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An Assignment on

Strategic Audit of Escorts Ltd

For the subject

Business Policy and Strategic Management

Submitted to

Dr. Saboohi Nasim

Subject Coordinator, BPSM

Submitted by

Gagan Varshney

12 MBA08

Department of Business AdministrationFaculty of Management Studies & Research

Aligarh Muslim University, Aligarh


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Company Profile

Escorts LimitedEscorts Ltd is one of India's leading engineering conglomerates with over six decades of

experience. It has helped accelerate Indias socio-economic development through its presence

across the high growth sectors of agri-machinery, construction & material handling

equipment, railway equipment and auto components. The company has diversified business

in to four different segments.

1. Escorts Agri Machinery (EAM),

2. Escorts Construction Equipment (BCE),

3.

Escorts Railway Products (BRP) &4. Escorts Auto Products (EAP)

Escorts GroupThe Escorts Group is an Indian multinational engineering conglomerate that operates in thesectors of agri-machinery, construction and material handling equipment, railway equipmentand auto components. Headquartered in Faridabad, Haryana, the company was launched in1944 and has operations in more than 40 countries. Escorts Groups management teamincludes Rajan Nanda as the Chairman and Managing Director and Nikhil Nanda as theManaging Director.

Products produced by Escorts comprises of: Tractors, crop solutions, cranes, loaders, shockabsorbers, struts, steering components, brakes for railways, couplers, etc.

It has around 6000 employees all over the world. (2011)

HistoryEscorts Group was launched in 1944 by two brothers, Hari Nanda and Yudi Nanda, in thename of Escorts Agents Ltd. in Lahore. Escorts Limited was incepted in 1960 after thecompany set up its manufacturing base at Faridabad.

Since inception, Escorts Group has been associated with some of the world leaders in the

engineering manufacturing space including Minneapolis Moline, Massey Ferguson, Goetze,Mahle, URSUS, CEKOP, Ford Motor Company, J.C. Bamford Excavators, Yamaha, Claas,Carraro, First Pacific Company, Hughes Communications, Jeumont Schneider, Dynapac,Honeywell, Ingeteam, etc.

Businesses

1.Escorts Agri MachineryA pioneer of farm mechanisation in India, Escorts Agri Machinery (EAM) was launched in1960. The company manufactures tractor under the brand names of Escort, Farmtrac andPowertrac. EAM consists of four manufacturing plants that cover an area of 134,000 sq.m.The company also has a plant in Poland, which is a 100% subsidiary and functions in thename of Farmtrac Europe.


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2.Escorts Construction EquipmentEscorts Construction Equipment (ECE) manufacturers and markets construction and materialhandling equipment; like cranes, loaders, vibratory rollers, Backhoe Loader and forklifts. Thecompany introduced the concept of Pick 'n' Carry hydraulic mobile cranes in the 1970s inIndia. The ECE manufacturing and assembly facility is located across 250,000 sq.ft. of space

in Faridabad.

3.Escorts Railway ProductsEscorts Railway Products (ERP) is an ISO 9001 certified company that manufactures criticalrailway components. ERP supplies air brake system, EP brake system, draft gears andcouplers, composition brake blocks, dampers and rubber components to Indian Railways.

4.Escorts Auto ProductsEscorts Auto Products (EAP) manufactures auto suspension products such as shockabsorbers, struts and telescopic front forks for the automotive industry. The company

pioneered automotive shock absorber manufacturing in India in 1966 in technical

collaboration with Fichtel& Sachs, Germany. The EAP manufacturing unit is spread acrossan area of 12,500 sq. ft. in Faridabad.

Knowledge Management CentreSet up in 1976, the Escorts Knowledge Management Centre (KMC) is spread over 100,000sq.m. area in Faridabad. This centre designs the entire tractor engine, transmission plushydraulic systems and vehicle design consisting of sheet metal (including styling), controlsand accessories.

The KMC has facilities such as engine laboratory featuring computerized test beds withonline control, data acquisition and analysis, advanced vehicle testing laboratory, noise

vibration and harshness lab, metrology lab, and materials engineering lab. The KMC uses3D-modeling, analysis and simulation software for engines, transmissions and vehicles.Physical prototypes are then tested for performance, durability and reliability.

