Family Case Study Report

KEL249

JOHN WARD

The Harilela Enterprises:
An Indian Family in Hong Kong

As another Harilela Group board meeting approached, the most pressing issue on the agenda
was how to ensure that the successes of the family’s vast holdings in hotels, restaurants,
healthcare, food and beverage, real estate, trading, travel agencies, stock brokerage,
telecommunications, watch manufacturing, and retail stores would continue. Based in Hong
Kong, but with properties and interests all over the world, the family’s businesses had been
owned and run by six Indian brothers for decades. Dr. Hari Harilela, the second oldest, was
chairman of the Hotel Group. Like most of his brothers, he was well past retirement age, having
recently celebrated his eightieth birthday. The time had come to decide if the successful
leadership and ownership model of the past could work for another generation of Harilelas.

History
The Harilelas’ story began in 1922, when Hari’s father, Naroomal Mirchandani, left his

hometown of Hyderabad, Sind (now Pakistan), and set off for China in search of his fortune.
Shortly after his arrival in Canton, Naroomal received news that his mother was very ill. He
rushed back to India and was devastated to learn upon arrival that she had passed away. Even
worse, the family had already cremated her without waiting for him to pay his last respects.
Deeply hurt, he decided to break ties with his family. He eventually renounced the surname
Mirchandani, and created a new surname—Harilela—from a combination of his mother’s name,
Haribai, and his father’s name, Lelaram.

Returning to Canton, Naroomal Harilela established himself as a trader, and opened a small
company, Duru Star, which sold Chinese antiques, jade, amber, embroidered items, and other
curios. After eight years Naroomal was able to send for his wife Devibai and their three children
(George, Hari, and Peter). They arrived as the Great Depression, which began in the United
States, was beginning to spread throughout Asia, devastating trade and commerce. Naroomal’s
business was among those affected.

In 1934 the family moved to Hong Kong to start over. Naroomal and his family lived in a tiny
apartment in Sham Shui Po, Kowloon. Naroomal and the two oldest boys, George and Hari, sold
newspapers and hawked shorts, soap, razor blades, and daily essentials outside the British army
barracks. improved when they were allowed to vend their wares inside the barrack

©2006 by the Kellogg School of Management, Northwestern University. This case was prepared by Elyssa Tran and Bhaskar
Sambamurthy under the supervision of Professor Suren Mansinghka of the Hong Kong University of Science and Technology and
Professor John Ward. We gratefully acknowledge the information provided by the Harilela family and the Harilela Group in the case
preparation. Cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of
primary data, or illustrations of effective or ineffective management. To order copies or request permission to reproduce materials, call
800-545-7685 (or 617-783-7600 outside the United States or Canada) or e-mail [email protected]. No part of this
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HARILELA ENTERPRISES KEL249

grounds. By 1937 the family had saved enough money to open a small silk shop on Prince
Edward Road.

However, this venture soon failed. Naroomal once again returned to hawking at the barracks.
This time, he managed to save enough money to open another shop in Mongkok within a year. To
supplement the family income, Hari worked for an export house, while his brothers George and
Peter worked for retail stores. For a few years, business flourished. The family also grew with the
addition of a fourth brother, Bob, in 1934, a fifth brother, Gary, in 1937, and a sister, Rani, in
1940.

When World War II spread to Hong Kong in 1941, the Harilelas once again lost all they
owned. Like many other Indian families at the time, they fled their home as the Japanese overran
the territory. When civilians were again allowed to move around under Japanese control, a family
friend allowed them to use his shop on Hankow Road. The family earned a modest living, but life
was harsh under the Japanese. Two more siblings were born: a sixth brother, Mohan, in 1945, and
another sister, Sandee, in 1948. These were to be the last additions to this generation of Harilelas,
however: Naroomal was bedridden from a beating by Japanese soldiers and died in May 1948,
soon after the war ended.

