THIS IS THE CASE STUDY WHICH IM TRYING TO SOLVE BUT IM NOT ABLE TO SOLVE IT PROPERLY PLZ HELP ME WITH THIS ALSO PLZZZ.
LAKSHMI MACHINE WORKS LTD.
The Coimbatore based, Lakshmi Machine Works Ltd. (LMW), established in 1962, is one of the three companies in the world making the entire range of spinning and weaving machinery and the largest textile machine manufacturer in India. In 1996, it had a turnover of about Rs.600 crore in the Rs. 1500 crore-textile machinery market in India.
LMW had a fairly steady and fast growth. Its sales increased from RS. 322 crore in 91-92 to 600 crore in 95-96 and the net profits increased from about Rs.44 crore to 52 crore during the same period. On an average, more than 90 percent of the profits were ploughed back so that its reserves soared from about RS. 52 crore in 1991-92 to Rs.176 crore in 1995-96. The assets of the company, historically valued at RS. 450 crore, was estimated to be around RS. 1,000 crore in current prices in 1996. LMW, which had a nearly zero debt position in 1994-95, had a debt of RS. 56 crore in 1995-96, necessitated by its expansion and modernisation plans involving a total outlay of RS. 250 crore. LMW’s capacity was expanded by 40 per cent and a new foundry was established to meet its requirements of casting. It also invested RS. 60 in a pig iron manufacturing unit to supply iron and steel for the company and promoted units to supply iron and steel for the company and promoted units to ensure steady supply of components at reasonable prices. LMW had also diversified into unrelated businesses such as agro-business like oil palm-cultivation and floriculture (investment: RS. 11 crore) and granite (investment: over RS. 8 crore)
LMW have had no dearth of orders and its order books used to be full for the next two or three years. Even in 1996-97 when there was recession it had orders worth more than RS. 2,000 crore. As the company took 10 per cent of the value of the order as interest free advance it did not have to seek other sources for its working capital. Because of the heavy order position, it took 18 to 24 months to deliver a machine after order was placed with it. The management planned to bring the delivery time to about 12 months.
The liberalisation has thrown up a number of threats and challenges for LMW. The competitive environment has been fast changing. The liberalisation of foreign investment facilitated the entry of several foreign firms via the joint venture route or the increase in their stake in the existing ventures. Rieter Machine Works of Switzerland, who was LMW’s technology supplier and who held 13% equity in LMW, set up a 100 per cent subsidiary in India in 1995. Technology agreements between Rieter and LMW for some of the machines had already expired but not renewed and the remaining ones were not expected to stretch further beyond the expiry of the agreements. In the new business environment, foreign firms would not be willing to part with their latest technology without a controlling or significant stake in the business.
LMW has set up a full-fledged R&D centre with the aim of developing its own technology and has increased the allocations for R&D. The machines of the foreign firms, priced high, cater to the upper segment of the market. There are textile firm which use both LMW machinery and that of the foreign firms—the machines of the foreign firms are generally used for production for the quality conscious foreign markets. Although the size of the quality segment is small now, the intensification of competition in the international market for textile items following the phase out of MFA as per the Urgency Round Agreement and the expansion of the premium quality market segment in India are expected to expand the demand for high quality machines.
One of the important threats faced by the LMW has been the import of second hand machinery, available at 50 to 60 per cent of the price of new ones, the customs duty on such machines having cut from 25 to 10 per cent. Although the prices of new machines imported are 20 to 30 per cent higher than the domestic ones, the delivery time in respect of them is only 2 to 3 months, compared to 18 to 24 months in the case of LMW.
