A BUSINESS DEVELOPMENT STRATEGY FOR IRCON INTERNATIONAL LIMITED IN EXPANDING BUSINESS TO ASIA, AFRICA AND MIDDLE EAST.

Sandeep C,Cardiff Metropol i tan Univers ity, U.K Mitrajaya Holdings Berhard, MalaysiaI IT Roorkee, India

My special thanks to…..

Westminster International College, Malaysia&Mr. Anish Kumar, Indian Railways, IRCON, Malaysia

Lets know About Ircon International Limited…..• Its an Indian govt company, under Indian Railways, Established

in 1976 originally under the name of Indian Railway Construction Company Limited

• What does it do ?It is an Transportation Infrastructure development company, majorly develops Railways, Highways and related bridges along with building infrastructure including Electrical Works.• Where does its business operations exists ?India (Home country), Malaysia (completed 3.5 Bn project), Srilanka, Afirca- Mozambique, Algeria and other Asian countries.* What studies I have done relevant to its business?I have a given strategic perspective of expanding businesses into various other markets in Asia, Africa & Middle East

Why my research is most needed ?

53%47%

IRCON’S OPERATING INCOME during 2013-2014

Total Foreign Income Total domestic Income

To Sustain 53% of operating Income for future

coming years from foreign projects it needs a

business strategy.

Revenue generated from Asia market by IRCON.

Scope of Infrastructure development across countries.

* Construction sector is 5 – 15 % of any National Economy…

• Public Infrastructure is ever growing market….

• (Mawhinney 2001, States that construction sector is a bulk

market, which is fragmented into sub markets as the work is

contracted among the set of local & International contractors)

• Globally Infrastructure market is opening up.

• Private participation in public infrastructure is increasing and

opening to international contractors.

GDP growth rate in Asian Region.. It is directly related to spending on infrastructure development. (ADB outlook 2014)

Market Potential in Asia Region.

Market Potential in Middle East & African Region.• Africa has mostly relied on Donor Aid & Soft Financing.

• China with an Eye on Resources, has aggressively forayed in

Infrastructure development.

• The Transportation Infrastructure development is taking

momentum.

• Oman Railway Package is under tendering stage of projects

worth $ 15 billion. * Ircon JV with other contractors shortlisted

in a stage.

• At Mozambique , IRCON completed $ 68 Million job in JV with

RITES Limited.

The Figure 2 below shows the value of projects as on 2014 being initiated by

various governments of Africa and Middle East. As per Timetric report, 2014

the estimated investment value in the transportation network development is

US $ 791 billion worth of road and rail projects in Africa

Research Objective.• Strengthen market presence in Asia by using strategic

operational plan.

• Market entry analysis based on research design outcomes.

• Country specific marketing design and restructured business

development plan for expansion.

Research Frame Work.

MARKET

ANALYSIS

&

TARGETING

BY

FEASIBILITY

STUDIES

market entry

plan and

conclusive

research on

marketing tools.

3 year business

plan & risk

mitigation

measure.

Global Entry Strategy Framework.

• Source: (Lasserre, 2003)

Essential Analysis for Market Penetration.

Risk Factors to be Considered.

• Currency Risk

• Political Risks

• Legal Risk

• Economic Risk

• Cultural and Social Risk

Research Methodology.• Survey research

• Archival Research

• Depth Interview

Sampling Units.

• For Survey Research > Construction Industry Executives having International Experience

• For Depth Interview > Market Entry decision makers. (Project Director, IRCON, Planning Head, IRCON Malaysia, Senior Executive – Hill International Limited)

• Ethical Issues,• Survey Location and Email Survey• Personal Interview.• Were all done in due professionalism.

• Quest ionnai re des ign

• Part 1: Supporting Data

• Part 2: consists of scaling on1 to 5, questionnaires are stratified into three sets such as A) Country – selection factor, B) Industry Specific factors and C) Firm Specific factors

• Part 3: Market entry analysis on 0 to 2 scale of I have never seen it to I have seen it

Survey Extract Analysis

Summary

• The 56.7 % respondent’s opinion suggested that infrastructure spending of the target market is highly important.

• 33.3% agreed that cultural knowledge of the target market is important.

• 43.3 % agreed that geographical location access is significant for market entry.

• 46.7% respondents stated that government to government relations are highly important in the business development in the target market.

• as per 47.8 % response, Economic Policy is important.

Data Analysis : Survey DataCASE: EXPOSURE TO MARKET ENTRY

MODES. Condition:

Have never seen this

mode. (%)

Condition:

Not commonly

used mode (%).

Condition:

Have seen this

mode (%).

Case 1: Vertical alliance – alliance with

Suppliers/sub-contractors in enteri ng

new market.