The British forces had returned to Hong Kong in 1945, and the Harilela brothers again
hawked supplies to them. George and Hari formed important ties with the British soldiers during
this period, supplying them with fresh eggs and vegetables from farms in the New Territories and
other daily necessities. British troops soon noticed their diligence and honesty, and appointed the
Harilela brothers as the main suppliers for the army. The brothers also carried out other tasks,
such as laundry and stitching uniforms from cloth that the army supplied. At first, they worked
out of their small shop on Hankow Road, but eventually they moved into a larger space (later
developed into the Kowloon Hotel) as business expanded. As more British and Commonwealth
troops arrived in the territory, the Harilela brothers acquired exclusive contracts to make uniforms
for the soldiers. By maintaining high quality standards and providing a wide selection of
materials through imports, they were able to attract a regular flow of customers—not only the
troops but locals and tourists as well. The family quickly became the largest importer of British
textiles in Hong Kong. Toward the end of 1959, when the Kowloon Hotel was scheduled for
demolition, the Harilela brothers moved their store to the Imperial Hotel. The new store covered
an area of more than 10,000 square feet, and was considered top-notch among clothing
establishments in Hong Kong.

As the Americans became involved in the Korean War, and later the Vietnam War, the
Harilelas also received contracts to make uniforms for American troops. Over time, the company
opened sixty-four clothing houses in Guam, Okinawa, the Philippines, and Vietnam, catering to
U.S. Army, Navy, and Air Force personnel in the Asia Pacific region. In addition to uniforms, at
the height of their clothing business the Harilelas made 600 custom suits a day and provided
employment for 900 tailors.

From Tailoring to Hotels

Although the family’s initial wealth was made in custom tailoring, Hari recommended to his
brothers that they diversify into other lines of business. They entered the local retail business and
opened a Best Ladies’ and a Best Men’s retail store. Next, the brothers experimented with the real
estate and hotel business. They bought their first hotel, the Imperial Hotel, in 1960. Hari recalled,

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KEL249 HARILELA ENTERPRISES

“Although my brothers were against me because real estate or other businesses meant very small
profits, I kept on diversifying and I’m glad that I did.”1

T H E H O L I D A Y I N N G O L D E N M I L E 2

In 1965 the Harilelas bought the site for the Holiday Inn Golden Mile at Nathan Road in
Hong Kong for HK$13.7 million3 after intense negotiations with a property broker. Architect
Jackson Wong, who owned the firm Wong Ng, Ouyang & Associates, was hired to draw up plans
for the hotel, which was to have no middle columns in the lobby, three basements, and two large
ballrooms. Structurally, it was to look like the San Francisco Bridge, with a 75-foot span in the
basement, 55-foot span in the lobby, and hanging floors. This was a difficult design, and Hari
spent a long time with Wong drawing up the plans.

Construction finally began in 1967–1968, but was halted almost immediately when riots and
civil commotion broke out. Property prices crashed and tourism was at a standstill. Many people
were fleeing Hong Kong. Most of Hari’s fourteen business partners wanted to sell, and he bought
them out. Progress on the hotel construction was extremely slow. First, when they started to dig,
they realized that additional piling would be needed to shore up the nearby Chungking arcade.
Second, they had to remove stones by hand instead of with dynamite because any kind of
firepower posed danger to the adjacent buildings. Next they were plagued by Typhoon Rose,
which flooded the 70-foot deep, 300-foot-by-100-foot hole that had been dug for the three
basements and two ballrooms. The many delays drove the costs up tremendously, and the family
had to sell a number of properties, including the Imperial Hotel, as well as borrow money in order
to continue construction. By the time the Holiday Inn was finally opened in November 1975, the
original projected cost of HK$45 million had increased first to HK$75 million and finally to
HK$145 million, or HK$100 million more than the original estimate.

