SINGAPORE (Oct 16): Mohan Vaswani did not speak to his father for eight years. During World War II, phone communication was barely possible. And while Vaswani, his mother and his siblings were living in Sindh, India, his father was trying to make a living in Indonesia.
When Vaswani’s father came back for the family, they had to leave India in a hurry. The country was witnessing large-scale violence due to the partitioning of British India into India and Pakistan. They left most of their belongings behind, expecting to pick up their life in Indonesia — where Vaswani’s father had a shop and a house. That was not to be. “When he came to pick us up, he left the [business] with someone [he knew] and the person sold it surreptitiously. He gave us [the equivalent] of US$1,000,” Vaswani says.
With hardly anything to their name, the Vaswanis took to selling fabrics in a shop they shared with others. In 1948, as business improved, they started a small textiles shop called Toko Vaswani in Malang, Indonesia.
Today, that single textiles shop has grown into a US$1 billion ($1.35 billion) business empire called the Tolaram Group. The company is named after Vaswani’s grandfather, Seth Tolaram, a physician in Sindh with a reputation of caring for the poor and sickly. Tolaram does business in over 75 countries and has a portfolio of over a dozen brands. It is also this year’s winner of the EY-Standard Chartered Family Business Award of Excellence, which honours exceptional family businesses. The honorary award is presented on board the EY Entrepreneur Of The Year platform.
Life in Africa
Over the years, Tolaram has expanded opportunistically. In the 1970s, as the Indonesian economy improved, the group started manufacturing textile products. When Singapore’s manufacturing sector began to pick up, Tolaram relocated its headquarters here. By the 1980s, the business had grown to encompass real estate, consumer goods, fibre manufacturing in the US and polymers manufacturing in the UK. Tolaram also owns a retail bank called Amar Bank and a data analytics firm called Tunaiku, both in Indonesia.
However, Vaswani says the company’s big break came when it decided to venture into Nigeria in the mid-1970s. At the time, the country had a bad reputation for poor infrastructure and a disastrous economy, and 78% of its population lived below the poverty line. “But that perception was not true,” says Vaswani. “When we went to Nigeria, its GDP was four times that of Indonesia.”
More importantly, there were very few competitors in Nigeria. This was unlike Asia, which had become a very competitive market. “The government was very welcoming to foreigners; they actively sought out foreign investment and did their best to accommodate businesses,” he says. The Nigerian authorities offered up to seven years of tax breaks, which was a boon for manufacturers like Tolaram.
“We started assembling electronics in Nigeria because the duty on [raw materials] was 5% while the duty for finished products was much higher,” Vaswani explains. Then, he saw that textiles were in demand for Africa. So, the group started making yarn. “There was no yarn maker and you need yarn to make textiles,” he says.
Vaswani concedes that Tolaram’s time in Nigeria has not always been easy. Political unrest and economic chaos have been commonplace. In the 1980s, there was a shortage of foreign currencies and the central bank could not pay remittances. So, they issued promissory notes that could only be redeemed after 25 years. “That was a big disaster for us,” Vaswani says. “We had to pay our [invoices and bank finances] on time while holding on to promissory notes of US$120 million.”
Also, not all of the group’s businesses in Nigeria stood the test of time. Tolaram stopped manufacturing electronics as the duty structure changed. Meanwhile, its yarn business was hit by an influx of smuggled goods.
But Tolaram’s consumer goods business thrived. In the 1990s, the group decided to import two containers of Indomie noodles from Indonesia to Nigeria. After six months, barely half the goods had been sold. So, they gave the noodles to anyone who would take them. Within months, people started asking for more.
Eventually, Tolaram found itself importing about 20 containers of Indomie noodles a month from Indonesia. It made sense to start manufacturing them in Nigeria. “We were able to drive down costs by investing in backward integration, including sourcing raw materials and manufacturing locally,” Vaswani says. “We also changed the packaging of the noodles to a cheaper alternative.” The noodles cost roughly 18 US cents a packet, and Tolaram sells more than 2.5 billion packets a year.
Today, the business is parked under a joint venture with Indonesia’s Salim Group. Called Dufil Prima Foods, the company has a 70% market share in Nigeria. Dufil has expanded into the manufacture of other consumer goods, including pasta, cooking oil and snacks, mainly catering to the working poor. Tolaram recently teamed up with cornflakes maker Kellogg and Denmark-based dairy company Arla to import and manufacture food products in Africa. “We were also able to dominate the market share by reducing the size of the [package] sold, thereby reducing the unit cost and making it more attractive to purchase,” Vaswani says.
Tolaram has added logistics services, retail stores, hygiene products and an e-commerce platform to support its consumer goods business. It also has a US$1.5 billion deep-sea port project in Nigeria. When completed, the port will be the first privately built port in Nigeria and the biggest in the country. About 70% of Tolaram’s revenue comes from Africa.
