The Hindu Business Line : L&T says China ho! — To set up facility in a year

THE country's largest engineering company Larsen & Toubro plans to set up a manufacturing facility in China within the next 12 months, and might perhaps consider setting up base in Eastern Europe as well.

L&T has already won projects in China, but this would be the first time the company would be looking at manufacturing out of there, said officials.

"We are looking at low-cost environments across the globe for setting up manufacturing activities, and in fact we believe all Indian manufacturing companies should consider this. There are two such places we have identified for ourselves, China and Eastern Europe," Mr J.P. Nayak, President (Operations) and member of the board, L&T, told Business Line. Such a manufacturing facility would be set up within a year from now, he said.

It is L&T's reading that as Chinese companies exhaust domestic opportunities within that country, they will increasingly look outward and will win equipment and capital goods contracts in India and elsewhere, as they have already started to.

Their manufacturing costs genuinely are much lower. In fact, when the Chinese quote 70 per cent lower than Indian companies, it not a case of undercutting at the cost of their margins, because their material costs alone would be 70 per cent lower, said Mr Nayak.

According to him, Indian engineering companies such as L&T and BHEL must sharpen their competitiveness before they are "swamped".

Instead of fighting the Chinese, it was thought more prudent at L&T to join them. "We are looking at sourcing materials from China," said Mr Nayak. "And of course the wise thing would be to manufacture from there as well. It is going to be a great learning experience for us too." (The Chairman and Managing Director, Mr A.M. Naik, had recently been to China.)

What is manufactured in China would be used to supply to the Chinese and other overseas markets, L&T having its own manufacturing facilities in India for the domestic market here.

Chinese employees would be preferred at the company's China locations, said Mr Nayak. "One can hire English-speaking Chinese engineers for $700 to $900 a month, train them in India and send him back. We are planning to do that even for our sales and marketing activities there, it would be cheaper than keeping Indian engineers there who, along with language interpreters, will cost more than $2000 a month."

L&T is taking the issue of international competitiveness very seriously, and not just with China. "We are going to be only present strictly in those businesses where we can be internationally competitive," said Mr Nayak. "We do not think there is any future for a company that cannot compete globally."

L&T is also reviewing its productivity, efficiency and competitiveness very keenly, he said. "It is worth studying China closely. Their efficiency is another factor, and we are looking very seriously at improving our efficiency even further."

L&T has made inroads into China. Its heavy engineering division has won three contracts from China for the supply of coal gasification equipment.

The latest is a contract from the Shenhua group worth Rs 187 crore. With the earlier contracts valued at Rs 200 crore for similar systems for fertiliser and methanol projects in central China and a contract for reactors of Rs 65 crore for petrochemical projects, this brings the total value of orders secured from China to Rs 452 crore for the company.

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