Hari also spent considerable time finding a hotel operator. He was initially attracted to the
Sheraton, which had expressed an interest in establishing Hong Kong hotels; several serious
discussions and visits ensued. At the same time, Hari explored other management companies such
as the Hilton, Hyatt, and Holiday Inn to compare costs and prices. He and his wife traveled and
stayed at various hotels throughout the United States, and eventually decided on the Holiday Inn
after a series of meetings with Kemmons Wilson, the founder of the Holiday Inn chain. Hari
decided on Holiday Inn because he and Wilson got along very well, and they developed a strong
relationship based on shared values. Still, Hari realized that the Holiday Inn model had to be
modified to suit Asian conditions. The fundamental difference was that the business in the United
States was a three-star hotel model, whereas Hari planned for a five-star luxury hotel. Moreover,
Hari argued, the general manager of the new hotel had to possess the business mindset for a five-
star hotel as well as sensitivity to Asian cultural values. Convinced by Hari’s arguments, Wilson
agreed to allow Hari to approve the appointment of the hotel’s general manager, contrary to his
normal practice in the United States.

1 Hong Kong General Chamber of Commerce, Member Profile: The Harilela Empire, http://www.chamber.org.hk/info/
member_a_week/harilela.asp (March 2002).
2 From drafts of Dr. Hari Harilela’s personal memoirs, “The Story of Holiday Inn” and “Holiday Inn Golden Mile” sections, March
2002.
3 US$1 = HK$7.8.

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HARILELA ENTERPRISES KEL249

O T H E R H O T E L P R O P E R T I E S

Despite an inauspicious start—their mother Devibai died on the day of the hotel’s grand
opening, so the family was represented at the opening by Hari’s four-year-old son Aron—the
Harilelas’ wholly owned Holiday Inn Golden Mile eventually earned the family its major fortune
as property prices rose again in the 1970s. The brothers were able to buy back the Imperial Hotel
and invest in many properties in the following twenty-five years. They acquired land in Penang,
Malaysia, and opened the Holiday Inn Resort there in 1979. The Grand Stanford InterContinental
in Hong Kong; the Quality Hotel Dorval in Montreal, Canada; and the Holiday Inn Park View in
Singapore commenced operations in 1981, 1983, and 1985, respectively. In the 1990s the
Harilelas acquired and opened several hotels—the Crowne Plaza in Bangkok, Thailand, in 1991;
the Westin Resort and Macau Golf and Country Club in 1993; and the Ambassador Transit Hotel
in Terminals 1 and 2 of the Singapore Changi Airport in 1995 and 1999. Hari also acquired the
Sheraton Belgravia in London in 1997. Operations at the W Hotel in Sydney, Australia, began in
2000 (see Exhibit 1 for details about each property).

The Harilela hotel interests grew from HK$50 million in 1960 to HK$250 million in 1980,
and were valued at HK$3.5 billion in 2000 (see Exhibit 2 for value of the family business).

O T H E R F A M I L Y M E M B E R E N T E R P R I S E S

Over the years, the wholesale and retail tailoring business declined as a result of market
conditions. Contemporaneously the family realized that the hotel business was much more
profitable and therefore decided to slowly exit their ventures in the textile business. While the
Harilela Group focused on hotels, the family members’ personal business interests further
diversified. For instance, the Harilela family also owned or had financial stakes in Thomson
Medical Center in Singapore, two branches of Eastbank NA in New York City, and one branch of
the Bank of Encino in Los Angeles. George, Hari’s older brother, owned and ran a company that
focused on event merchandising, which included manufacturing products such as toys, watches,
and other memorabilia items. He obtained the license for the entire European market for
memorabilia associated with the 1994 World Cup. Bob, the fourth brother, oversaw the
administration of the Group’s overseas offices (particularly India, Pakistan, and the Middle East)
at one point, and ran his own travel agency, among other things. Other brothers conducted
import-export businesses, ran several upscale Indian cuisine restaurants in Hong Kong, pursued
banking interests, and even occupied seats on the stock exchange. Sandee, the younger sister,
edited and published an international magazine, Bharat Ratna (Jewel of India), for overseas
Indians. (Older sister Rani died in 1992.) Overall, however, about 80 to 90 percent of the family’s
wealth was in hotels and real estate (see Exhibit 2).

