1. 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 MBA – 08
Department of Business Administration
Faculty of Management Studies & Research
Aligarh Muslim University, Aligarh
2. 2
Company Profile
Escorts Limited
Escorts Ltd is one of India's leading engineering conglomerates with over six decades of
experience. It has helped accelerate India‟s 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 Group
The Escorts Group is an Indian multinational engineering conglomerate that operates in the
sectors of agri-machinery, construction and material handling equipment, railway equipment
and auto components. Headquartered in Faridabad, Haryana, the company was launched in
1944 and has operations in more than 40 countries. Escorts Group‟s management team
includes Rajan Nanda as the Chairman and Managing Director and Nikhil Nanda as the
Managing Director.
Products produced by Escorts comprises of: Tractors, crop solutions, cranes, loaders, shock
absorbers, struts, steering components, brakes for railways, couplers, etc.
It has around 6000 employees all over the world. (2011)
History
Escorts Group was launched in 1944 by two brothers, Hari Nanda and Yudi Nanda, in the
name of Escorts Agents Ltd. in Lahore. Escorts Limited was incepted in 1960 after the
company 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 Machinery
A pioneer of farm mechanisation in India, Escorts Agri Machinery (EAM) was launched in
1960. The company manufactures tractor under the brand names of Escort, Farmtrac and
Powertrac. 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 the
name of Farmtrac Europe.
3. 3
2. Escorts Construction Equipment
Escorts Construction Equipment (ECE) manufacturers and markets construction and material
handling equipment; like cranes, loaders, vibratory rollers, Backhoe Loader and forklifts. The
company introduced the concept of Pick 'n' Carry hydraulic mobile cranes in the 1970s in
India. The ECE manufacturing and assembly facility is located across 250,000 sq.ft. of space
in Faridabad.
3. Escorts Railway Products
Escorts Railway Products (ERP) is an ISO 9001 certified company that manufactures critical
railway components. ERP supplies air brake system, EP brake system, draft gears and
couplers, composition brake blocks, dampers and rubber components to Indian Railways.
4. Escorts Auto Products
Escorts Auto Products (EAP) manufactures auto suspension products such as shock
absorbers, 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 across
an area of 12,500 sq. ft. in Faridabad.
Knowledge Management Centre
Set up in 1976, the Escorts Knowledge Management Centre (KMC) is spread over 100,000
sq.m. area in Faridabad. This centre designs the entire tractor – engine, transmission plus
hydraulic systems and vehicle design consisting of sheet metal (including styling), controls
and accessories.
The KMC has facilities such as engine laboratory featuring computerized test beds with
online control, data acquisition and analysis, advanced vehicle testing laboratory, noise
vibration and harshness lab, metrology lab, and materials engineering lab. The KMC uses
3D-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 safety
management 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)
4. 4
Strategic intent:
At Escorts, our vision and values are the guidingforce behind all our endeavours:
We have always believed in being a customercentric Company for realising our aim
ofbecoming one of the top engineering companiesof India. We see ourselves not as just a
supplierof products, but as a complete solutions providerto our customers. In doing so, we are
workingtowards contributing our bit to India‟s 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/Vision
By 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 we
do.
Excellence
We will strive to achieve and surpass world class standards in all that we do.
Innovation
1. 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.
5. 5
Comment on Strategic Intent 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,
efficiency will 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.
6. 6
Environmental Appraisal-using Industry
Analysis template
Table 1: Rivalry among competitors
Attractiveness Remarks
Low High
1 2 3 4 5
No. of
competitors
Large @ Small
Industry
Growth
Slow @ Fast
Fixed Cost High @ Low
Differentiation Low @ High
Switching Cost Low @ High
Openness of
terms of sales
Secret @ Open
Excess
capacity
Large @ Small
Strategic
stakes
High @ Low
Table 2: Barriers to exit
Attractiveness Remarks
Low High
1 2 3 4 5
Asset
specialisation
High @ Small
Cost of exit High @ Small
Government
restriction
High @ Small
7. 7
Table 3: Barriers to entry
Attractiveness Remarks
Low High
1 2 3 4 5
Economies of
scale
Small @ Large
Product
differentiation
Low @ High
Brand identity Low @ High
Switching cost Low @ High
Access to
channels of
distribution
Easy @ Limited
Capital
requirement
Small @ Large
Access to
technology
Easy @ Restricted
Access to raw
material
Easy @ Restricted
Government
protection
None @ substantial
Table 4: Threat from substitutes
Attractiveness Remarks
Low High
1 2 3 4 5
Availability of
close substitute
High @ Low
Switching cost Low @ High
Substitute‟s
price value
Better @ Worse
Profitability of
producers of
substitutes
high @ low
8. 8
Table 5: Bargaining power of buyers
Attractiveness Remarks
Low High
1 2 3 4 5
Number of
buyers
Small @ Large
Availability of
substitutes
Many @ Few
Switching cost Low @ High
Buyer‟s threat
of backward
integration
High @ Low
Industry‟s
threat of
forward
integration
Low @ High
Contribution to
quality
Low @ High
Contribution to
cost
High @ Low
Buyer‟s
profitability
low @ High
Table 6: Bargaining power of suppliers
Attractiveness Remarks
Low High
1 2 3 4 5
Number of
suppliers
Small @ Large
Availability of
substitutes
Few @ Many
Switching cost High @ Low
Supplier‟s
threat of
forward
integration
High @ Low
Industry‟s
threats of
backward
integration
Low @ High
Contribution to
quality
High @ Low
Contribution to
cost
High @ Low
Industry‟s
importance to
supplier
low @ high
9. 9
Table 7: Government actions
Attractiveness Remarks
Low High
1 2 3 4 5
Industry
protection
Low @ High
Industry
regulation
(pollution,
etc.)