Awards and Recognitions Industry Leadership Award to Escorts for pioneering work in agri-mechanization revolution(Agriculture Leadership Summit, 2010)

Greentech Environment Gold Award to the Escorts Knowledge Management Centre for

outstanding achievement in environment management in the engineering sector (2011)

Greentech Safety Silver Award to Escorts Agri Machinery for achievement in safetymanagement in engineering sector (2011)

Business Leader in Safety Award to Escorts Agri Machinery for encouraging innovation in

the field of safety and quality (Safety Innovation Awards, 2011)

Best Supplier for Development in Suspension Award to Escorts Auto Products from Suzuki

Motorcycle India Pvt. Ltd. (2012)


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Strategic intent:

At Escorts, our vision and values are the guidingforcebehind all our endeavours:

We have always believed in being a customercentric Company for realising our aimofbecoming one of the top engineering companiesof India. We see ourselves not as just asupplierof products, but as a complete solutions providerto our customers. In doing so, we areworkingtowards contributing our bit to Indias growthstory and bringing in quality change in

the livesof people.

The company is committed to excellence in engineering, innovation in products, development

of market-relevant technologies and the highest of cost efficiencies in order to create value

for its customers and shareholders.

Our Mission/VisionBy 2020, Escorts will be among the top 3 Engineering Companies in India. We shall achieve

this goal by being the preferred solution provider to the needs of our customers, by practicing

respectful and ethical business practices, by being the employer of choice within the

engineering industry, and by providing superior returns to our investors.

Our Strategic Values

Our Strategic Values define how we will achieve the envisioned future. These must be

embedded into our manner of thinking and ways of work.

Customer Centricity

Acute sensitivity to the needs and experiences of the customer shall guide all that wedo.

Excellence We will strive to achieve and surpass world class standards in all that we do.

Innovation1. We will use the power of technology and imagination to deliver solutions to the

customers needs.

Agility We will operate in our markets with the ability to change direction and position with

nimbleness and speed.


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Commenton Strategic I ntent of the Company

The company wants to become customer centric and complete solution provider to the

customer. Since company is an engineering conglomerate, so its mission is quite

understandable that it wants to be in top 3 engineering companies in India. Obviously ,

efficiencywill be needed for this.

And by bringing effectiveness, it will be able to serve the welfare of the society, e.g.

producing sophisticated & affordable Tractors, will help agriculture sector of the country to

grow, which will certainly affect overall growth of India.

So its intention seems to be like helping others as well as itself. This is quite encouraging to

its employees & workers for bringing efficiency & effectiveness. Moreover, other

stakeholder would also be pleased by the growth of the company.


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Table 3: Barriers to entry

Attractiveness Remarks

Low High

1 2 3 4 5

Economies ofscale

Small @ Large

Productdifferentiation

Low @ High

Brand identity Low @ High

Switching cost Low @ High

Access to

channels ofdistribution

Easy @ Limited

Capitalrequirement

Small @ Large

Access totechnology

Easy @ Restricted

Access to rawmaterial

Easy @ Restricted

Governmentprotection

None @ substantial

Table 4: Threat from substitutes


Low High

1 2 3 4 5Availability ofclose substitute

High @ Low


Substitutes

price valueBetter @ Worse

Profitability ofproducers of

substitutes

high @ low


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Table 5: Bargaining power of buyers


Low High

1 2 3 4 5

Number ofbuyers

Small @ Large

Availability ofsubstitutes

Many @ Few


Buyers threat

of backwardintegration

High @ Low

Industrys

threat offorward

integration

Low @ High

Contribution toquality

Low @ High

Contribution tocost

High @ Low

Buyers

profitabilitylow @ High

Table 6: Bargaining power of suppliers


Low High

1 2 3 4 5

Number ofsuppliers

Small @ Large

Availability ofsubstitutes

Few @ Many

Switching cost High @ Low

Suppliers

threat of

forwardintegration

High @ Low

Industrys

threats ofbackwardintegration

Low @ High

Contribution toquality

High @ Low

Contribution tocost

High @ Low

Industrys

importance tosupplier

low @ high


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Table 7: Government actions


Low High1 2 3 4 5

Industryprotection

Low @ High

Industryregulation(pollution,

etc.)