Group Structure and Management
While Hari was still the spokesperson and the force behind the family, the Harilela Group,

which held the hotel real estate investments, was owned collectively by the family and was
structured in a unique way (see Exhibit 3 for the Group’s organization). Each of the six brothers
was a voting member and had one seat on the company’s board of directors. Hari served as
chairman of the Group. Each brother could name only one member of his family to the board if

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KEL249 HARILELA ENTERPRISES

he wished to be replaced. Hari emphasized this point: “There will always be only six people at the
top. If you let ten or fifteen family members into the business, you cannot control it.”4

However, while each of the brothers had a seat on the board, they did not hold equal interests
in the Group. The shareholding pattern in the flagship Hong Kong Hotel Company gave Hari 56
percent, George 10 percent, and family of deceased Peter, 12 percent. The other brothers Bob,
Gary, and Mike held 6, 9, and 7 percent, respectively. Over the years, Hari had purchased shares
and increased his stake from an original 44.5 percent to 56 percent. He had purchased these
shares primarily from George and Bob, whose stakes were reduced by one-third and one-half,
respectively.

Despite the differential shareholding patterns, each brother had equal voting power on the
board. Directors’ fees and salaries were a different matter; they had no link to the profit-sharing
ratio, but corresponded closely to the cardinal principle of filial rank—the elder brother got more
compared to the next younger, and so on. As each new Group investment opportunity arose,
funds were drawn from each of the brothers’ holdings proportionate to their ownership. And as
profits were earned, they were distributed initially according to the proportions of ownership
shares held by each brother. Hari voluntarily redistributed some of his profit share to the other
brothers in a discretionary arrangement that honored filial rank and family welfare. If one of the
brothers died, as in the case of Peter in 1999, the shares were passed to his wife, rather than
directly to the offspring, and then she decided to whom to pass them on.

The women in the family could own shares, but a majority of them chose not to participate in
or manage the family business. They had primarily focused on maintaining family harmony and
unity, and had limited their direct participation in business matters of their own volition.
However, the Harilela family placed no restriction or constraint on female participation in
business, either at the managerial level or at the board level. For example, Peter’s widow, Jyoti,
sat on the board of a sub-holding company that owned one of the key hotel properties. However,
she chose not to take her seat on the board of the Group in spite of the fact that she represented
Peter’s family branch and was entitled to a seat. Similarly, Hari’s wife Padma sat on the board of
two sub-holding companies. A “handcuff clause” prohibited the sale of shares to an outsider
(anyone not part of the Harilela family).

Although the collective family business focused only on the hotel business, family members
were free to start other, noncompetitive businesses. As the second generation expanded, each of
the brothers could help his children set up a business using the father’s own private funds.
Alternatively, the brother could also take a loan from the Hotel Group. If so, the loan amount
would be deducted from the regular dividends due that brother. In any case, sons and nephews
could only be brought into a managerial position in the Harilela Group by consensus of the board.
For instance, Aron Harilela, Hari’s son, worked in the business and attended board meetings by
consensus, but he did not have a vote (see Exhibit 4 for family tree).

Being a family-owned business enabled the Group to move quickly to take advantage of
opportunities. While the board did have some regularly scheduled meetings, it operated primarily
on an ad hoc basis and met when an issue came up or a decision about prospective investments
had to be made. In general, the board, comprising only family members, decided mainly on hotel-
related strategic investment issues, as well as loans to family members for new ventures.