3.3 43.3 53.3

Case 2 : Horizontal alliance – alliance

with partners operating in the same

business area.

16.7 50 33.3

Case 3: Alliance with local contractors. 6.7 36.7 56.7

Case 4: Alliance with International

contractors.

16.7 33.3 50

Case 5 : Minority (<50%) equity Joint

Venture by acquisition.

43.3 30 26.7

Case 6 : Equal ( 50%) equity Joint

Venture with other established.

30 30 40

Case 7 : Joint Venture requirement in

specific target market.

16.7 23.3 60

Case 8 : Branch/ Regional office of a

company in host country.

3.3 26.7 70

Total percentage of respondents have seen/

not seen the entry mode. 17.09% 34.16% 45.84%

Archive data analysis.DATA OF IRCON’s INTERNATIONAL PROJECTS AGAINST ITS OVERSEAS BUSINESS

ECONOMIC INDICATORS.

IRCON'S INTERNATIONAL PROJECTS

(2009-2013) #1Turnover attained from the project in (USD billions)

*2Average. (2009-2013), GDP of the country (USD billions)

*Average. (2009-2013), Infrastructure spending data of the country (USD billions)

*Average. (2009-2013), FDI of the country (USD billions)

IRCON’s International project-

countries. Y X1 X2 X3

MALAYSIA 1.5400 271.55 64.37 9.464 SRILANKA 0.8000 55.47 15.78 10.74 ALGERIA 0.3530 182.4 75.41 1.824 BANGLADESH 0.0700 125.95 34.618 1.01 ETHOPIA 0.0139 37.032 12.472 0.34

Output of data Set from IBM SPPS modeler.

Variables Entered/Removedb

Model Variables Entered Variables Removed Method

1 X3, X2, X1a . Enter

a. All requested variables entered., b. Dependent Variable: Y.

Model Summary

Model R R Square Adjusted R Square

Std. Error of the

Estimate

1 .984a .969 .875 .22372

a. Predictors: (Constant), X3, X2, X1)

ANOVAb

Model Sum of Squares Df Mean Square F Sig.

1 Regression 1.549 3 .516 10.316 .224a

Residual .050 1 .050

Total 1.599 4

a. Predictors: (Constant), X3, X2, X1., b. Dependent Variable: Y

Coefficientsa

Model

Unstandardized Coefficients

B Std. Error

1 (Constant) -.256 .216

X1 .005 .003

X2 -.006 .010

X3 .086 .026

Output.

The output of regression analysis data set above obtained are discussed below.

R value obtained is of 0.984 and adjusted R2 is 0.875, which indicates 87.5% of

response variation in variables which is a good sign as model explains all the

variability around its mean value.

In the ANOVA output the SS (reg and total) are merely error comparisons to the

forecast and sample mean, respectively.

The coefficients, constant value is -0.256 and X1 is 0.005, X2 is -0.06 and X3

is 0.086, among this the variable has X3 factor such as FDI investment into the

target markets of IRCON’s plays an significant determinant f actor in business

output from that country for IRCON’s turnover output.

Summary

• The overall analysis of data concludes that there are

various other factors influencing IRCON’s business

output which are not being considered as variables in

this analysis.

Depth Interview Analysis.Interviewed person

designation & organization.

Project Director, IRCON Malaysia.

JGM Planning & coordination, IRCON

Malaysia.

Managing Consultant, Hill

International Limited, Malaysia. Interview questions.

International project working experience?

It was great working in Malaysia, which has exposure to Indian culture.

Extensive learning and development at International project.

Tokyo and Qatar project experience was really great.

Factors crucial in International business development?

Socio economic and financial value of the project.

Host government support to international contractor is most important factor.

The value of the project and geographic access from home country.

Preparedness factor to enter new market?

Company competitiveness

Specialization of the company in any trade work is important.

Awareness of the target market industry.

Financials of the international project?

Company cost for international project is at higher side.

Financially should be viable with higher profit margin.

It’s the timely completion of the project and financial value of project.

Any other input in market expansion?

Ircon needs strategic marketing.

Construction demand in the host market.

Effective planning of market entry is needed

Strength Being a government of India backed company under ministry of railways,

India it has strength in bagging projects on government relations with other

nations. The credit line support to other developing countries by government

of India for infrastructure development.

Backed by Indian Railways.

Readily available talent pool in the market.

Expertise in the industry.

Weakness Not upto the mark marketing strategies.

Policy hindrances like limitation on PPP basis investment in

foreign projects.

Decision making delays.

Lacking i nternational appeal like developing other competitive

areas in Mass Rapid Transit and Light Rail Transit system.

Opportunities Opportunities in home country and overseas in the sector railway

and light rail and Mass rapid systems.

