Stratagem 32:Create Something out of Nothing

 

“Design a counterfeit front to put the enemy off guard. When the trick works, the front is changed into something real so that the enemy will be thrown into a state of double confusion. In short, deceptive appearances often conceal forthcoming danger.”

—From The Thirty-Six Stratagems

Reliance Industries of India was a common textile dealer—one of a thousand similar small ventures—that transformed itself into the country’s largest private-sector company. It did so by “creating something out of nothing” at two critical turning points in its history.

The company’s founder, Dhirajlal Hirachand Ambani, was born to a lower-middle-class family in a poor town in rural India. His father was a schoolteacher, but because his family could not afford to send him to university, Ambani was forced to choose a different career. At the age of sixteen, he took a job pumping gas. He applied himself to the gas retailing business for ten years, working his way up to a position as marketing manager.

But Ambani had greater aspirations; he wanted to start his own business. He rented an office (more accurately, a desk) for two hours a day and began trading anything he could get a margin on. His search for profit soon led him to textiles. Ambani jumped into the fray, battling hundreds of other small textiles traders seeking to match producers with buyers.

Ambani could have remained one of the countless traders, but he was able to create something his competitors could not. This set him apart and put him on a grand trajectory. As with most Indian industries, the textile business was dominated by a few large families. With the tacit cooperation of the Indian government, they dominated textile distribution and could demand low margins from traders like Ambani. Their presence, Ambani recognized, was hindering his growth.

While most traders were stuck thinking about how to better deal with these large distributors (i.e., trying to play using the pieces on the board), Ambani added a whole new piece to the game. He formed his own distribution business to sell his trading company’s raw textiles and, later, even sold fashions he designed. His innovation changed the game, freeing him from the restraints of the large family-dominated buyers and allowing his growth to accelerate.

Ambani has successfully used this tactic again and again throughout his career, each time transforming the game to overcome an obstacle and unlock new growth. A few years later, for example, Ambani expanded into textile manufacturing. Because large Indian families blocked him from the capital he needed to build factories, he did something that was considered a radical maneuver at the time: he tapped the public financial markets by selling 2.8 million shares of his new company for $1.8 million. By issuing a new IPO, he sidestepped financial and manufacturing barriers, and a new manufacturing company was born from nothing. Ambani’s manufacturing company soon dwarfed his original trading business, becoming one of India’s largest textile producers.

Then, Ambani, joined with his sons, did twice more what hadsuccessfully transformed their business before.

Reliance had become India’s largest producer of polyester and other synthetic products. Rather than share margins with the chemical companies that supplied Reliance with considerable raw materials, Ambani and his sons decided to enter the petrochemical business. In the 1990s, they opened a series of plants to produce the key raw materials they needed. Soon, the size of their petrochemical business rivaled Reliance’s core textile business.

In the early 2000s, they realized they could leverage the expertise they had gained from producing chemicals to expand even further. They entered the petroleum business and produced some of the raw materials their petrochemical businesses depended on.

Petroleum refinement had always been a state-run activity; but in the late 1990s, it became clear that the state’s petroleum operations were in trouble. Their reserves were running low, and they were not making the necessary investment in prospecting for new sources of oil. Reliance took advantage of this situation and began positioning itself to create a new oil company.

Reliance Refineries Private Ltd. came into being and built a gas distribution business, assembling a network of 1,000 gas stations. Ironically, the company was returning to its roots. Ambani had started his career in the gas distribution business years earlier as a gas pump attendant. When the Indian government was finally forced to liberalize the oil industry and allow private companies to produce and import oil, Reliance was well placed to take over. It won a large share of the government’s bids to explore new fields, many of which proved unexpectedly large. One, for example, was the largest natural gas field discovered in India in decades.

By creating something out of nothing four times (a textile distributor, a textile manufacturer, a petrochemical producer, and an oil company), Reliance outmaneuvered growth barriers that blocked its peers and transformed itself into India’s largest private-sector company. The company now generates annual revenues of $20 billion, 70 percent of which comes from its oil business, amounting to more than 3 percent of India’s total gross domestic product.

Guerrillas


In 1937, Mao Tse-tung put down on paper his principles of guerrilla warfare in an influential book titled On Guerrilla Warfare. The principles outlined in his book proved powerful. By following them, his movement systematically captured land and power from the Chinese Nationalist government led by Chiang Kai-shek. Over the course of twelve years, the Communists routed the government and took control of the country.

Mao Tse-tung’s guerrilla tactics were successful in part because they added new players to the game while his more orthodox and structured opponent maneuvered players already in the game.

When Mao Tse-tung’s rebels set their targets on a new town, before taking up arms they launched a recruitment effort. Rebel teams walked the countryside to recruit, convert, and train local residents. These residents, in turn, recruited other residents, until eventually the rebels could count on an organized group of supporters.

Later, when the rebel forces launched their actual attack, they did so with a key advantage: a base of support to provide information and supplies. The town’s leadership found itself battling an enemy it never expected. Its own citizens undermined the city’s defense. In effect, Mao Tse-tung’s rebels added a new opponent to the game before they engaged in battle.

Mao Tse-tung flustered his opponents, appearing in unexpected places. Using this principle, he was able to circumvent enemy lines by creating rebels behind them while attacking them. He repeated this pattern—recruit, build support, attack from inside and out— consistently and methodically until he routed the Nationalist government and seized control of the nation.

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