GOOD

POINT
Risk Management Strategies – Going Global
GOOD A Corporate
p Perspective
p
POINT

GOOD Larsen & Toubro Limited

POINT

P. S. Banerjee
Vice President – Corporate Accounts
&
23rd September, 2008 Chief Risk Officer
 A great soul saw the future shaping up……

“ It is our ability to
anticipate the future
and
react accordingly
that will determine our
success”
success

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 Evolution …

ƒ Traditionally, exports from India only meant Textiles, Spices & Commodities

ƒ With the onset of the Information Technology boom, came export of

Software Services

ƒ For high-tech heavy engineering equipment & projects :

– The flow was unidirectional :

ƒ From the Industrialised West to the Developing East

ƒ L&T is one Company which has rejigged the compass and reversed the

direction

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 Going Global

ƒ Decision to “Go Global” was born out of the Company’s Risk Management
Strategy

ƒ “Going Global” demanded :

™ We expand our Risk Focus

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 Twin Objective of Globalisation

ƒ Take advantage of the “highs” in a country / region’s economy

ƒ Overcome vagaries of cyclical swings in a particular geographical

segment

ƒ Secure a recognition of the Company’s technological supremacy, its

values, quality standards and enviable track record adhering to stringent

delivery schedules

ƒ Establish L&T Brand overseas

ƒ Build a World-class Leadership Team

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 How globalisation meant de-risking ?

ƒ Dependence on one economy made the Company vulnerable to the “lows”

the economy inevitably went through

ƒ H l d bring
Helped bi in
i a quantum
t improvement
i t in
i operational
ti l culture
lt

ƒ Facilitated bench-marking against the best in the world

ƒ Heightened emphasis on the need for embracing “Contemporary

Technology” and improving “Cost

Technology Cost Competitiveness”
Competitiveness

ƒ Created an organisational transformation

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 L&T’s efforts towards “Going Global”

ƒ Exported high-tech heavy engineering equipment to clients in over 30

countries including USA,
USA Canada,
Canada UK,
UK France,
France Australia & China

ƒ Built a strong presence in the GCC countries through JVs with local
partners

ƒ Executed successfully a number of turnkey projects in the GCC countries,

some parts of Africa and South East Asia in the hydrocarbon upstream,
midstream & down stream,
stream power and cement sectors
sectors, as also civil &
infrastructure sector

ƒ Established state-of-the-art fabrication facilities for modular structures,

jackets and offshore oil and gas platforms at Sohar in Oman

ƒ Setting up a greenfield plant to manufacture equipment for refineries,

petrochemicals and fertiliser projects
projects, & other process industries
industries, at Sohar

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 L&T’s efforts towards “Going Global” … contd.

ƒ Set up switchgear manufacturing facility for power and motor control

systems at Saudi Arabia

ƒ Built Design & Engineering Centres for hydrocarbon and infrastructure

sectors, in the U.A.E.

ƒ Established manufacturing facility for high-end switchgear in Wuxi New

District in the Jiangsu Province of China, with sourcing offices in Shanghai
& Beijing

ƒ Set up manufacturing facility for valves in Jiangsu and another for rubber
processing machinery in Quingdao in China

ƒ Acquired Tamco Corporate Holdings, a Malaysian company engaged in

medium voltage switchgear with manufacturing facilities and market reach
in Malaysia,
Malaysia Indonesia
Indonesia, China and Australia

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 L&T’s efforts towards “Going Global” … contd.

ƒ Providing IT-enabled engineering services to important and demanding

clients like Aramco,
Aramco Qatar Petroleum
Petroleum, etc
etc.