Building hubs in Africa
For Vaswani, the group is still at the start of its journey. He has plans to replicate what Tolaram has in Nigeria across the African continent. “Our sense is that a lot of manufacturing will move towards Africa as the continent continues to grow, making it an important area for businesses to venture into,” he says. “Our [focus] is on fast-moving consumer goods and digital services, with a minor focus on infrastructural projects and energy. These are areas with great potential in the region.”
Africa remains a fairly untapped market for local companies. Trade between Singapore and Africa has grown a sedate 5.2% a year from 2005 to $11.5 billion in 2015. There are more than 50 Singapore firms with operations in the continent.
But Africa is looking increasingly attractive as it goes through a population boom. Its population is expected to double to two billion by 2050 and four billion by the end of the century. About 70% of the population are youth, making the country a rich source of labour.
Nigeria, Ghana and Uganda are among the economies that are likely to experience strong growth in the coming years. Nigerian President Muhammadu Buhari has introduced a series of reforms to aid private companies like Tolaram. Ghana, the second- largest cocoa producer in the world, is making a comeback. Its GDP rose 9% in the three months to June. The International Monetary Fund estimates that the Ugandan economy will grow 5.5% in the 12 months to June 2018, compared with 4.8% the year before.
Companies that want to tap this growth will need to take their time, though. “You need to look at Africa as a long-term stay,” Vaswani says. While he has hosted plenty of Asian business delegations in Africa, he says many are not prepared for the long haul in the faraway land. “They are not looking for long-term [commitments]. For any big market, you cannot compete effectively if all you want to do is import goods. For Singapore, you can do it because you are a small market. [You cannot do that in a big market.] You need to have a manufacturing base.”
Tolaram’s strategy is to have six to eight manufacturing hubs across Africa in areas with large populations. The group currently has 16 factories across Africa. It recently opened a plant in Ghana. Vaswani estimates that each hub will need an initial investment of US$20 million to US$30 million.
“If you manufacture [overseas], it is not expensive,” he says, “[But importing is expensive]. A container of goods may be worth US$20,000. If you ship one container, the cost is US$4,000. Already, 20% [of revenue] goes to freight cost. Then, you have to pay government duties and clear the cargo, which will take up another 40% of [revenue].” Tolaram’s food business has a profit margin of 15%.
While there are more foreign firms now in Africa than when Tolaram first started, Vaswani says the competition is still far less stiff than it is in Asia. In the consumer goods market, Tolaram’s main competitors are imported goods. These are generally more expensive than Tolaram’s locally produced ones.
As the African population grows, the demand for infrastructure and energy will grow. And the public sector may not be able to support the demand. For instance, Nigeria generates only 6,000MW for a population of 200 million. Singapore produces twice the amount of energy for a population of under six million.
The group wants to grow its power arm MBH Power in Africa, which currently accounts for 5% of the group’s revenue. MBH builds power plants that generate electricity using gas rather than coal or oil. It has projects in Ghana, Tanzania and Nigeria.
“Our power business has been successful in Africa because we have been able to execute projects in difficult terrains, where others may have failed. MBH has taken over projects that were abandoned by other companies in the past,” says Vaswani. Tolaram is planning to produce another 700MW of power in Nigeria.
Sustaining the legacy
Sumitra Aswani is Vaswani’s grandniece, the fourth generation in the family business. She has never met the founder of the business or Seth, but the story of the family’s beginning has been a familiar one since childhood.
“We were made aware [from a very young age] that this business was very central to the success of us as a family. This was where all our opportunities came from. You need to know where you came from in order to know where you are going,” she says. The Cambridge graduate left the medical profession to join the family business earlier this year.
Over the years, as more family members like Aswani came into the fold, Vaswani felt it was necessary to formalise the family business structure. In 2015, Tolaram was restructured into a trust. Seven family members, including Vaswani, are now trustees. They are not allowed to sell their shares. Hardly any family member is involved in the dayto- day operations of Tolaram. The business is run by professionals, although major decisions are still made by the family.
“We are bigger as a family [than before],” says Aswani. “The fourth generation is also more comfortable [than the previous generations]. We are wealth inheritors. So, if we want to preserve [the spirit of what we have] and to ensure the business lasts longer, we need some structure to immortalise that.”
The Vaswanis have set up a family office to encourage the younger generation to be entrepreneurs. “In an age of disruption, we are looking more to invest in companies engaged in technology and digital services,” says Vaswani.
Every year, family members come together for a general assembly to get business updates. “This is how you can create sustainability,” says Aswani. “The more you get them interested, the more likely they are to start ventures or get involved in other ways.”
Besides the seven family members, the Tolaram trust has an eighth trustee: a newly set up philanthropy arm called Ishk Tolaram Foundation. It is headed by Aswani and has a 25% stake in the trust. Founded in late 2016, the foundation funds and runs programmes to support healthcare, education and employment initiatives in Nigeria and Indonesia. The foundation is also looking at investing in impact ventures.
“From a historical point of view, we were a displaced family,” Aswani says. “We had to go after what we wanted and create success out of any opportunity that came along [because our livelihoods depended on it].” Through the foundation, Tolaram hopes to encourage the spirit that gave the family the success it has today.