BUSINESS STRATEGY

INTRODUCTION

Larsen & Toubro Limited (L&T) is a technology, engineering, construction and

manufacturing company. It is one of the largest and most respected companies in India's private
sector. Seven decades of a strong, customer-focused approach and the continuous quest for world-
class quality have enabled it to attain and sustain leadership in all its major lines of business. L&T
has an international presence, with a global spread of offices. It continues to grow its overseas
manufacturing footprint, with facilities in China and the Gulf region. The company's businesses
are supported by a wide marketing and distribution network, and have established a reputation for
strong customer support. L&T believes that progress must be achieved in harmony with the
environment. A commitment to community welfare and environmental protection are an
integral part of the corporate vision.

History of Larsen & Turbo

The evolution of L&T into the country's largest engineering and construction organization is
among the most remarkable success stories in Indian industry. L&T was founded in Bombay
(Mumbai) in 1938 by two Danish engineers, Henning Holck-Larsen and Soren Kristian
Toubro. Both of them were strongly committed to developing India's engineering capabilities to
meet the demands of industry. Beginning with the import of machinery from Europe, L&T rapidly
took on engineering and construction assignments of increasing sophistication. Today, the
company sets global engineering benchmarks in terms of scale and complexity.
In 1938, the two friends decided to forgo the comforts of working in Europe,
and started their own operation in India. All they had was a dream and the courage to dare. Their
first office in Mumbai (Bombay) was so small that only one of the partners could use the office at
a time! In the early years, they represented Danish manufacturers of dairy equipment for a modest
retainer. But with the start of the Second World War in 1939, imports were restricted, compelling
them to start a small work-shop to undertake jobs and provide service facilities. Germany's
invasion of Denmark in 1940 stopped supplies of Danish products. This crisis forced the partners
to stand on their own feet and innovate. They started manufacturing dairy equipment indigenously.
These products proved to be a success, and L&T came to be recognised as a reliable fabricator
with high standards. The war-time need to repair and refit ships offered L&T an opportunity, and
led to the formation of a new company, Hilda Ltd., to handle these operations. L&T also started
two repair and fabrication shops - the Company had begun to expand. Again, the sudden
internment of German engineers (because of the War) who were to put up a soda ash plant for the
Tatas, gave L&T a chance to enter the field of installation - an area where their capability became
well respected.
In 1944, ECC was incorporated. Around then, L&T decided to build a portfolio of foreign
collaborations. By 1945, the Company represented British manufacturers of equipment used to
manufacture products such as hydrogenated oils, biscuits, soaps and glass. By 1964, L&T had
widened its capabilities to include some of the best technologies in the world. In the decade that
followed, the company grew rapidly, and by 1973 had become one of the Top-25 Indian
companies. Today, L&T is one of India's biggest and best known industrial organisations with a
reputation for technological excellence, high quality of products and services, and strong customer
orientation. It is also taking steps to grow its international presence.
The L&T vision reflects the collective goal of the company. It was drafted through a large
scale interactive process which engaged employees at every level, worldwide. L&T has a global
presence. A thrust on international business over the years has seen overseas revenues growing
steadily. The company has manufacturing facilities in India, China, Oman and Saudi Arabia. It has
a global supply network with offices in 10 locations worldwide, including Houston, London,
Milan, Shanghai, and Seoul. Customers include global majors in over 30 countries.

Achievements of L&T

 Built India's first indigenous hydrocracker reactor.

 Built the world's largest continuous catalyst regeneration reactor.

 Built the world's biggest fluid catalytic cracking regenerator.

 Built the world's longest product splitter.

 Built Asia's highest viaduct - Panvalnadi for the Konkan Railway.

 Built the world's longest LPG pipeline.

 Built the world‟s longest cross country conveyor.

Key Products of L&T:

Turnkey projects

Hydrocarbon, Power, Cement and allied machineries, Engineering services, Railway projects,
Construction
Construction services, Building products, Infrastructure concessions, Engineering services,
International products

Engineered products and systems

Refinery, Oil and gas, Petrochemicals, Fertiliser, Coal gasification, Aerospace, Thermal
power plant, Nuclear power plant, Defence, Cement
Electrical and electronic product and systems

Switchgears, Electrical solutions, Metering systems and relays, Medical equipment , Control
and automation , Petroleum dispensers and systems , Tooling solutions

IT and engineering services

IT services, Engineering services, Embedded systems.

Machinery valves and industry consumables

Financial services

1. Infrastructure finance
2. Equipment finance

Shipbuilding

Key Competitors of L&T:

 NHAI
 Nagarjuna Construction
 DLF
 Gammon India
 Hindustan Construction

Mission of L&T:

To compete and grow in a globalised business environment, L&T is implementing a strategic

plan (Lakshya) for 2010-15. The plan has been drawn up in consulation with a leading
international strategy consultant. It has set ambitious growth target for each business. Create
long term value for the customers through superior product structuring by capitalizing on our
knowledge pool.