4 L. Melwani, “Harilelas: The Hotel Kings of Hong Kong,” Elite Magazine, 1995.

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HARILELA ENTERPRISES KEL249

The board operated mainly through consensus. In several instances, when Hari had been
unable to persuade his brothers to invest in a specific property, he used his own money and
invested separately. In fact, Hari had used his veto power as chairman only once. In 1999 the
Group received a HK$4 billion offer for the Harilela flagship property, and several of the brothers
were interested in selling, but George and Hari opposed it. Their primary reason was that they
viewed the Holiday Inn Golden Mile not only as the flagship of the Harilela Group, but also as a
memorial to their mother.

Group Management

Although the brothers were shareholders and directors, they had delegated management of the
Group to professional managers ever since the family first expanded into real estate. This
transparency, Hari believed, was one of the great strengths of the company. It ensured that
qualified and well-trained people were at the helm of everyday functions. The managers oversaw
hotel operations, directed the company’s daily finances, suggested and implemented innovations,
and conducted searches for new investments and for due diligence on those investments. They
brought issues that needed the board’s attention to Hari.

Qualities that Hari sought in employees included a good family background, integrity, and
sincerity. The breakdown of staff figures showed that at the head office in Hong Kong, as well as
at regional offices throughout the world, there were approximately five to ten core employees at
each location. The Group recruited some key managers and sent them to various business units to
strengthen the management of individual hotels. At the junior levels, recruitment was outsourced
to local consultants.

No special status was accorded family members. A new entry had to prove his or her worth
through experience before assuming executive charge. It was common practice for an offspring to
start employment only on a salary basis. Hari’s own son Aron began learning the family business
at age eighteen by working in various departments—room service, kitchen, restaurants, and
housekeeping. When he returned to Hong Kong (after earning a Ph.D. in politics from the
University of Hull in the UK), Aron received further in-house training with the general manager,
the finance department, and head office people before he was put in a position of authority. After
he became executive director, Aron reported to the board and oversaw the individual hotel
properties.

The mix of Indians and non-Indians was approximately 50/50 at the headquarters.
Worldwide, the combined work force at all the hotels that the Harilela Group owned or had a
financial interest in was approximately 2,500–3,000 people in 2002. The Group was not listed on
the stock exchange. Employee compensation included salary, housing, medical benefits, and
tuition for the employees’ children. Bonuses and promotions were also used as incentives to
retain employees. Although it could be viewed as somewhat paternalistic, Hari set up scholarship
funds and other assistance programs to help employees when they or their children were facing
financial difficulties.

Management Philosophy

“People work with me, not for me,” and “Nobody is perfect; everybody is different,” were
two mantras that Hari used in his everyday dealings with employees. He saw mistakes as

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KEL249 HARILELA ENTERPRISES

opportunities for employees to improve performance. Consequently, strong disciplinary actions
were rarely required. M. S. Kalra, a Harilela Group executive, remembered an incident when he
advised Hari to sell a property on Ashley Road only to find that the value of the property
appreciated steeply within a few days of the sale. The Group incurred a loss of HK$20 million on
this deal, but Hari did not lose his faith in Kalra’s judgment—though he frequently reminded
Kalra of this incident in jest. Hari admitted to poor judgment in choosing ventures from time to
time, and believed that failure is an important learning experience for every CEO. As a manager,
Hari was consumed by work. He was a very hands-on executive and personally reviewed every
document. However, he did not like gossip and did not discuss or encourage discussion of
Harilela family matters with employees.

Many Harilela employees had been with the Group for a long time. During the Asian
financial crisis and after the tragedy of September 11, 2001, income from operations for the Hong
Kong hotel industry dropped to 1993–1994 levels. As a token of their support for the Group,
some key staff members took voluntary salary reductions. This helped the Group streamline the
cost structure and ride out a bad financial phase. On average, tenures for nonfamily executives
were at least ten to fifteen years. Of those who left the Group, many became contractors and sub-
contractors to the family’s business interests.

