When India’s economy opened up to global competition in the early 1990s, the Godrej Group, a consumer products conglomerate, found itself in a quandary. Although the family-owned group of firms is more than a century old — chairman Adi Godrej describes it as “109 years young” — it had hardly been exposed to competition or cutting-edge technology. To make up for lost time, Godrej entered into two alliances: One was with Procter & Gamble in the soaps business; the other was with General Electric in appliances. “We felt this was a great opportunity when two great companies offered to partner with us,” says Godrej.
As it turned out, both alliances had to be restructured because of strategic reasons. “In P&G’s case, the company decided that soaps would not be a focus area for them worldwide. They suggested we restructure the joint venture and we happily did.” GE, for its part, had a policy that unless the company was No. 1 or 2 in an industry, it would leave the business. According to Godrej, “While our joint venture was No. 1 in India, when they looked at Asia they were nowhere near No. 1 or 2 because the Japanese and Korean companies were much bigger. Again, they wanted to get out, so we bought out their share.”
Godrej discussed these issues and more with India Knowledge at Wharton during the Wharton India Economic Forum in Philadelphia last month. He also explained why the Godrej Group focuses on economic value added, or EVA, as a major financial metric. “We think it is an excellent way to align employee value creation with shareholder value creation. It has worked very well for us.”