In 1998-99, the textile industry being under recession, the LMW faced some serious problems. Most of the spinning mills opted to postpone their delivery schedules, although they had placed orders by advance payments. Only some mills confirmed their willingness to take delivery (and even some of them have been reported to have gone back on their promise). Yet, LMW had orders worth RS. 1,250 crore on hand, which would take at least 18 months to complete the execution on its enhanced capacity. Since most of the textile machinery is tailor-made for each customer, late changes in delivery schedules cause serious problems. LMW’s inventory of finished goods in June 98 was reported to be at around RS. 90 crore compared to average monthly inventory of RS. 20 crore in 1996-97, whereas there was not a single machine in stock until the previous year end. In 1997-98, net profit amounted to nearly RS. 25 crore (about 10 per cent increase over the previous year) on a turnover of about RS. 514 crore. The LMW script (face value RS. 100), which ruled at about RS. 12,000 in April 1996 crashed to nearly RS. 5,000 in the next year and tumbled further to about RS. 1,500 in 1998 but improved to over RS. 2,000 in the same year.
Q-1 Make a SWOT analysis of LMW.
Q-2 Suggest a strategy for the future of LMW based on strength/weaknesses and opportunity/threats analysis (TOWS matrix)
Q-3 Suggest measures to overcome the problems faced in the recessionary situation.
Q-4 what LMW would have done in the past to avoid present situation?
LOOKING FORWARD FOR YOUR SUGGESTION AND DISCUSSION
From India, Delhi
6LAKSHMI MACHINE WORKS LTD.
The Coimbatore based, Lakshmi Machine Works Ltd. (LMW), established in 1962, is one of the three companies in the world making the entire range of spinning and weaving machinery and the largest textile machine manufacturer in India. In 1996, it had a turnover of about Rs.600 crore in the Rs. 1500 crore-textile machinery market in India.
LMW had a fairly steady and fast growth. Its sales increased from RS. 322 crore in 91-92 to 600 crore in 95-96 and the net profits increased from about Rs.44 crore to 52 crore during the same period. On an average, more than 90 percent of the profits were ploughed back so that its reserves soared from about RS. 52 crore in 1991-92 to Rs.176 crore in 1995-96. The assets of the company, historically valued at RS. 450 crore, was estimated to be around RS. 1,000 crore in current prices in 1996. LMW, which had a nearly zero debt position in 1994-95, had a debt of RS. 56 crore in 1995-96, necessitated by its expansion and modernisation plans involving a total outlay of RS. 250 crore. LMW’s capacity was expanded by 40 per cent and a new foundry was established to meet its requirements of casting. It also invested RS. 60 in a pig iron manufacturing unit to supply iron and steel for the company and promoted units to supply iron and steel for the company and promoted units to ensure steady supply of components at reasonable prices. LMW had also diversified into unrelated businesses such as agro-business like oil palm-cultivation and floriculture (investment: RS. 11 crore) and granite (investment: over RS. 8 crore)
LMW have had no dearth of orders and its order books used to be full for the next two or three years. Even in 1996-97 when there was recession it had orders worth more than RS. 2,000 crore. As the company took 10 per cent of the value of the order as interest free advance it did not have to seek other sources for its working capital. Because of the heavy order position, it took 18 to 24 months to deliver a machine after order was placed with it. The management planned to bring the delivery time to about 12 months.
The liberalisation has thrown up a number of threats and challenges for LMW. The competitive environment has been fast changing. The liberalisation of foreign investment facilitated the entry of several foreign firms via the joint venture route or the increase in their stake in the existing ventures. Rieter Machine Works of Switzerland, who was LMW’s technology supplier and who held 13% equity in LMW, set up a 100 per cent subsidiary in India in 1995. Technology agreements between Rieter and LMW for some of the machines had already expired but not renewed and the remaining ones were not expected to stretch further beyond the expiry of the agreements. In the new business environment, foreign firms would not be willing to part with their latest technology without a controlling or significant stake in the business.
LMW has set up a full-fledged R&D centre with the aim of developing its own technology and has increased the allocations for R&D. The machines of the foreign firms, priced high, cater to the upper segment of the market. There are textile firm which use both LMW machinery and that of the foreign firms—the machines of the foreign firms are generally used for production for the quality conscious foreign markets. Although the size of the quality segment is small now, the intensification of competition in the international market for textile items following the phase out of MFA as per the Urgency Round Agreement and the expansion of the premium quality market segment in India are expected to expand the demand for high quality machines.