High @ Low

Customs andtariff

restrictions

abroad

High @ Low

Table 8: Overall assessment


Low High

1 2 3 4 5

Barriers toentry

@ 4.1

Rivalry amongcompetitors

@ 3

Barriers to exit @ 2

Power ofbuyers

@ 3.62

Power ofsuppliers

@ 3

Threat ofsubstitutes

@ 3.75

Governmentaction

@ 2.66

Overallattractiveness @ 3.16


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Business Portfolio Analysis using BCG Matrix:

On the basis of the information available in the

annual report & other documents, I can classify

its product in BCG Matrix as follows:

Cash cow: Agri-Machinary Group (includingmany tractors) Despite the fact that EscortsTractors has just 13.2% market share inDomestic industry, its share would be saidsufficiently enough to say as big; because it is an

old player in this industry and improve theeconomical condition at the time of post-independence. Its growth has been moderate. Sothese products come in Cash Cow categories.

Star: Construction Equipment GroupEscorts is one of the company providing services to Government of India to make newrailway infrastructure in the country. Its relative share is quite sufficient. Also, a high growthis being predicted after the announcement from Govt of making huge investment in the field.So rate of growth is also high.

Dog: Construction equipmentRelative share is low due the presence of competitors, such as- JCB, Jaypee Group. Alsothere is not a good growth in this field.

Q mark: Auto-Suspension Part GroupDespite of the moderately increasing revenue, this group of products is facing uncertainty;due to the presence of already established competitors.

Revenue break-up of different categories of products at Escorts:


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1. Agri Machinery Business

2. Construction Equipment Group


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3. Railway Equipment Business

4. Auto Suspension Part Group

With the government planning to invest $1 trillion in infrastructure development, Co. see

huge market potential for its products.


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Various types of the Strategies adopted by

the OrganisationThe global economy is experiencing stiff challenges and India is not left untouched by the

impact. The agricultural and infrastructure sectors have been some tough times of late, with

growth hitting a lull in several regions. Escorts has chosen to mitigate this impact with a

strategy that focuses on highly profitable and niche products. It is tactically modifying its

product mix and undertaking global technology tie-ups to reengineer itself and attain

efficiencies of cost and time in its manufacturing operations.

The Company is adopting strategy of entering various markets in different foreign countriesby giving its franchises, distributorship, etc. (local responsiveness).

For the company, there is a high pressure to be locally responsive in the world industry.

And, pressure for cost reduction is High; So company is trying to become Transnational

company.

Examples:

In April 2010, Escorts launched its high-end premium tractor range FARMTRAC in

Morocco, one of the largest tractor markets in Africa. Poor tractor penetration and accelerated

growth of agri sector provide huge potential for growth in Morocco. FIRST MATERIEL is

Escorts authorised distributor in Morocco, who will be responsible for assembling the

tractors, which will be imported from India in a semi knocked-down state. FIRST

MATERIEL will also be marketing and promoting the FARMTRAC brand locally and will

also ensure after-sales service support.

Recently, Escorts launchedFarmtracRange in collaboration with TATA International

Phnom Penh, Cambodia, in September 11, 2013:

News:Escorts Limited, Indias leading tractor manufacturer, today announced its entry intoCambodia with the launch of its premium tractor range - Farmtrac. For the launch, Escorts

has collaborated with TATA International which will operate as the distributor (TATA South

East Asia (Cambodia) Ltd.) of the brand. With world-class technologies, impressive features,

and stunning looks these new tractors are set to revolutionize the Cambodian tractor

market.

The Farmtrac tractor series is aimed to take the agriculture in Cambodia to the next level.

With a range from 25 HP to 110 HP and their four wheeled drive, the models are best suited

for paddy, sugarcane, palm and rubber plantations in the country. These tractors come with

standard 12x12 synchromesh transmission for suitable speeds and easier loader work.


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For internationalisation,it is following Waterfall Strategy.

Examples:

In 2010, Escorts went for market development in Africa. There it entered step-by-step into

the various markets.

In 2013, Escorts enters Cambodia, to strengthen its position in South East Asia

The company is following Cost Leadership Strategy. A firm commitment to cost discipline

has helped the company set its sights on frugal manufacturing, and as a result, improve its

operational margins.

Digital isation Strategy:One of the biggest achievement of Escorts in IT has been the Group-

wide single-instance application of the ERP application. The consolidation of four

independent email domains on the cloud was another award-winning initiative undertaken by

Escorts. The single email domain has strengthened the organisational brand and considerably

lowered functional complexity and sustenance cost.

Marketing Strategy: We introduced a series of tractors for premium and marginal farmers

that bring value to the customers and significantly increase Escorts market share. With an

aim of being the leader in premium tractor market with our Farmtrac brand and be

predominant in the mid segment market, major product extensions have been aptly

introduced along with a 360 marketing approach.