Congruency between Vision, Mission and Core Values:

There is clear accord & harmony among Vision, Mission & Core Values.

1. Core Value: Performance Driven

Vision: Attaining global benchmarks, constantly creating value, meeting
expectations of employees, stakeholder’s and society, total customer
satisfaction, enhancing shareholder value.

Mission: To compete and grow, ambitious target setting for each sector

2. Core value: Innovation & Excellence

Vision: Indian Multinational, professionally managed, Entrepreneurial and
empowered team, L&T-ites shall be innovative, shall foster a culture of
caring, continous learning, high corporate governance standards &
constantaly creating value.

Mission: Included are the opportunity of diversifaction, creat long term value by
setting new standard & through superior product structuring, capitalizing,
on our knowledge pool & consulation with the leading international
strategy consultant

3. Core Value: Integrity

Vision : Enterpreneurial and empowered team, proffessionaly managed and
committed, foster a culture of caring, trust (show uprightness and honesty
as an important part of integrity).
Mission: Capitalizing on our knowledge

4. Core value : Customer Focus & Mutual Respect

Vision: Customer satisfaction, enhancing shareholder value, fostering a culture of
caring, trust, meeting expectation of society, employees and shareholders
Mission: Create long term value for our customer through superior product
structuring, partnering our customer by offering solutions, deep
understanding of Indian sector and full range of financial products.

Vision of L&T:
PESTEL Analysis
1. Political Factors:

(i) SEZ Act to Boost infrastructural Development

SEZ is the new destination for real investor. Currently 150 SEZs are approved out
of 85 SEZs are in the IT/ITES area and the 10-15 SEZs in the electronics area. 130
SEZs are developed by real estate developers which constitute of about 50% of the
total SEZ area. IT SEZ should be developed and made operational within the
period of six months from the date of notification. Thus, 130 approved SEZ would
result in investment of US$ 12bn immediately.

(ii) Cement Prices Reduced for State Infrastructure Projects:

The continued thrust on the infrastructure development will provide impetus to the
healthy growth in demand, protecting the bottom-line of cement companies to an
extent. The reduction in the CST and in Freight rates on diesel and limestone will
be marginally positive for some companies.

(iii) FDI Liberalization to Augment Industry Growth:

Recent amendments by the government have made accessibility to the required
capital much easier. Opening of FDI in construction and allowing developers to
raise capital in international market has led to development of larger projects
benchmarked against international standard.

(iv) REITs(Real Estate investment trusts) to Positively affect real Estate Business
The proposed introduction of REMF(Real Estate Mutual Fund) and REIT will
boost real estate investment from the small investor’s point of view. This will allow
small investors to enter real estate market with the contribution as less than Rs
10,000. The concept of REIT is on the verge of entering India and would be
structured as company dedicated to owing and in most cases operating income
producing real estate such apartments, shopping centre’s, offices & warehouses.

2. ECONOMIC FACTORS:

(i) Growth in Construction Activity Stimulating GDP Growth:

India is witnessing tremendous growth & expansion of construction activities and
construction is largest component of GDP. It has been growing at a rate over 10%
in the past few years when GDP growth is around 8%. Within construction; sector
such as roads, railways, housing and power have been keen drivers.

(ii) Rate Hikes Unlikely to Slow down Growth:

 It has been analysed that the residential prices has been increased by about 15-20%
on average in the last one year. There has been strong growth in demand supported
by rising disposable incomes, low interest rates, and fiscal incentives on both
interest and principal payment and increasing urbanization.

3. SOCIAL FACTORS :

(i) Shifting Consumption Pattern to Fuel industry Growth

The consumption pattern of Indian households is undergoing a gradual, but steady
change. The share of food and beverages, which used to constitute almost 50% of
household spend until 2003 is fall to 45% by FY08. We expect the share of
discretionary items to consistently rise given the rising affordability and changing
aspiration levels. Increased exposure to western lifestyle has altered the
consumption pattern of Indian people.

(ii) Rising Urbanization to Boost Industrial Growth:

Urban infrastructure consist of drinking water, sanitation, sewage systems,
electricity and gas distribution, urban transport, primary health services, and
environmental regulation. Many of these services are in the nature of local public
goods with the benefits from improved urban infrastructure. The urban population
in India will grow by 85 million over the next 10years.

