Case Presentation: Business Strategies

BHEL:Losing Out to Chinese Rivals ?

Presented by:Utkarsh (13BSP1230)Pooja (13BSP0537)Karan Rathi(13BSP)Mallika Sharma(13BSP1511)Akanksha(13BSP1797)

INTRODUCTION

BHEL was established in 1964,deals in manufacturing power plants equipment in India. During in 2011, BHEL is known as the dominant player and was ranked as the ninth most innovative company in the world by US business magazine, FORBES. BHEL manufactured over 180 products that catered to the core sectors of the Indian economy such as power, transmission, industry, transportation, oil & gas, non-conventional energy sources, telecommunication & defense. BHEL established its first 60MW boiler for the ENNORE THERMAL POWER PLANT near CHENNAI. They were also focusing on export order too in the early 1970’s in Malaysia with successful

distribution channels. NOT only Successful delivery they also created a repetitive delivery in several countries to whom they

delivered earlier due to their strong bonding with customer’s .

Bharat Heavy Electricals Limited

What turns BHEL for having a joint venture ?

Capacity constraints New Entrants (Adani Power Ltd. Tata Power Ltd, Reliance Power Ltd, Lanco Infratech Ltd,

GMR Energy Ltd and GVK Group placed orders with foreign companies)-DOMESTIC COMPETITORS Open Economy-Many new foreign countries (Chinese,Korean,Russian) are coming with

advanced and updated technologies with more MW capacity. The first UMPP at Mundra, Gujarat, was constructed by Tata Power, with equipment imported

from Japan. Having capacity constraints for the manufacture of power equipment, BHEL’s capacity of 6000 MW

was increased to 10,000 MW in December 2007

To survive the competition, BHEL entered into a joint venture with NTPC Ltd. to execute engineering, procurement, and construction of power projects on a 50:50 partnership.

UMPP: ultra mega power projects

BHEL VS CHINESE PLAYERS

BHEL was the high cost supplier of power equipment whereas Chinese players products were low priced and were delivered on time.

BHEL equipment for unit of power producer needs to spend Rs 2 as fixed cost whereas in Chinese equipment reduced its fixed cost to Rs 1.4 or 1.5.

Chinese was experienced in producing BTG (Boiler turbine generator) whereas BHEL was just about mastering the technology.

BHEL commissioned a 600 MW unit delivery in 36 months whereas Chinese commissioned in 30 months. Chinese companies had standard power point design and they use to assemble parts using nuts n bolts whereas

BHEL used welding for projects which was time consuming. BHEL Has an edge over competitors as Chinese companies did not offer tailor made designs which provides units

that could be adapted to local conditions. Interest rates charged by Indian banks was 10 to 13% while Chinese bank charged just 4 to 6% making a significant

difference in cost of project.

INCREASING THREAT FROM CHINESE RIVALS

BHEL, the 12th largest power equipment manufacturer in the world faced stiffed competition from Chinese power equipment players.

Analysts pointed out a lot of weaknesses in BHEL like the capacity constraints, delayed delivery performance,cost factors, etc.

BHEL started losing to Chinese rivals from the year 2000. The Chinese players, who had little or no existence a few decades ago, took away 50% market share from BHEL. Indian power companies struggled to get finance for their projects and it helped Chinese companies to gain a

strong foothold in India.

Taking on Competition

Strategy to counter competition.New subsidiary to function as the financing arm for power projects.Improve order book. BHEL formed joint venture with state utilities like Madhya Pradesh, Tamil Nadu and

Karnataka.Decided to go multi modal to bring down logistics costs.Launch a new range of products equipment sets of 600mv. 500mv equipment upgraded to 525 mv and

250mv-270mv.10 year wage agreement with unions.BHEL needs to internalize R&D and reduce dependency for critical technologies.Needs to reassure the private section that they can deliver on time and at competitive prices.Increase vendor base in China.Sourcing from china along with other cost cutting measure enabled BHEL to reduce material cost at

around 60%

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