L&T looks to crack China hi-tech code; deploys on-ground teams, taps MNCs

L&T is looking at cutting down on certain imports from Europe

Larsen & Tourbo (L&T), the country's largest engineering conglomerate with $27 billion in annual revenue, is looking to corner a bigger chunk of one of the world’s biggest hi-tech manufacturing markets, China. With an up to $200 million (about Rs 1,670 crore) niche opportunity, the market is a tough nut to crack due to regulations that promote local Chinese firms. Thus, L&T is training its sights on an opening: Supplying equipment to global firms that are setting up shop there.

“We have now stationed some of our senior business development managers in these regions and others such as Europe and Japan,” says Anil Parab, whole-time director, heavy engineering and L&T Valves.

In May, L&T announced it had dispatched two of the world's heaviest ethylene oxide (EO) reactors, an important constituent in petrochemicals plants, for a project of chemicals giant BASF in China. L&T's current order book in the hi-tech manufacturing segment is valued at $610 million (about Rs 5,090 crore), half of which is exports. Of this, 6 per cent is exported to China, according to company data.

Hi-tech manufacturing is a sub-segment within heavy engineering, related to critical products, involving higher reliance on advanced technologies for plant operations.

Parab noted that the export share to China has been falling from 20-30 per cent in the late 1990s to 6 per cent currently. “China is a large market, but accessibility is limited,” said Parab, whose team now looks to arrest this fall with new business development strategies.

Parab noted that the BASF order success in China came after past failures to win similar bids from Saudi Aramco, and Dow Chemicals setting up units in China. “We personally prevailed on BASF (stressing the criticality of a reactor) and convinced the chemical giant to conduct a prototype qualifying round prior to the actual tendering,” he said. The executive added the prototype qualifier was a first-of-its-kind in such tenders.

“We have set similar units for Dow Chemicals across the world, but lost the bid in China,” Parab said, noting that China’s National Development and Reform Commission regulations favour local firms as joint venture partners when global multinational companies (MNCs) set up units there.

L&T is trying to make inroads and overcome these non-trade barriers, with hopes to repeat the BASF success by shifting the tendering companies' focus to non-price bid factors.

The focus, Parab says, is on technology owners, or those with propriety equipment ownership, with plans for units in China. “These owners are primarily in markets like the US, Europe, and Japan, and they order the equipment,” he added.

Reducing own imports

Even as L&T focusses on increasing exports, the company also looks at cutting down on certain imports from Europe. “We have been buying a lot in Europe. But in India, some new players have now made mega investments. These players are our suppliers from Europe,” Parab said.

L&T is experimenting with joint development contracts with the India arms of such firms, including companies such as ArcelorMittal Nippon Steel (AM/NS) India, to insulate supply chains from geopolitical threats in recent years, Parab added.

Eye on China pie

L&T's hi-tech manufacturing order book: $610 mn

Share of exports: 50%

China's share in exports: 6%

Source: L&T