risk management global is at ion
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GOOD
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Risk Management Strategies Going GlobalA Cor orate Pers ective
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Larsen & Toubro Limited
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P. S. BanerjeeP. S. BanerjeeVice PresidentVice President Corporate AccountsCorporate Accounts
&&Chief Risk OfficerChief Risk Officer
23rd September, 2008
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A great soul saw the future shaping up
It is our ability to
anticipate the futureanticipate the future
and
react accordinglyreact accordinglythat will determine our
successsuccess
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G L O B A L S O U R C I N G
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Evolution
Traditionally, exports from India only meant Textiles, Spices & Commodities
With the onset of the Information Technology boom, came export of
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
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Going Global
Decision to Go Global was born out of the Companys Risk ManagementStrategy
Going Global demanded :
We expand our Risk Focus
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How globalisation meant de-risking ?
Dependence on one economy made the Company vulnerable to the lows
the economy inevitably went through
e pe r ng n a quan um mprovemen n opera ona cu ure
Facilitated bench-marking against the best in the world
Heightened emphasis on the need for embracing Contemporary
Technolo and im rovin Cost Com etitiveness
Created an organisational transformation
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L&Ts efforts towards Going Global
Exported high-tech heavy engineering equipment to clients in over 30
, , , ,
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,, ,
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,
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L&Ts efforts towards Going Global contd.
Set up switchgear manufacturing facility for power and motor control
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
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
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L&Ts efforts towards Going Global contd.
Providing IT-enabled engineering services to important and demanding
, , .
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
Companys turnover, slated to touch 25% in the next few years
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L&Ts Risk Management Strategies Going Global
Doing business within India remains paramount. Vision is to become an
Indian multinational not ust another multinational.
Showing a long term commitment to consolidating presence in selectgeographies through setting up of offices, entering into alliance with
, ,
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 Company-
wide people engagement & leadership development programmes,international assignments and hiring Expats
Institutionalised a risk management culture and framework in the Company
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Risks of Global Business
Tough competition from internationally established players
Competitors that do not play by the rules
Regulation & Compliance
Currency Fluctuations
Abrupt changes in regulatory requirement, trade barriers, government
po c es regu a ons, res r c on on repa r a on o pro , e c
Challenges in strategic M&A deals
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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
Infrastructure Risk
IT resources and other infrastructure elements to support global
engineering, global operations and global logistics
Backlash against foreign entities
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Risks of Global Business .. contd
Advantages to Local Companies
Brand ima e
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 itdifficult to enforce contractual rights
Possibility of severe consequential losses if contractual safeguard not
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kept
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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
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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 like @Risk software
Risk MIS & Reporting
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Benchmarking
L&T - A member of Engineering & Construction Risk Institute - USA
International risk management Consulting Institute
Promulgate best practices with respect to the identification
and management of risk in the Engineering & Construction
Industry.
Hel s member com anies to assess their risk mana ement
AboutAboutAbout
ECRIECRIECRIprocesses vis--vis the Risk Management Maturity Model.
Institutionalize sound risk management to improve the
erformance and redictabilit in execution of lar e ca ital
projects
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e or s a g o a v age.
that accept them.
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