17-page study)

Key Findings

The Group is a healthy and dynamic corporation in terms of its finances, sales, management, and technological competence, and it enjoys a fairly good reputation in the international banking community.

Corporate leadership is strong, and continuity over the next decade and more is assured. Leadership vision at this time is focused primarily on the Indian market but is committed to building globally relevant and competitive capabilities for the future.

The Group's reputation in India is improving but remains seriously tainted by decades of corporate corruption and potentially criminal practices. The suspicion is widespread that reversion to past habits is still a risk.

Even though the Group has been forced to be more open with its financial data as it seeks financing in international markets, its decision-making process remains one of the least transparent in India.

The Group is reluctant in principle to participate in joint ventures except where participation is directly related to its core objectives. It is categorically unwilling to yield policy control in such enterprises, and relations with partners in the past have been mixed. A number of major U.S. corporations have shied away from partnerships with the group for this reason.

We strongly doubt that the Group would be an appropriate Indian partner. There are other Indian houses whose business norms and outlook would make a better match.

Scope and Sourcing

This report on the Group is focused on the general reputation of the company, the reputations of its key executives, its business practices and financial status, and its potential to work smoothly with foreign partners. The emphasis is on credibility, integrity and reliability. The question addressed is, "What kind of people run this company and what is their record and reputation?" The report is not an audit.

The sources for the report are located in Washington and New York in the U.S., and in New Delhi, Mumbai (Bombay), and Chennai (Madras) in India. The principal investigator was a U.S. national widely experienced in Indian affairs whose sources included Indian and U.S. bankers, investors, businessmen, lawyers, journalists, government officials, customers, and a personal high-level source in the group itself who was not aware of the purpose of the inquiry. We also consulted broad cross section of press reports over the last several years

How reliable is the report? Its methodology is based on face to face interviews, or in a few cases, on telephone interviews. Since most respondents were asked approximately the same questions, the methodology produced multiple answers to most inquiries. During final preparation of the report in Washington, the multiple answers were weighted according to presumed reliability.

The strength of the report is that it reflects the views and beliefs of a cross section of Indians as well as Americans who have had reason to deal with or assess the Group. In view of the unusual consistency of the responses, we have a fairly strong sense of the reliability of our broad assessment, but no report which relies on judgment and reputation can be quantifiably accurate, and Asian Strategies Group wishes its clients to be aware of the problem.

Summary Evaluation

Reputation of the Group
Record for Growth Above Average
Profitability Above Average
Innovation and Aggressiveness Above Average
 
Reputation of Controlling Family
Current Reputation Average
Past Reputation Below Average
Management Stability Above Average
 
Relations with Foreign Partners
Handling of Foreign Joint Ventures Average
Experience of Foreign JV Partners Below Average
International Expansion Plans Above Average
 
Transparency
Decision Making Below Average
Integrity of Accounts Below Average
Reliability in Protecting IPR Above Average

Contents Page
Key Findings 2
Summary Evaluation 3
Scope and Sourcing 5
Brief History
  • Early Years
  • The Move to Bombay
  • Signs of Enterprise
6
Business Trajectory
  • Economics of Scale
  • Sales and Profits
  • Corporate Structure
7
Profile of Controlling Family
  • Integrity and Honesty
  • The Family's Reputation
  • Baggage from the Past
  • Managerial Stability
  • Family Ownership
  • Middle Management and Labor
8
Relations with Foreign Partners
  • Attitude Joint Ventures
  • Experience of Joint Venture Partners
  • International Expansion Plans
11
Lack of Transparency
  • Decision Making
  • Finances
  • Integrity of Accounts
  •Reliability in Protecting IPR
13
Financial Situation
  • Decision Making
  • Finances
  • Integrity of Accounts
  •Reliability in Protecting IPR
15


Credibility Assessment

of

___________ and his Business Empire

(Key Findings from a 7-page paper)

Key Findings

_____________ is a hard-working Indonesian-Chinese deal maker who appeared out of nowhere to become a significant player in this rough and tumble sector of the Indonesian economy. Although many of his companies have been profitable and he has joint ventures with prestigious foreign¾especially Taiwanese¾partners, his finances have never been strong and are seriously threatened by the financial catastrophe that has engulfed the country.

To his credit, _____________ has resisted the temptation to become "big," concentrating on a small number of high value activities. But even these projects are burdened with heavy and not-always-reported debts, raising the question of whether his group can survive in its present form. Moreover, unlike some of his competitors, _____________ lacks political connections to the Soeharto circle, which in some cases are likely to translate into government financing for cash-starved projects. Already, the group is strapped for funds to finance ongoing activities, not to mention moving forward with ambitious plans for future projects.

This is the negative side. A close look at most of Indonesia's business groups, however, would produce a similar picture at this juncture in the most serious crisis Indonesia has faced since the 1960s. With the rupiah having lost 80% of its value relative to the dollar, most big enterprises, especially those with significant dollar debts, are technically bankrupt. _____________'s group appears to be in the middle of the pack¾not the strongest, but not the weakest either.

On the positive side, we found no credible evidence, despite extensive efforts to check out rumors and hearsay, that _____________ or his group is involved in illegal or unethical dealings. We documented strong ties to Taiwanese business circles and Taiwanese sources of capital, and we received credible reporting from multiple sources indicating that _____________ enjoys a generally good reputation in Indonesian terms. He is admired for aggressiveness and deal making skills, although like many of his competitors he is faulted for loose financial management. Despite the fact that his operations do not measure up to international business norms, they are more than acceptable by Indonesian standards.

Recommendations

_____________'s current weaknesses point to opportunities as well as to risks. There may be an opportunity for our client to increase its stake in the project in the expectation of profitability after the financial crisis has passed. There is a substantial risk, however, in becoming involved with one struggling _____________ project because it probably is linked in hidden ways to other projects that face similar cash flow problems.

Our recommendation, therefore, is to insist on insulation from the rest of the group's enterprises, at a minimum by taking a controlling equity position, or at a maximum, by buying _____________ out altogether. Obviously, a buy-out would provide the cleanest solution, but it would also be the most costly.

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