ƒ Formed JVs in Kuwait, Oman, and Saudi Arabia for electro-mechanical

construction in Oil & Gas, Power & Infrastructure sectors

ƒ Forged Joint ventures with MHI for manufacture of Super Critical Boilers,
Turbines & Generators

ƒ Joint Venture formed for onshore pipeline engineering with Gulf Interstate
Engineering Company of USA

ƒ Revenue from international business is presently over 16% of the

Company’s turnover, slated to touch 25% in the next few years

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 L&T’s Risk Management Strategies – Going Global

ƒ Doing business within India remains paramount. Vision is to become an

‘Indian multinational’ not jjust another ‘multinational’.
ƒ Showing a long term commitment to consolidating presence in select
geographies through setting up of offices, entering into alliance with
collaborators developing marketing networks
collaborators, networks, brand promotion and
wherever feasible, setting up manufacturing facility
ƒ Investment made in the Middle East for training of workmen
ƒ Building a motivated and globally benchmarked team of professionals
through providing a fast track career growth, upgradation of compensation
structure, setting up a Project Management Institute, conducting Company-
wide people engagement & leadership development programmes,
international assignments and hiring Expats
ƒ Institutionalised a risk management culture and framework in the Company

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 Risks of Global Business

ƒ Tough competition from internationally established players

ƒ Competitors that do not play by the rules

ƒ Regulation & Compliance

ƒ Currency Fluctuations

ƒ Talent of best calibre to compete internationally and their mobility

ƒ Abrupt changes in regulatory requirement, trade barriers, government

policies
li i & regulations,
l ti restriction
t i ti on repatriation
t i ti off profit,
fit etc
t

ƒ Challenges in strategic M&A deals

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 Risks of Global Business ….. contd

ƒ Stringent documentary discipline & contract mgmt.

ƒ Severe Safety, Health & Environment (SHE) norms in certain Countries

ƒ Complex Tax structure in different Countries

ƒ Logistic Risk
– Coordinating the movement of goods through supply chains that span
the globe

ƒ Infrastructure Risk
– IT resources and other infrastructure elements to support global
engineering, global operations and global logistics

ƒ Backlash against foreign entities

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 Risks of Global Business ….. contd

ƒ Advantages to Local Companies

– Brand image
g
– Tax benefits,
– Reservation / Quotas for local labour force – Bhumiputra. etc

ƒ Geopolitical uncertainty
ƒ Turmoil in Countries like North Africa, Iraq, Afghanistan etc.
ƒ Risk to human life & property
ƒ Risk of expropriation of Assets

ƒ Legal framework
– Lack of a well-developed legal system in some countries may make it
difficult to enforce contractual rights
– Possibility of severe consequential losses if contractual safeguard not
kept

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 Mitigation thro’ a Structured Risk Management Framework

ƒ Emphasis on Enterprise-wide Risk Management

ƒ Formal Risk Management Structure

– Dedicated Risk Management at Top Management level

– Creation of the position of CRO

– Risk Policy formulation for each business cluster

– Country Risk Analysis and case-to-case clearance

ƒ Risk Register

ƒ Tracking of emerging risks

ƒ Scenario Planning

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 Mitigation thro’ a Structured Risk Management Framework
…….. Contd

ƒ Risk Management Discipline

– Risk review at pre-bid stage

– Risk review during project execution

ƒ Use of sophisticated tools like @Risk software

ƒ Risk MIS & Reporting

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 Benchmarking

L&T - A member of Engineering & Construction Risk Institute - USA

¾ International risk management Consulting Institute

¾ Promulgate
g best practices with respect to the identification

About and management of risk in the Engineering & Construction

Industry.
ECRI ¾ Helps
p member companies
p to assess their risk management
g
processes vis-à-vis the Risk Management Maturity Model.

¾ Institutionalize sound risk management to improve the

performance
pe o a ce a and
dppredictability
ed ctab ty in e
execution
ecut o of
o large
a ge cap
capital
ta
projects

Mr.K.Venkataramanan, President Operations, L&T, is the Chairman of ECRI

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 “Th World
“The W ld is
i a global
l b l village.”
ill ”

“Boundaries
Boundaries exist only in minds
that accept them.”

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 Thank You

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