High @ Low
Customs and
tariff
restrictions
abroad
High @ Low
Table 8: Overall assessment
Attractiveness Remarks
Low High
1 2 3 4 5
Barriers to
entry
@ 4.1
Rivalry among
competitors
@ 3
Barriers to exit @ 2
Power of
buyers
@ 3.62
Power of
suppliers
@ 3
Threat of
substitutes
@ 3.75
Government
action
@ 2.66
Overall
attractiveness
@ 3.16
10. 10
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 (including
many tractors) Despite the fact that Escorts
Tractors has just 13.2% market share in
Domestic industry, its share would be said
sufficiently enough to say as big; because it is an
old player in this industry and improve the
economical condition at the time of post-
independence. Its growth has been moderate. So
these products come in Cash Cow categories.
Star: Construction Equipment Group
Escorts is one of the company providing services to Government of India to make new
railway infrastructure in the country. Its relative share is quite sufficient. Also, a high growth
is being predicted after the announcement from Govt of making huge investment in the field.
So rate of growth is also high.
Dog: Construction equipment
Relative share is low due the presence of competitors, such as- JCB, Jaypee Group. Also
there is not a good growth in this field.
Q mark: Auto-Suspension Part Group
Despite 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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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.
13. 13
Various types of the Strategies adopted by
the Organisation
The 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 countries
by 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 launched Farmtrac Range in collaboration with TATA International
Phnom Penh, Cambodia, in September 11, 2013:
News: Escorts Limited, India‟s leading tractor manufacturer, today announced its entry into
Cambodia 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.
14. 14
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.
Digitalisation 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 Resource Strategy: Manpower cost management is also under intense review to
ensure a balance between the human resource requirements of today with the needs of the
future 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 Punjab
National 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 by
the way of Drawee Bill Discounting Facility.
Recently, Escorts signed a Memorandum of Understanding (MoU) with State Bank of
India (SBI) for providing financial assistant to its newly launched agri service infrastructure
called 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 & marginal
farmers.
15. 15
Strategy Implementation:
COMPANY’S PHILOSOPHY ON CORPORATE
GOVERNANCE
Company‟s 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 Company‟s 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 ‘Independent’ Criteria 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 entitled
under the Companies Act, 1956 as Non-Executive Directors, none of these Director(s) has
16. 16
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 on
30th 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 COMPANIES
On the Company‟s Board is a member of more than ten committees 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 MEETINGS
During the financial year 2011-2012 the Board of Directors met Five (5) times on the
following dates:-
28th November, 2011, 14th February, 2012, 15th March, 2012, 15th June, 2012, 24th
September, 2012
The gap between any two Board meetings did not exceed four months.
Board Meeting Procedures
The detailed agenda papers containing all information relevant for discussions at the meeting
are sent to the Directors in advance so that each director has enough time for a meaningful
discussion at the Board Meetings. Besides the business items, the agenda includes the items
required to be considered by the Board of Directors as per the Listing Agreement. The
required information as enumerated in Annexure I A to Clause 49 of the Listing Agreement
are regularly made available to the Board of Directors for discussion and consideration at
Board 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 business
issues.
The Annual Operating and Capital Budget(s) are approved by the Board of Directors. The
Board spends considerable time in reviewing the actual performance of the Company vis-à-
vis the budgeted.
Code of Conduct
The Board had prescribed the Code of Conduct for all Board Member(s) and Senior
Management. The Code of Conduct has been posted on Company‟s web site www.
escortsgroup.com.
17. 17
Strategy Evaluation using Balanced Score
Card approach
Financial Perspective
They are good at this account. Recently Govt announced to make huge investment in
Infrastructure Sector. And Escorts is supplying various construction related products,
and also products for Indian railway. Moreover, its tractors are used in agri as well as
in non-agri fields. So there is huge opportunity for such an organisation.
Customer Perspective
Escorts has recently flagged off one of its biggest „customer connect‟ campaigns.
Titled SAMPARK, this national level service campaign has 1200 Escorts-trained
engineers 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 as
a service provider to our customers. Our successes are made possible by our ability to
view the market from our customer‟s eyes. For us, lifetime value of our customer
based on inherent value exchange is the growth driver and not just the price based
profit motive. Our customers have reaffirmed our faith in our value system by
becoming champions for the products they have bought and experienced.”
Others are, After sale services, giving training to distributors to understand the
demand of customers, etc.
Internal Business perspective
To get the maximum return on investment, the company is aiming for zero-defect
production at its manufacturing facility. In order to facilitates this, Escorts has started
Service Audit for Finished Goods – an initiative under which in product support
specialists are auditing all its new machines, and rectifying their faults, if found.
Company continues to implement its leadership management programme to
strengthen talent pool and promote greater employee diversity.
Innovation/Learning
Company 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, the
Company has built a diverse and talented team. In the last few years, they have
established their People, Performance and Growth framework, which provides it with
a structure for managing the performance and development of its people and aligning
them with the Group strategy.
With the bold strategy of launching a new product every six months at Escorts Agri
Machinery, it introduced a series of tractors for premium and marginal farmers that
bring value to the customers and significantly increase Escorts‟ market share.
18. 18
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 Actions
New 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 meet changing applications requirement.
• Compliance to safety and emission regulations.
• Cost effective design solutions to meet customer emerging needs.
• New Technologies absorption for continuous improvements.
• More Innovative features.
19. 19
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
