GOOD POINT. Risk Management Strategies Going Global A Corporate Perspective GOOD POINT GOOD POINT. Larsen & Toubro Limited

Transcription

1 GOOD POINT GOOD POINT GOOD POINT Risk Management Strategies Going Global A Corporate Perspective Larsen & Toubro Limited 23 rd September, 2008 P. S. Banerjee Vice President Corporate Accounts & Chief Risk Officer

2 A great soul saw the future shaping up It is our ability to anticipate the future and react accordingly that will determine our success

3 Evolution Traditionally, exports from India only meant Textiles, Spices & Commodities With the onset of the Information Technology boom, came export of Software Services For high-tech heavy engineering equipment & projects : The flow was unidirectional : From the Industrialised West to the Developing East L&T is one Company which has rejigged the compass and reversed the direction

4 Going Global Decision to Go Global was born out of the Company s Risk Management Strategy Going Global demanded : We expand our Risk Focus

5 Twin Objective of Globalisation Take advantage of the highs in a country / region s economy Overcome vagaries of cyclical swings in a particular geographical segment Secure a recognition of the Company s technological supremacy, its values, quality standards and enviable track record adhering to stringent delivery schedules Establish L&T Brand overseas Build a World-class Leadership Team

6 How globalisation meant de-risking? Dependence on one economy made the Company vulnerable to the lows the economy inevitably went through Helped bring in a quantum improvement in operational culture Facilitated bench-marking against the best in the world Heightened emphasis on the need for embracing Contemporary Technology and improving Cost Competitiveness Created an organisational transformation

7 L&T s efforts towards Going Global Exported high-tech heavy engineering equipment to clients in over 30 countries including USA, Canada, UK, France, Australia & China Built a strong presence in the GCC countries through JVs with local partners 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, power and cement sectors, as also civil & infrastructure sector Established state-of-the-art fabrication facilities for modular structures, jackets and offshore oil and gas platforms at Sohar in Oman Setting up a greenfield plant to manufacture equipment for refineries, petrochemicals and fertiliser projects, & other process industries, at Sohar

8 L&T s efforts towards Going Global contd. Set up switchgear manufacturing facility for power and motor control systems at Saudi Arabia Built Design & Engineering Centres for hydrocarbon and infrastructure sectors, in the U.A.E. Established manufacturing facility for high-end switchgear in Wuxi New District in the Jiangsu Province of China, with sourcing offices in Shanghai & Beijing Set up manufacturing facility for valves in Jiangsu and another for rubber processing machinery in Quingdao in China Acquired Tamco Corporate Holdings, a Malaysian company engaged in medium voltage switchgear with manufacturing facilities and market reach in Malaysia, Indonesia, China and Australia

9 L&T s efforts towards Going Global contd. Providing IT-enabled engineering services to important and demanding clients like Aramco, Qatar Petroleum, etc. Formed JVs in Kuwait, Oman, and Saudi Arabia for electro-mechanical construction in Oil & Gas, Power & Infrastructure sectors Forged Joint ventures with MHI for manufacture of Super Critical Boilers, Turbines & Generators Joint Venture formed for onshore pipeline engineering with Gulf Interstate Engineering Company of USA Revenue from international business is presently over 16% of the Company s turnover, slated to touch 25% in the next few years

10 L&T s Risk Management Strategies Going Global Doing business within India remains paramount. Vision is to become an Indian multinational not just another multinational. Showing a long term commitment to consolidating presence in select geographies through setting up of offices, entering into alliance with collaborators, developing marketing networks, brand promotion and wherever feasible, setting up manufacturing facility Investment made in the Middle East for training of workmen 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 Companywide people engagement & leadership development programmes, international assignments and hiring Expats Institutionalised a risk management culture and framework in the Company

11 Risks of Global Business Tough competition from internationally established players Competitors that do not play by the rules Regulation & Compliance Currency Fluctuations Talent of best calibre to compete internationally and their mobility Abrupt changes in regulatory requirement, trade barriers, government policies i & regulations, restriction ti on repatriation ti of profit, etc Challenges in strategic M&A deals

12 Risks of Global Business.. contd Stringent documentary discipline & contract mgmt. Severe Safety, Health & Environment (SHE) norms in certain Countries Complex Tax structure in different Countries Logistic Risk Coordinating the movement of goods through supply chains that span the globe Infrastructure Risk IT resources and other infrastructure elements to support global engineering, global operations and global logistics Backlash against foreign entities

13 Risks of Global Business.. contd Advantages to Local Companies Brand image Tax benefits, Reservation / Quotas for local labour force Bhumiputra. etc Geopolitical uncertainty Turmoil in Countries like North Africa, Iraq, Afghanistan etc. Risk to human life & property Risk of expropriation of Assets 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

14 Mitigation thro a Structured Risk Management Framework Emphasis on Enterprise-wide Risk Management 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 Risk Register Tracking of emerging risks Scenario Planning

15 Mitigation thro a Structured Risk Management Framework.. Contd Risk Management Discipline Risk review at pre-bid stage Risk review during project execution Use of sophisticated tools software Risk MIS & Reporting

16 Benchmarking L&T - A member of Engineering & Construction Risk Institute - USA International risk management Consulting Institute Promulgate best practices with respect to the identification About ECRI p p g and management of risk in the Engineering & Construction Industry. Helps member companies to assess their risk management processes vis-à-vis the Risk Management Maturity Model. Institutionalize sound risk management to improve the performance and predictability ty in execution ecut of large capital projects Mr.K.Venkataramanan, President Operations, L&T, is the Chairman of ECRI

17 The World is a global l village. Boundaries exist only in minds that accept them.

18 Thank You