Tolaram’s diversified strategy for growth in Africa
Sajen Aswani, CEO of the Singapore-based conglomerate, on investing in food, infrastructure, and fintech.
This interview is part of the Inside the Mind of the CEO series, which explores a wide range of critical decisions faced by chief executives around the world.
When Sajen Aswani joined Tolaram Group in 1984 after graduating from university in London, the company was at the start of a major transition. Aswani’s grandfather founded Tolaram in 1948 as a textile retail shop in Indonesia, where he had moved from colonial India (in what is present-day Pakistan). By the 1980s, the family had built Tolaram into an international textile and consumer goods trading company, and were expanding into manufacturing. Aswani, now 61, had an upbringing and career that personifies the globalized nature of the company. He was raised in Indonesia and Malaysia, and after a brief stint at headquarters in Singapore, moved to Nigeria, where the business was growing fast. He would stay in Africa for 15 years, until his appointment as CEO in 2000.
Today, Tolaram—which does about US$1.2 billion in annual revenues and employs 16,000 people across 15 countries—is one of Africa’s biggest and most successful food companies, largely on the back of instant noodles. The company’s Indomie brand of noodles has arguably become one of Nigeria’s national dishes; its 70-naira (less than 20 cents) packets are eaten frequently by the country’s 200 million people and referenced in the lyrics of Nigerian rap stars. The company also has a large global presence. Its core consumer goods business reaches shoppers in nearly 80 countries, selling products such as paper goods, home and personal care products, and packaged food. Tolaram is also now making a big move into digital banking and infrastructure, building what will become the largest port in West Africa, off the coast of Lagos.
Aswani recently sat down with strategy+business over Zoom from his office in Singapore to discuss Tolaram’s approach to growth in emerging markets, which is focused on affordability, accessibility, and availability; the impact of the coronavirus pandemic; and what’s next for the business’s diversified portfolio.
S+B: You spent your first ten years with Tolaram in Nigeria, the company’s main market. What was it like doing business in the 1980s?
ASWANI: It was a boom time, but there was also a significant foreign exchange crisis early in the 1980s. That forced us to reconsider our business model. Suddenly, we realized that getting hard currency was a critical factor in doing business in Nigeria. We also realized very quickly that it was less risky to raise capital in Nigeria than to raise it outside, because foreign bankers were averse to supporting an endeavor in Nigeria for fear of a foreign exchange default.
Moreover, we had been a trading company up to that point, but we started to manufacture in Nigeria. In so doing, we were able to control our currency risk because we started to source raw materials instead of bringing in finished goods from overseas—which also enabled us to add more value in Nigeria.
S+B: The textile industry in Nigeria started to crumble toward the end of the 1980s, and Tolaram shifted into food.
ASWANI: We had this basic idea that food, shelter, and clothing were going to be perennially in demand, and that they were going to be things that people in large countries like Indonesia and Nigeria were always going to need. We had a textile business and some operations in construction and building materials, but it was the food business that really gave us reason to be optimistic—and it grew very well.
S+B: What was the strategy behind the growth of instant noodles? You essentially created the category in a country with no history of eating them, and it’s become something of a national dish.
ASWANI: Our largest instant noodle brand, Indomie, is a joint venture among Tolaram, Kellogg Company, and Salim Group. In total, the instant noodle business represents about a quarter of our gross revenue, and we sell more than 300,000 tons of noodles each year in Africa across several different brands, such as Indomie and Kellogg Noodles.
The instant noodle category really grew only after we started manufacturing it in Nigeria. I would say we had competitive advantage for a couple of reasons. We had a strategy and a plan, but there were many uncontrollable elements that worked in our favor. For one, the local population took to the noodles. It was not something that we had predicted. The taste preferences of Nigeria matched those of Indonesia. There was some luck involved.
We also found that we could manufacture instant noodles very competitively in Nigeria even if we had to import the raw materials. This localization is important from a consumer point of view: our consumers take great pride in knowing that our instant noodles are manufactured in Nigeria. It’s also important from a supply chain point of view, to the extent that we can control our destiny and not rely on supply chains that are long and hard to navigate.
We use a principle called the three As: make sure the product is affordable, make sure the product is acceptable [to the local population], and make sure the product is available. Whatever it takes to get these three As right is the kind of work that we do behind the scenes.