The Harilela Group rewarded loyalty and trust. Kalra and J. V. Raman, for example, had both
been with the Group for more than thirty years. Hari mentored Kalra when he first joined the
Group. Over time, Hari delegated to him more and more responsibility in a wider sphere of
activities. He was treated like a family member and was invited, with his wife, to most family
functions and parties at the Harilela home. Occasionally the Harilela brothers requested Kalra’s
advice on various personal issues, such as a divorce related to one of the children. Kalra was
responsible for renovations, capital investments, bank financing, and strategic hiring of
professionals for the Group. He also represented the owners in dealings with hotel management
companies. He owned a 5 percent stake in the Bangkok hotel, a reward for successfully buying
out the outside partners.

Likewise, J. V. Raman worked his way through the ranks. He started in retail sales in 1969.
Subsequently, he worked closely with Hari on a day-to-day basis, and came to be in charge of
overall administration and private investments. He was also a director for the Macau property and
oversaw investments in India, Canada, and the United States. Being a key executive in the Group,
Raman, along with his spouse, was also invited to family get-togethers and social parties. He
deemed it a privilege to have spent three decades with the Group. His growth in the company was
fast, and he was more than satisfied with the care and professional respect that the family had
accorded him.

Community Service

Hari believed in giving back to the community. To that end, he generously donated both
money and time to a variety of civic and philanthropic causes in Hong Kong. He contributed to
the education sector, providing scholarships for ethnic Chinese in Hong Kong as well as Indians
in India. Hari established his own foundation with a focus on higher education. It was expected to
grow from HK$20 million in 2002 to HK$100 million over the next few years.

He was also active in promoting trade and commerce and served on the board of the Hong
Kong Trade Development Council and the General Committee of the Hong Kong General

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HARILELA ENTERPRISES KEL249

Chamber of Commerce. He supported social and commercial institutions of the Indian
community in Hong Kong. Other distinguished offices included serving a term as president of the
Rotary Club (Kowloon) and district governor of the 3450 Rotary Club in 1965–1966. The Special
Administrative Region (SAR) government appointed Hari as a Hong Kong Affairs Adviser to the
People’s Republic of China, one of only two foreigners appointed to this post. He received an
honorary doctorate of law degree from Pepperdine University in California, and was named
Officer of the Most Excellent Order of the British Empire by the Queen of England. To
acknowledge Hari’s extraordinary service to the Hong Kong community, the government of
Hong Kong awarded him the Gold Bauhinia Star in 2000, the only person of Indian origin to be
thus honored.

Strategy
Hari was a conservative businessman by his own description. He believed that business was

cyclical by nature, and that for every four or five good years, there would be one bad year.

Hari believed that establishing and maintaining sound relationships with friends, colleagues,
and government officials was essential to doing business in Asia. He frowned upon the Western
practice of not trusting anyone unless the agreement was signed. Throughout many points in his
life, he had to rely on connections and borrowed money to start his ventures. In these cases, his
word had been the main collateral, rather than financial assets.

In conducting its business, the Group had shown a marked preference for flexibility in
acquiring hotel properties. For example, with the Holiday Inn projects in Hong Kong, Malaysia
(partly owned), and Singapore, the Group purchased and developed the land, designed and
constructed the building, and subsequently paired up with managing partners while owning the
property. In a departure from this practice, the Group adopted a leasing strategy in the case of the
two Ambassador Hotels at the Changi Airport in Singapore because the properties, located inside
the airport complex, were not available for purchase. In some cases, the Group worked with other
investors to acquire and share the ownership in several hotels, as in the case of the Grand
Stanford InterContinental in Hong Kong and the Westin Resort and Macau Golf and Country
Club. In the case of Le Pavillon at Stamford, Connecticut, the Group had acquired a nursing
home, converted it into a hotel and later into a condominium complex, then divested it for a
profit. The W Hotel in Sydney was originally acquired in a semi-constructed form, and later
developed into a five-star hotel to benefit from favorable market conditions. In the case of the
Quality Hotel at Montreal and the Sheraton Belgravia Hotel in …