Case Study: Effectuation and Subhash Chandra (Chandra)

Jagannath Goenka (Chandra’s grandfather) had three primary businesses:

1. Buying and selling grains for a fixed commission,
2. Warehousing and
3. Money-lending.

In 1967, Chandra’s family had set up “Adarsh Cotton Ginning and Oil Industries” and due to the
mismanagement of the business by a relative, the family business had to suffer huge losses and
also had a series of reverses in their cotton trading business. Eventually, the company had to
be shut down.

Chandra’s family was not only bankrupt, they also had huge loans that needed to be repaid to
friends and relatives. In 1969, almost 2 years after quitting his education to join his family
business, Chandra met the manager of the FCI (Food Corporation of India). The manager
happened to gain a liking for him and this was a turning point in his professional life.

He was successful in getting a contract for polishing raw pulses and grains from FCI. It required
no investment as Chandra’s family already owned a pulses processing factory. He continued with
this business venture till 1976 and by this time, the family’s financial condition was almost back
on track. Satisfied with his work, the FCI awarded Chandra with a few more contracts. Most of
involved taking whole pulses from FCI and supplying the split pulses to the Army after cleaning
and polishing. In fact, FCI contracts were instrumental in Chandra’s financial turnaround.

In 1976, owing to the green revolution in India, there was a bumper crop; however, FCI lacked
proper infrastructure to store 14 million tonnes of food grains. Chandra proposed to store the
grains in the under polythene sheets. He was awarded the task for procurement, cutting and
welding polythene sheets into tents to store food grains. This was a huge contract for Chandra,
and had favorable margins as well. Gaining considerable experience in plastic packaging working
with FCI, Chandra set up Lamina Packers. Lamina Packers manufactured empty capsules, flexible
tubes and laminates for the pharmaceutical industry. Chandra also bought a hand tool
manufacturing unit at this time.
In 1981, he was awarded an INR 160 M contract to export rice to erstwhile USSR. Chandra
compounded this deal by adding soya beans and other utility grains which took the value of the
contract upwards to a billion rupees. Delighted with the superior customer service from Chandra
and his team, the Russian government renewed his contracts for 5 successive years. During this
time, Chandra’s total value of exports were worth more than INR 5 billion.

Pumped with funds from these exports, Chandra was now looking to invest in new opportunities.
At that time, he noticed that toothpaste was packaged in aluminum tubes in India and soft plastic
tubes were yet to be introduced. In 1982, Chandra bought the technology to manufacture soft
plastic tubes from Germany. He established Essel Packaging to produce the soft plastic tubes for
toothpaste and pharma industries. Many industry experts were of the opinion that India was not
ready for such an innovation and it could turn out to be a loss making venture. Unfazed by their
criticism, Chandra went ahead with his idea and today, Essel Propack is the largest manufacturer
of laminate tubes in the world.

Following the success of Essel Packaging, Chandra was itching for something new. At this time he
purchased 753 acres of land in Gorai, Mumbai. He established Essel World, the Indian version of
amusement parks, in 1989.

Later, inspired by Doordarshan he wanted to launch a private satellite television channel in 1990.
However, he noted that while foreign TV channels could be viewed in India, the law did not
permit Indians to start a TV station. After facing several restrictions and hurdles, from the Indian
government, Chandra decided to take an alternative route to. In December 1990, Hong Kong had
granted a license to a joint venture led by the Chinese government and Li Ka Shing (Hong Kong
business magnate) to launch a satellite to begin a Direct Broadcast Satellite (DBS) service in Asia
called AsiaSat – (Asia Satellite Telecommunications Co. Ltd.).

Chandra approached Li Ka Shing and made him an offer of USD 5 M (almost triple the actual fee
of $1.5 million). His offer was rejected because transponders could be leased to only one Hong
Kong based company named – Satellite Television of Asian Region (STAR). Incidentally, STAR was
owned by the Richard Li (Li Ka Shing’s son). When Chandra approached STAR, they denied the
partnership as well.
But soon the tables turned for Mr Chandra!
STAR had hired an investment banker for the lease of the transponder to the potential Indian
businesses with media credentials. Even after aggressively trying, they couldn’t find a buyer who
was even close to Chandra’s bid, and they were forced to go to him.
To convince them further, Chandra hired a helicopter and took them to Essel World, the
packaging plant and all his other estates. This changed Li’s mind and finally an agreement was
signed. Additionally, to fund the rest of the project, Chandra raised money from Hong Kong based
Sir James Goldsmith and Kerry Packer, three non-resident Indian friends and some other venture
funds.

With the agreement and the requisite funding in place, Chandra’s next was circumventing the
Government of India. The Secretary for Information and Broadcasting, Government of India
brutally shot down his proposal. Now, because he didn’t get any clearance from the Indian Govt,
Chandra changed the name of his Hong Kong based Empire Holdings Ltd to Zee Telefilms
Limited. In 1992, content was provided to Zee TV Hong Kong, which in turn streamed the signals
back to India.

Chandra also hired Karuna Samtani, an ad film-maker and started off initially with only three
hours of programming, which was then increased to six hours. With this they ended the
monopoly of Doordarshan. The programming was very cheap with barely a cost of INR 30,000 an
hour. This formula of cheap programming worked for him and Zee became an instant success.
In less than six months, Zee had become the talk of the town and was now reaching out to almost
12 million homes across the country. Soon, Zee became a 24-hour entertainment channel as well.
Things turned scary when, in 1993, News Corp Chairman Rupert Murdoch bought a 63% stake in
STAR. Initially, he was least bothered about the business from India, but he soon realized that
out of the 20 million homes that STAR reached, 12 million were Zee India, he decided to up his
ante. Chandra began to feel the heat from Murdoch and thought of looking for an alternative to
AsiaSat. However, shortage of funds to invest in another transponder created challenges. With
no option left, he with a heavy heart, eventually bowed down and sold his 49% stake to Murdoch.

The shareholder agreement between the STAR and Zee clearly stated that STAR would
concentrate only on English content, but breaching the terms, STAR had begun streaming Hindi
content as well. This gravely soured the relations between them.

Murdoch began bullying Zee and even offered an unsuccessful bid of $2 Billion as against the
company’s valuation of $500 million, to acquire them. Chandra in turn sued them in London and,
both the companies had to finally settle the case in 1998. Chandra paid $180 million for
Murdoch’s share and thus came the partnership to an end.
Since then, there has been no looking back for Zee or the Essel Group. In more than a decade,
Zee has gone on to become one of India’s most viewed channel and now has a wide presence in
167 countries with a viewership of 500 million.

As a whole, the $4 Billion Essel Group with strength of around 10,000 employees, is now
managed and run by his sons Punit & Amit. Today the group collectively holds a diversified
portfolio of a range of companies segregated in various sectors like media, technology,
entertainment, packaging, infrastructure, precious metals, education, and many other charitable
organizations.

Source:

https://www.yosuccess.com/success-stories/subhash-chandra-essel-group/

Questions:

1. How did Chandra use ‘the bird in hand principle’ while starting up?
2. Did Chandra use the ‘affordable loss’ principle ever while growing the business?
3. How did Chandra go about building a ‘crazy quilt’ while growing his business?
4. What did Chandra do when things didn’t go well with the ‘lemons’ that were thrown at him
5. How did Chandra use ‘pilot in the plane’ principle?

Guidelines:

1. Answer each question in not more than 100 words.

2. Send your solutions in word document to GTI@wfglobal.org
3. Deadline – 28th Sept 18