S+B: Affordability has become even more important in markets that were hit hard economically by the pandemic. How has this affected your business?
ASWANI: In the economies that we operate in, it’s always been kind of laissez-faire. There has never been a dependence on government to turn things around. I think that the businesses in these countries have pretty much relied on themselves and their own capabilities to make their businesses work.
We use a principle called the three As: make sure the product is affordable, make sure the product is acceptable [to the local population], and make sure the product is available.”
As a result, we have had to suffer some significant reductions in our margins during the pandemic. We essentially tried to keep the factories running at full capacity without worrying about profitability. Moreover, we saw that the cost of production and the cost of materials ran up quite high, but we couldn’t translate that into higher prices because there was no economic growth and our customers found themselves without disposable income growth.
We kept the prices, to the extent that we could, low. We took a reduction in margins knowing that keeping our customers and our employees was crucial to us in the long run. We kept going without worrying too much about the bottom line because our brand equity was paramount.
S+B: Tolaram has shifted into and out of various industries over time—you recently divested your energy business. How do you decide which businesses to enter?
ASWANI: We’re exploring new opportunities right now. But the pandemic forced us to pause. We have significant investment decisions that we have kept on hold right now because we’d like to see how things materialize. We’d like to go in and talk and meet the stakeholders and people that are going to make our investments work, to see how we can roll it out.
In terms of overall strategy, we are largely focused on emerging markets, so we have to tailor investments to ensure that they appeal to the widest demographic. Scale is key because incomes are low, so we have to try to ensure that whatever we do or produce has the ability to meet the needs of as many people as possible, for as long as possible.
We also need to make sure we can source the raw materials—ideally, locally—and that we can manufacture at a competitive price; that people have the skills to be able to produce the kind of products that we want to make; and that we have our distribution worked out. The latter is one of the most difficult parts of doing business in emerging markets. We’ve found that we have been able to tick all these boxes with the consumer goods businesses we’ve entered into.
S+B: One industry you’re getting more involved with is infrastructure. Tolaram is building a massive, $1 billion deep-sea port off the coast of Lagos, in which it owns a 22.5% share. Did the distribution challenges you just mentioned prompt that decision?
ASWANI: Port infrastructure is a significant bottleneck for trade into and out of Nigeria. And our general business philosophy has been that to the extent that you can be self-reliant, you have to be. For example, as we’ve discussed, our manufacturing philosophy has always been about backward integration, so that we can reduce our dependence on external forces and be able to control our own destiny.
We also learned very quickly that we had to be the ones to sort out the logistics side of our business, which means that we had to put in our own trucks, our own haulage systems, and now, even our own port. But investing in this port is not just for us—the bottleneck at the ports was becoming increasingly hard to get around for every business importing into or exporting out of Nigeria.
S+B: This is not just a big investment, there’s also pressure because it is a major project for Nigeria.
ASWANI: We really felt that we ought to make some significant investments to give back to Nigeria. We’ve been in Nigeria for more than 30 years now, and it was clear to us that if we were going to keep our businesses growing, we needed to be fully committed to the country. And it was also a way of repaying the faith that Nigeria had in us, how good Nigeria had been to us as a family business.
This project has involved getting a variety of stakeholders—state government, federal government, the port operator, the port builders, the Chinese financiers, and the licensing agencies—to operate on the same wavelength. It took ten years to get them all contractually bound to a single vision for this port, but now we’re all on the same page.
The key is trust. Given our resilience and our determination to do this project, the other stakeholders came to understand that we have the best intentions for the country—that this was not just a for-profit project, but something way beyond that.
S+B: Tolaram has also made several technology investments in recent years. How far along is the company in its digital transformation?
ASWANI: We’re in the early years of our digital journey. We’ve made two digital investments: a digital marketplace for Nigeria that didn’t succeed, and a successful fintech venture in Indonesia. For the latter, we created an award-winning microloans platform that operates under Amar Bank, Indonesia’s first pure-play digital bank, which we run. We have also invested in a consumer lending platform in Brazil and have plans to roll out a fintech offering starting in Nigeria.
Despite the outcome of our initial investment in Nigeria, we still think that Africa is ripe for this type of transformation—lending people money through digital platforms, getting people to do financial transactions on mobile, and beyond that, the payments [ecosystem]. Similar to how mobile leapfrogged landlines in Nigeria, we think that fintech will be quite disruptive as an innovation for the traditional banking sectors. And it will be a very strong enabler for the African consumer.