(iii) Green Building in India:

The green building movement has gained tremendous momentum during 3 to 4
years, ever since the Green Business centre embarked on achieving the prestigious
LEED rating for their own centre at Hyderabad. The Platinum rating for green
building has sensitized the stakeholders of construction industry. There is
tremendous potential for construction of green building in India. The estimated
market potential for green building will be about $ 400 million in 2010.

4. TECHNOLOGICAL FACTORS:

(i) Low Technology Adoption to Hinder Growth:

The poor state of technology adopted by the construction sector adversely affects
its performance. Upgrading of technology is required both in the manufacturing of
construction material and in construction activities. As a large number of
construction materials are manufactured in the unorganised sector, effective
monitoring and regulation of the production of these material to ensure proper
quality become difficult. Use of low grade technology in the construction sector
lead to low value addition and low productivity, apart from poor or substandard
quality of construction and time overruns in projects.
 (ii) Construction As Per Indian Requirements:
The construction needs to be done as per Indian standards and requirements which
will demand considerable changes from the international requirements. The
Infrastructure requirements of India are much different as the population spread,
increasing urbanization, increasing slums, the small space for roads, the water
problems are more.

(iii) Ready-Mix-Concrete being Experienced With:

The Ready mix concrete business in India is in its infancy. For example, 70% of
cement produced in a developed country like Japan is used ready mix concrete
business there. Here in India, Ready Mix concrete business uses around 2% of total
cement production. The increasing use of ready mix not only saves time but also
improves quality.

5. ENVIORMENTAL FACTORS:

 Technological solutions helps in integrating the supply chain, hence reduce

losses and increase profitability

 With the entry of global companies into the Indian market, advanced
technologies, are used in engineering & Construction.

 With the development or evolution of infrastructure sector, many of the MNC

enter into Indian market

 Environmental situation affect the infrastructure sector.

 Infrastructure such as roads and bridges affect the many sector such as
automobile sector etc.

LEGAL FACTORS

 Ensure a balanced transition to open trade at minimal risk to the Indian economy and
local industry.

 Indian government infrastructure policy aimed at promoting an integrated, phased and

conductive growth of the Indian infrastructure sector.
  Confirms the government’s intention on harmonizing the regulatory standards with the
rest of the world

 Establish an international hub for engineering & construction companies so that new
technology can be used.

 Legal provisions relating to safety measures

Business Strategy of Larsen & Turbo Ltd.

Strategic Vision:
To stimulate the active learning of rigorous engineering principles and practices within an
environment informed by internationally-leading research this fosters creativity, innovation
and professionalism.

1. Growth Strategies:

In a challenging market environment, an environment characterised by prolonged

downturn in the domestic industrial sector and a recession in the global market, an
engineering company like L&T had to follow some crucial strategies for growth.
General practices would be to reduce costs, go into hibernation and wait till the climate
becomes more conducive. Move in aggressively thereafter. There is certainly no single
sure-fire recipe guaranteeing both survival and growth in a challenging market.
According to Mr P.M. Mehta, Senior Vice-President (Operations), L&T is
concentrating on hi-tech areas, vacating non-remunerative product lines and
focusing on the exports market. The company is currently following a multi-pronged
strategy for beating recession without compromising growth. Three years ago the
company had visualised opportunities shrinking in the traditional sectors, process
plants, power and refineries. It was then that the management really took a decision
to move into the hi-tech sector.
The company, which had a small presence in the defence sector earlier,
started moving in aggressively after the sector was opened up to the private sector.
L&T developed technology for manufacturing critical equipment for process, nuclear
and defence sectors. It is currently looking at entering into joint collaboration with
defence companies in various parts of the world. It is also in talks with leading
aircraft manufacturers in India and abroad for supplying components. Defence
orders are generally spread across four to six years. A submarine, for instance, would
take 12 years for completion.
The defence division could contribute Rs 1,500 to 2,000 crore five
years down the line which would be almost five times the current contribution.
Recently the company signed a joint venture with EADS Defence and Security, for
 defence electronics in India. The €5.7 billion (Rs37, 791 crore) EADS Defence and
Security is a systems solutions provider for armed forces and civil security.