New opportunities in new overseas market s like Asia, Africa and

Middle Eastern countries.

Threat Growing domestic companies into rail infrastructure developing

entities posing competition to IRCON at home market and

overseas market.

Intensifying competition at overseas market including IRCON’s

existing business units at Srilanka, Malaysia and African countries.

International business comes with set of risks such as host country

policy, host country competition, increasing cost of doing business

in the international market.

SWOT ANALYSIS

A New Business Strategy…………………

Business Strategy Development.

CMD

(Chairman and

Managing Director)

Director

Projects

Director

Technical

Director

Finance.

BUSINESS

DEVELOPMENT

DIVISION

Executive

Director /

Projects

Director

Works

Chief

Vigilance

Officer

INTERNATIONAL

BUSINESS

DEVELOPMENT

Executive

Director /

General

Executive

Director /

works

Marketing Strategy.

Strategy 1: A comprehensive marketing mix by increased advertising and promotion

in technical events in the target market.

Strategy 2 : Actively participating in the exhibition and conferences related to same

business areas.

Strategy 3: Sponsored training and professional development programs to the teams of

prospective client s, which helps client to understand IRCON’s effort in professional

enhancement and also helps in building relationship.

Strategy 4: Showcasing the IRCON’s track record to prospective clients by arranging

site visits of engineering marvel and briefing about challenges.

Strategy 5: IRCON can use barter trade system and being a government organization

is reliable in executing projects at most quality and service.

Financial PlanThe Du - Point analysis was done to determine profit marg in, asset turnover ratio,

leverage measure ratio altogether to determine RoE (Return on Equity) ratio which

gives the rate of return to shareholders of the company.

Return on Equity = Net Income / Sales X Sales / Assets X Assets / Equity.

The data referred from annual reports of IRCON is compiled in the table below.

Table 1 Du-Point Analysis of IRCON INTERNATIONAL LIMITED for 2009-2014.

Source: (IRCON, 2015).

DATA REFFERED FROM IRCON

INTERNATIONAL ANNUAL

STATEMENT. (ANNUAL

REPORTS, 2009 - 2014)

FINANCIAL DATA DATA (in Crore’ Rs)

FINANCIAL YEAR 2014 2013 2012 2011 2010 2009

Assets 6161 6340 5528 4980 3153 2684

Equity 2993 2300 1743 1383 1205 1200

PBT (pre-tax income) 1250 1015 602 401 264 187

Net Income 907 730 470 241 182 140

PROFIT MARGIN Net income / Sales 0.726 0.719 0.781 0.601 0.689 0.749

ASSET TURNOVER RATIOS Sales / Assets 0.147 0.160 0.109 0.081 0.084 0.070

MEASURE OF LEVERAGE RATIO Assets / Equity 2.058 2.757 3.172 3.601 2.617 2.237

Return on Equity (ROE) ratio is a measure of the rate of return to stockholders 0.303 0.317 0.270 0.174 0.151 0.117

• As per the data from table n fig the performance and return of Ircon is consistent mostly and the performance in the financial year 2014 there is thrust in improvement of sales and increase assets

Figure 9 Line diagram of du-point analysis.

3 year Financial Plan. (in Rs, crores)

Table 1 Three year financial outlay plan. A. Particulars. (in crores) 2016-2017 2017-2018 2018-2019

Operating Income 5500 6000 7000

Net operating Income 5490 5980 6970

Total Income (Including other income) 5750 6250 7240

Expenditure (varies between 70-80%) 4312 4688 5430

Operating margin 1438 1562 1810

Profit Before Tax 1400 1530 1770

Profit after Tax (Depends on Tax on that time) - - -

Implementation of Strategy framework.

Contd.

• Strategic marketing plan implementation – 30 days

• International business development plan - 15 days

• Training of human capital in international business

development – 6 days

• Review of Asian business – 16 days

• Strategic market development plan – 15 days

• Market identification, survey and entry plan – 15 days

• Operational plan – 10 days

• Financial plan – 10 days

Figure 1 3C Model for critical success factor.

Company: Indian government linked. Indian railway ministry supported. Specialized in railway and other infrastructure

3 C Model Client:

Client relationship management Long endured and sustained relationship Government relations with clients

Competitor: In the home country, local private players are emerging & globally Chinese companies are aggressively foraying. Being a government company it has market penetration advantage

Risk Mitigation.

• Risk Mitigation Plan to be enforced at the Market Entry

Stage.

• Country Risks (Terrorism, War on Terrorism, internal

Instability)

• Financial Risk

• Project Based Risks (Land Acquisition, Delay due to

unforeseen condition, political change implications)

• Thank you!!!