It will also benefit our distributors. We have several thousand distributors in Nigeria for our products. We need a way to communicate with them, to ensure we can deliver goods to them on time, and to help them access financing. The best way to do all of this is digitally; it will empower them and help them grow.
S+B: Given how diverse your portfolio is, how do you think about sustainability from an enterprise perspective?
ASWANI: We have always thought of sustainability as business continuity—as a way of making sure that we could keep our operations going, and the businesses going, and employment intact. Sustainability is also very important on the social side and the governance side. We have always tried to run our business ethically and have always tried to give back to the communities in which we operate.
In 2020, the Ishk Tolaram Foundation, which is a 25% beneficiary of the trust that owns the business, touched the lives of 23,000 people across our markets. The significant shareholder, my uncle, decided to bequeath his portion of the business to the foundation so that subsequent generations would consider philanthropy as an important objective. We believe that business has to serve society in some form or another. It has to have that purpose. It’s incumbent on businesses to think about economic development in the societies in which we operate.
S+B: How is your company confronting climate change and environmental damage?
ASWANI: On the environmental side, we’re not yet where we need to be. In some places, like Estonia, where we have a paper business, we are far ahead of the game and outperform the targets set by the EU 2020 climate and energy package. We have reduced our greenhouse gas emissions by 80%, versus the 20% target. More than 80% of energy utilized in the [paper] mill is produced from renewable sources. But in places like Nigeria, while there are various environmental initiatives already in place, we are not yet where we need to be. Right now, we are in the process of measuring how we do things to try and figure out where are we now, and how can we improve. What should we be thinking about that we haven’t been thinking about?
Within the entities where we use a lot of energy, we are trying to move away from fossil fuels. We’re trying to move to less harmful fuels, like natural gas. And where we can, we are starting to think about solar, and we have made some investments in solar as well. For example, our solar installation in northern Kaduna state [in Nigeria] supports our instant noodle plant there. This is critical, because I don’t think that the consumers of the future will look at our businesses the same way unless we act very responsibly.
My children’s generation have become very aware of the natural resources that we have and the damage that has been caused to the environment. They’ve grown up with a different consciousness than previous generations. They are the consumers of the future, and we have to recognize that they are far more demanding than we were.
S+B: Tolaram’s asset management group has rolled out several ESG funds. What role do you see ESG playing in enterprise value creation going forward?
ASWANI: Although we recently formalized it with our ESG investment strategy, the reality is that Tolaram has always been a sustainability-oriented company. My grandfather didn’t call it sustainability, but he was a very responsible entrepreneur, as was his son, as is my generation. It’s in the DNA of the company. We always talked about doing the right thing, doing it in a way that would have a longer time horizon. We never took positions that had short-term benefits at the expense of the long-term well-being of the business. As an example, we strongly believe in investors’ collective influence in driving companies to transition to a low-carbon economy, and we are a part of investor initiatives like Climate Action 100+ and the Asia Investor Group on Climate Change.
S+B: Has the pandemic affected the way you think about your organization’s purpose?
AWSANI: I wouldn’t say it’s a fundamental shift, but the pandemic did make us think more about food security. I don’t think that we can rely on an import model anymore. We source as much of our products locally as possible, but it has traditionally not been possible to get everything domestically. The pandemic has changed our thinking a bit around that. The food products that we make all have agriculture as the base, so we have started to make investments in agriculture. For example, we’ve started developing a palm plantation and a chili production farm. We think that these are going to be important investments to support sustainable food production.
S+B: Tolaram is a family business, but it is also a big conglomerate. What are the advantages of and the challenges to running a big family business?
ASWANI: Every business, as it grows through the generations, the number of people in these family businesses grows as well—because there were two people and then the two people became nine and the nine became 18, and the 18 have become 25 members, and so on. The complexity grows with the numbers, and that’s a key challenge that you have to manage. But the advantage is that we have many more people to deploy in different parts of the world.
- Adedoyin Amosun specializes in business restructuring, process and supply chain optimization, finance, performance improvement, and operational efficiency. Based in Lagos, she is an associate director with PwC Nigeria.
- Laura W. Geller is a senior editor of strategy+business.