2. Risk Management Strategy:

 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, up gradation 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

3. Future Strategy :

A blueprint for the next phase of growth till 2015, named Vision 2015, at Larsen and
Toubro Ltd is being drafted. The company is planning to focus on segments
traditionally dominated by foreign defence equipment makers and state-owned
companies. Since 2000, L&T has charted two five-year plans to reposition the
company which was heavily into engineering, procurement and construction
segments with a large exposure to commodity businesses, such as cement and ready-
mix concrete, to a more focused value-added engineering company.
The first plan was devised by Boston Consulting Group, a leading global
management consulting firm. It saw L&T divesting its cement business in favour of the
Aditya Birla Group. This was done through a unique arrangement with L&T
employees getting shares of their own company following the divestment. More
recently, L&T divested its ready-mix concrete business in favour of Lafarge SA. The
two five-year plans paid huge dividends to the shareholders of the company including
its employees who hold a 12.7% stake in it through a trust. The market
 capitalization of L&T was Rs15, 507 crore in January 2000. It soared to Rs1.31 trillion
at the height of the bull rally in January 2008.
L&T‟s recent moves such as signing a slew of pacts with
nuclear engineering firms such as Westinghouse of USA, Atomic Energy
Commission of Canada and Russia‟s Atoms troy export for nuclear plants, an
entry into nuclear equipment forging, defence shipbuilding and the latest joint
venture make it clear that L&T is focusing more on its core competencies. Its
power business is also taking shape with 11 new factories making various parts of
power equipment. The highly skilled areas of engineering that L&T is entering are
currently largely serviced by imports. The operating margins are currently at 8-9% and
the new areas it is entering could fetch margins of about 11-12%.
The company also hopes that the nuclear program will be in place once the new
government assumes power. By signing pacts with three companies in the nuclear
energy space, L&T has hedged its risks as a nuclear equipment maker.
It has put in place a nuclear equipment forging shop in Hazira
in Gujarat at an investment of Rs1, 500 crore. This is in addition to a defence
shipbuilding yard near Chennai at a cost of Rs1, 500 crore. As per plan, the company
will create three operating companies to look after defence, aerospace and nuclear
power sectors for effective operations. The three operating companies could happen in
2012-13, provided they had the requisite volumes.

Porter Five Forces Model:

1. Threat of New Entrants:

Low threat of new entrant due to

 Economies of scale
 Labour Intensity
 High Capital Requirement
 Lack of Knowledge and Experience
 Acess to input
 Access to maket

2. Supplier’s Bargaining Power:

High Bargaining power of supplier. Suppliers of construction materials are fragmented
and are extremely critical for this industry since most of the construction work is
outsourced. Proper supply chain management is a costly yet critical need.
 3. Buyer’s Bargaining Power
The Bargaining power of buyer is low/moderate. Buyers in Engineering & construction
sector have less choice due to limited number of players. The market forces haven’t
empowered the buyers to a large extent.

4. Industry Rivalry: The industry rivalry is high. This instinct of the industry is
primarily driven by the technical capabilities acquired over years of gestation under the
technical collaboration with international players and the completion of project on
time.

5. Substitute: There is no perfect substitute to this industry. It will be effected only when
the country is fully developed than the company need to look forward towards the
emerging economies.

SOWT ANALYSIS:
Strengths

 Larsen and Toubro (L&T) is India's largest engineering and construction company.

 It has created international presence by operating supply network offices in 10

locations worldwide, including Houston, London, Milan, Shanghai and Seoul.

 L&T has created a strong brand name by building worlds largest Tubular Reactor for
a petrochemical plant and has also built world's longest Product Splitter and longest
LPG pipeline.

 Larsen and Toubro's order book has reported continuous growth. The company has a
strong pipeline of projects in domestic as well as international markets, which is likely
to ensure a steady revenue growth

Weaknesses

 In spite of having a diversified expertise, the revenues of the company are highly
concentrated
Opportunities

 The company has acquired the switchgear business of TAMCO Corporate Holdings of
Malaysia in April 2008

 With TAMCO the company will be able to offer a comprehensive range of MV

switchgear and become a significant player in the MV segment in India

 L&T has also entered into various joint ventures in the recent past. L&T has joint
venture agreement with Tamil Nadu Industrial Development Corporation Limited,
Mitsubishi Heavy Industries and A.A. Turki Contracting & Trading Corporation
(ATCO) of the Kingdom of Saudi Arabia.

 These joint ventures boost and strengthen the operational efficiency of the company,
as well as provide it with avenues to generate additional revenues and also leverage its
strong presence in order to exploit the growing capital goods and infrastructure
industry

 Growing Indian capital goods and infrastructure industry as the government has
planned a series of measures to encourage private sector participation and increase
spending on infrastructure. Capacities are being ramped up in Railways, Roads, Ports,
Airports and Urban infrastructure to sustain the momentum of double digit growth in
the industrial sector.

Threats

 Larsen & Toubro faces stiff competition in the international market with construction
majors in the Middle East including ABB of Sweden and Bechtel of the US. Stiff
competition could erode the company's market share and reduce its profitability.

 Engineering and construction companies such as Larsen & Toubro (L&T) are facing
pressure on their earnings due to the high interest rates on working capital. L&T's
interest costs increased more than three-fold in the first six months of FY2009, which
would impact its profit before tax (PBT). Rising interest rates would put pressure on
the margins of the company