Human Resour ce Strategy: Manpower cost management is also under intense review to

ensure a balance between the human resource requirements of today with the needs of thefuture and that they both align at optimum business levels. Our strategy is to be a Company

where employees can achieve their potential, grow and excel.

Operational Strategy: End-to-end operations optimisation is underway and within 36

months, we will see the tractor business shrink its plants from the current three to two. This

will take the capacity to 120,000 tractors from the current 95,000 tractors. As a result,

indirect costs are expected to reduce and yield significant savings.

Agreements with Banks:

In 2010, Escorts entered into a Memorandum of Understanding (MoU) with PunjabNational Bank (PNB) for financing the dealers of Escorts Limited. Under the arrangement,PNB will extend working capital finance to the dealers of Escorts Ltd across the country bythe way of Drawee Bill Discounting Facility.

Recently, Escorts signed a Memorandum of Understanding (MoU) with State Bank ofIndia (SBI) for providing financial assistant to its newly launched agri service infrastructurecalled Escorts Crop Solutions (ECS). It is an initiative through which Escorts intends to

provide end to end farm machinery through custom hiring route to small & marginalfarmers.


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Strategy Implementation:

COMPANYS PHILOSOPHY ON CORPORATE

GOVERNANCECompanys philosophy on Corporate Governance is founded upon a rich legacy of fair,

ethical, professional and transparent governance practices. Company has benchmarked itself

against the global best practices and is conscious that accomplishments of an organization are

reflection of its professionalism, conduct and ethical values of its management and

employees. Company is committed to practicing sound corporate governance and upholding

sound business standards in conducting its business. Accordingly, Company is continuously

working towards building trust with shareholders, employees, customers, suppliers and other

stakeholders based on the principles of good corporate governance, viz. integrity, equity,

transparency, fairness, disclosure, accountability and commitment to values.Company has always believed that an independent Board following international practices,

transparent disclosures and empowerment of shareholders are as necessary as its financial

results for creating and sustaining shareholder value. To achieve this, your Company

inculcates a culture in which high standards of ethical behaviour; individual accountability

and transparent disclosure are ingrained in all its business dealings and shared by its Board of

Directors, management and employees. Company strives towards establishing systems and

procedures to ensure that its Board of Directors is well informed and well-equipped to fulfil

its overall responsibilities and to provide the management with the strategic direction needed

to create long-term shareholder value. The Company is in full Compliance with the

requirement of Code of Corporate Governance as prescribed in the Listing Agreement and in

this regard the following details are provided for the information of stakeholders and public at

large.

BOARD OF DIRECTORS

The composition of the Board of Directors is in conformity with Clause 49 of the Listing

Agreement, as amended from time to time. The Board of Director(s) along with its

Committee(s) provide leadership and guidance to the Companys management and directs,

supervises and controls the performance of the Company. The Board of Director(s) of the

Company comprises of distinguished personalities, who have been acknowledged in their

respective fields. As on the end of financial year, four out of the seven Directors on the Board

are independent and nonexecutive and one is non-independent and non-executive. Mr.Rajan

Nanda, Chairman is also acting as Managing Director of the Company duly assisted by Mr.

Nikhil Nanda, Joint Managing Director of the Company and both of them are in whole-time

employment of the Company. All Independent Non-Executive Directors are compliant with

the requirements of the Listing Agreement for being an Independent Director and have

confirmed that they meet the IndependentCriteria as mentioned under the above Clause 49

of the Listing Agreement. Apart from reimbursement of expenses incurred in the discharge of

their duties, the payment of sitting fees and/or commission that these Directors are entitledunder the Companies Act, 1956 as Non-Executive Directors, none of these Director(s) has


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any material pecuniary relationships or transactions with the Company, its Promoters, its

Directors, its Senior Management or its Subsidiaries and Associates which would affect their

independence. The Senior Management have made disclosure to the Board confirming that

there are no material, financial and/ or commercial transactions between them and the

Company, which could have potential conflict of Interest with the Company at large. As on30th September, 2012, the Board comprises of seven Directors. The names and categories of

Directors, the number of Directorship and Committee position(s) held by them in the

companies, meetings attended by them and other relevant particulars are given below.

DIRECTORS MEMBERSHIP IN BOARD/COMMITTEES OF

OTHER COMPANIESOn the Companys Board is a member of more than tencommittees and Chairman of more

than five committees (Committees being, Audit Committee and Investors Grievance

Committee) across all the companies in which they are Director. All the Director have made

necessary disclosures regarding Committee positions held by them in other companies and do

not hold the office of Director in more than fifteen public companies.

