BY: Anusha Gupta
The success story of one of Indias classiest companies is one which has inspired a Harvard Business School case study. This revolutionary organization is said to be the next big thing in societal betterment after Amul.
Fabindia, started by John Bissell in 1960, is a company which employees a unique business model which helps it achieve the dual goal of social prosperity and earning profits. To achieve this goal John Bissell son, William Bissell developed the model of Community Owned Companies (COCs). He formed the Artisans Micro Finance Private Limited (AMFPL) venture fund, which is a fully owned subsidiary of Fabindia. Through this fund, he set up 16 Supply Region Companies (SRCs) which are owned partly by Fabindia (approximately 49 percent) through AMFPL, and partly by the rural artisans (26 percent), and rest by outside investors. These companies are the main suppliers of Fabindia. Hence 30,000 of the 86,000 artisans indirectly own a part of Fabindia through AMFPL’s holding across the 16 SRCs. Fabindia also provides an internal mechanism to trade in the shares of these companies, thus ensuring liquidity of shares for the artisans
This ownership structure is mutually beneficial for the artisans as well as the company. Fabindia gets assured supplies, while the artisans get a steady income. The value of their shares increase and they earn dividends. Also it becomes easier for them to get loans due to steady employment. These companies are free to sell their products to other companies also, although Fabindia is the main buyer. While this model if beneficial for the artisans, Fabindia earns an 8 percent margin on its sales, which is three times the industrial average.
But now, 50 years after Fabindias inception, Bissell wants to take the ownership structure a step further. By reigning in investors of the likes of PremjiInvest, Bissell is looking at diluting his familys stake in the company to raise funds and merging the COCs with Fabindia. Through this merger, the plan is to integrate the other artisans directly to the company, so their shareholding will earn them profits along with dividends. A few mergers have also taken place between a few COCs to eliminate middlemen, which is testimony to the efficiency of the model. But one such COC, Rangasutra, has opted out of the merger due to doubts about the success. The challenge Bissell faces now is to try and convince the remaining COCs about the benefits of such a merger, and persuading them to join his mission.