Autonomous L&T Gulf to service global markets

Even as most of its competitors were struggling, Larsen & Toubro (L&T) exited 2013-14 with fresh orders worth Rs 94,100 crore, up 15 per cent compared to the previous year. A third of these orders were from abroad, in line with the company's strategy to globalise and de-risk its business model.

While the company has been working on this strategy for about a decade, after it missed out to US and Korean rivals during the boom in the Gulf, it is now playing catch-up by setting up a strong base there.

The project is codenamed L&T-II within the company, reflecting Chairman A M Naik's focus on creating a global mega corporation. The new entity will not be a separate one, but will comprise a set of focused independent companies or business units that will service global markets.

TACTICAL MOVES

• L&T exited FY14 with fresh orders worth Rs 94,100 cr, up 15% compared to FY13
• A third of these orders were from abroad, in line with the company's strategy to globalise and de-risk its business model

Some of these independent units will be headquartered in West Asia. The entity will have a global talent pool such that L&T can compete with global contractors both in India and abroad. It is ready to launch a massive talent offensive by roping in former employees, giving them the best-in-class compensation and global opportunities.

The massive push to globalise and set up an autonomous entity isn't just to compete and execute projects global there, but to enhance L&T's capabilities by competing with the best in the engineering, procurement and construction business such that the experience comes in handy when global players set up shop in India. Given the Narendra Modi government plans to give a big push to infrastructure, large global companies in this segment are setting up shop in India.

Explaining the rationale behind the move, Naik says: "Top global infrastructure players are setting shop in India. The motive behind recreating L&T in the Gulf is not merely creating another profit centre, but also defending our leadership position in India through superior execution of projects. In the new organisation, we have hired eight expats. L&T Gulf will be autonomous such that L&T will be recreated in that geography."

In times to come, international projects will account for a quarter of the company's total projects. The intention to create a second L&T in the Gulf also stems from the fact that moving in and out not only impacts execution, it is also expensive.

Given the company is headquartered in India, the fifth-level management was travelling to execute projects in Gulf nations. But now, independent company heads or their second-in-command will be stationed in the Gulf such that both home and Gulf markets can be catered to simultaneously. Currently, the transportation IC head is based in Dubai. The hydrocarbons subsidiary, hived off last year, is headquartered in Sharjah and the second-in-command is an expat. The company is scouting for a CEO for that business. The heavy civil segment is headquartered in Doha (Qatar), while the electricals business will be headquartered in Al Khobar, Saudi Arabia.

Naik says L&T is keen for a Rs 5,000-crore business in water and is an L1 bidder in projects worth Rs 2,000 crore; the business is to be headquartered in Qatar. "Either the No.1 has to sit in the Gulf or the No.2 has to sit there. A strong management cadre has to sit there so that execution of projects is superior, as competition is intense," Naik says. This will stand the firm in good stead when these rivals compete with L&T on home turf.