BOARD MEETINGSDuring the financial year 2011-2012 the Board of Directors met Five (5) times on thefollowing dates:-28th November, 2011, 14th February, 2012, 15th March, 2012, 15th June, 2012, 24thSeptember, 2012

The gap between any two Board meetings did not exceed four months.

Board Meeting ProceduresThe detailed agenda papers containing all information relevant for discussions at the meetingare sent to the Directors in advance so that each director has enough time for a meaningfuldiscussion at the Board Meetings. Besides the business items, the agenda includes the itemsrequired to be considered by the Board of Directors as per the Listing Agreement. Therequired information as enumerated in Annexure I A to Clause 49 of the Listing Agreementare regularly made available to the Board of Directors for discussion and consideration atBoard Meetings.

Information supplied to the Board

Regular presentations are made to the Board of Directors covering Business Operations,Finance, Sales, Accountsand Marketing, Compliances and all the other important businessissues.The Annual Operating and Capital Budget(s) are approved by the Board of Directors. TheBoard spends considerable time in reviewing the actual performance of the Company vis--vis the budgeted.

Code of ConductThe Board had prescribed the Code of Conduct for all Board Member(s) and Senior

Management. The Code of Conduct has been posted on Companys web site www.escortsgroup.com.


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Strategy Evaluation using Balanced Score

Card approach

Financial Perspective

They are good at this account. Recently Govt announced to make huge investment inInfrastructure Sector. And Escorts is supplying various construction related products,and also products for Indian railway. Moreover, its tractors are used in agri as well asin non-agri fields. So there is huge opportunity for such an organisation.

Customer PerspectiveEscorts has recently flagged off one of its biggest customer connect campaigns.

Titled SAMPARK, this national level service campaign has 1200 Escorts-trainedengineers and technicians cover 36,900 machines in the field. Through this initiative,

they are attempting to get closer to their customers.According to the company, We see ourselves not as just a supplier of products but asa service provider to our customers. Our successes are made possible by our ability toview the market from our customers eyes. For us, lifetime value of our customer

based on inherent value exchange is the growth driver and not just the price basedprofit motive. Our customers have reaffirmed our faith in our value system bybecoming champions for the products they have bought and experienced.Others are, After sale services, giving training to distributors to understand thedemand of customers, etc.

Internal Business perspective

To get the maximum return on investment, the company is aiming for zero-defectproduction at its manufacturing facility. In order to facilitates this, Escorts has startedService Audit for Finished Goods an initiative under which in product supportspecialists are auditing all its new machines, and rectifying their faults, if found.Company continues to implement its leadership management programme tostrengthen talent pool and promote greater employee diversity.

Innovation/LearningCompany says, its people are its true ambassadors. Its strategy is to be a Company

where employees can achieve their potential, grow and excel. Over the years, theCompany has built a diverse and talented team. In the last few years, they haveestablished their People, Performance and Growth framework, which provides it witha structure for managing the performance and development of its people and aligningthem with the Group strategy.With the bold strategy of launching a new product every six months at Escorts AgriMachinery, it introduced a series of tractors for premium and marginal farmers that

bring value to the customers and significantly increase Escorts market share.


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Suggesting future strategies and way

forward to the company

Besides all the adopted strategies, Company should try to take foreign venture completely

under its possession.

Company should try to find new market (countries) by making its products, especially

tractors more customized according to the environmental & financial conditions of that

country.

Future plan of ActionsNew Product Introduction

Up-gradation of transmissions to meet emerging applications & offer customer convenience

features.

Design and development of new series of tractors with contemporary features to meet

changing requirement of Indian farmers.

Continuous up-gradation of existing tractor models.

To develop new products/variants to meetchanging applications requirement.

Compliance to safety and emissionregulations.

Cost effective design solutions to meetcustomer emerging needs.

New Technologies absorption for continuous improvements.

More Innovative features.


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References:

Escorts Annual Report 2012

World of Escorts; Vol.20, July 2013

Newsletter Aug 2010

Strategic Policy & Business Management by Azhar Kazmi

www.escortsgroup.com

www.google.co.in
http://www.escortsgroup.com/http://www.escortsgroup.com/http://www.google.co.in/http://www.google.co.in/http://www.google.co.in/http://www.escortsgroup.com/

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