One of the important threats faced by the LMW has been the import of second hand machinery, available at 50 to 60 per cent of the price of new ones, the customs duty on such machines having cut from 25 to 10 per cent. Although the prices of new machines imported are 20 to 30 per cent higher than the domestic ones, the delivery time in respect of them is only 2 to 3 months, compared to 18 to 24 months in the case of LMW.
In 1998-99, the textile industry being under recession, the LMW faced some serious problems. Most of the spinning mills opted to postpone their delivery schedules, although they had placed orders by advance payments. Only some mills confirmed their willingness to take delivery (and even some of them have been reported to have gone back on their promise). Yet, LMW had orders worth RS. 1,250 crore on hand, which would take at least 18 months to complete the execution on its enhanced capacity. Since most of the textile machinery is tailor-made for each customer, late changes in delivery schedules cause serious problems. LMW’s inventory of finished goods in June 98 was reported to be at around RS. 90 crore compared to average monthly inventory of RS. 20 crore in 1996-97, whereas there was not a single machine in stock until the previous year end. In 1997-98, net profit amounted to nearly RS. 25 crore (about 10 per cent increase over the previous year) on a turnover of about RS. 514 crore. The LMW script (face value RS. 100), which ruled at about RS. 12,000 in April 1996 crashed to nearly RS. 5,000 in the next year and tumbled further to about RS. 1,500 in 1998 but improved to over RS. 2,000 in the same year.
Q-1 Make a SWOT analysis of LMW.
Q-2 Suggest a strategy for the future of LMW based on strength/weaknesses and opportunity/threats analysis (TOWS matrix)
Q-3 Suggest measures to overcome the problems faced in the recessionary situation.
Q-4 what LMW would have done in the past to avoid present situation?
LOOKING FORWARD FOR YOUR SUGGESTION AND DISCUSSION
From India, Delhi
Dear Seema,
Indeed a very good case study.
some of the points that immediately come to my mind -
Q1 - After liberalisation LMW could have refreshed its agreements with the foreign technology partner.
Q2- Try to Acquire companies that are in 3rd/4th position to make its presence felt in other part of the globe and to strongly compete with Global No. 1 or to become global No.1 with its R&D strength.
Q3- Usually the no.1 are not much affected by recessions. or they usually bounce back faster with the strength of 'Economy of scale'.
Q4
There was a Pressnote called Pressnote 18- which asks the foreign JV partner of an Indian company to seek NOC from the Indian Partner to start a business in India.Which was later scrapped and convered to Pressnote 1 which says that the Foreign partner needs to get NOC only if they want to start the business in India in the same field that of the Indian Partner.
LMW could have envoked this and seen that Rieter did not enter India.
I donno how well these points adress your case study questions, but still feel would be of some use to probe further
Regards
Sathya
Coimbatore
From India, Madras
Indeed a very good case study.
some of the points that immediately come to my mind -
Q1 - After liberalisation LMW could have refreshed its agreements with the foreign technology partner.
Q2- Try to Acquire companies that are in 3rd/4th position to make its presence felt in other part of the globe and to strongly compete with Global No. 1 or to become global No.1 with its R&D strength.
Q3- Usually the no.1 are not much affected by recessions. or they usually bounce back faster with the strength of 'Economy of scale'.
Q4
There was a Pressnote called Pressnote 18- which asks the foreign JV partner of an Indian company to seek NOC from the Indian Partner to start a business in India.Which was later scrapped and convered to Pressnote 1 which says that the Foreign partner needs to get NOC only if they want to start the business in India in the same field that of the Indian Partner.
LMW could have envoked this and seen that Rieter did not enter India.
I donno how well these points adress your case study questions, but still feel would be of some use to probe further
Regards
Sathya
Coimbatore
From India, Madras
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