The aim of this research project is to formulate strategies for Punj Lloyd to penetrate the emerging Indian Nuclear Power Market.
To review existing theories, concepts, empirical work and relevant information on bidding strategies and project marketing for EPC companies
To identify the issues and challenges and to explore opportunities for Punj Lloyd in relation to the upcoming nuclear power sector
To assess the competencies of Punj Lloyd and evaluate a propos competitors.
To make recommendation and to formulate strategies to establish Punj Lloyd as a successful market leader and to sustain the growth.
The context of this research project is to comprehend the significant developments in nuclear power market as well as the company overview and the necessity of such research for the company.
4.2 Area of Research
The research area of this project focuses on nuclear power sector of India. The road map for this project will cover various phases of activities in sequence starting with identifying the issues and challenges related to upcoming nuclear power market and mainly concentrating on opportunities for the upcoming nuclear projects. Various sub-activities will be carried out in each phase of activity.
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Various studies have been conducted on market research of emerging Indian nuclear power sector but this report will concentrate on order winning/project winning strategies for nuclear power plant construction by Punj Lloyd.
The foundation of this report is based on the guidelines issued by the Department of Atomic Energy on 'Peaceful Uses of Atomic Energy' of India.
4.3 Overview of significant development in India's nuclear energy sector
Historically, India had been barred from the international trade in nuclear technology owing to concerns of nuclear proliferation. However, nuclear power for civil use is permissible. India's civil nuclear strategy has been directed towards complete independence in the nuclear fuel cycle without fuel or technological assistance from other countries. Till mid-90s, the nuclear power reactors of India were counted among the world's lowest capacity factors, indicating the technical incompetency, but it rose impressively from 60% in 1995 to 85% in 2001-02 and in 2008-10, the load factors dropped due to shortage of uranium fuel.
Recently, India and the United States approved a deal to encourage trade and co-operation in nuclear energy. In September 2008, the Nuclear Suppliers Group (NSG) amended its guidelines to remove India from the list of countries barred from nuclear trade. As a result, India is now permitted to import Light Water Reactor (LWR) technology as well as high grade Uranium to enhance nuclear power production in the country.
India currently derives 2.6% of its total electricity requirement from nuclear energy. India is planning to increase this share to 10% by 2022 and 26% by 2052. This translates to an increase in installed nuclear power generation capacity from the current level of 4,120 MW to 40,000 MW by 2020 and 250,000 MW by 2050. To meet these targets, India will need to invest US$ 65 billion between 2010 and 2020 in new power plants.
India's Nuclear power market currently is a regulated market which operates under the guidelines of Government of India .The Nuclear Power Corporation of India Limited (NPCIL) is responsible for design, construction, commissioning and operation of all nuclear power plants in the country. NPCIL, a public sector enterprise, incorporated and registered under the Indian Companies Act, 1956 in September 1987 is under the direct administrative control of theÂ Department of Atomic Energy (DAE) of the Government of India.
4.4 Company Overview of Punj Lloyd
Punj Lloyd Group is a diversified global conglomerate providing engineering, procurement and construction services in oil and gas, infrastructure and petrochemicals, and with interests in defence, aviation, nuclear, marine and upstream sectors.
It is one of the largest engineering and construction companies ranked 107 in Top 225 Global Contractors for the year 2008 providing integrated design, engineering, material procurement, field services, construction and project management services for energy industry and infrastructure sector projects.
With a turnover of US$ 2.6 billion, the Group's three brands - Punj Lloyd headquartered in India, Sembawang Engineers and Constructors in Singapore, and Simon Carves in the United Kingdom, each with its own subsidiaries and joint ventures, converge to offer complementary services, rich experiences and the best practices from across the globe. A dynamic enterprise, the Group explores and pursues the enormous opportunity in markets globally. Partnering with the best in their own arenas, Punj Lloyd brings technology and quality to clients worldwide and reiterates its belief of delivering the best, in services and manufacturing. An excellent track record for successful completion of projects within tight schedules, lends credibility to the Group, encouraging clients to trust it with repeat orders.
Always on Time
Marked to Standard
Punj Lloyd Group has relevant past experience in constructing nuclear power projects through its subsidiary Simon Carves Ltd UK, which has expertise in FEED, Detailed Engineering and Commissioning of nuclear power projects. It has worked on the design and construction of 'Magnox' Power Reactor Stations in UK. It undertook and successfully executed the engineering; procurement and construction for New fuel Oxide Plant, Vitrification Plant for British Nuclear Fuel Limited.
As stated earlier, India needs to develop its nuclear power generation capabilities if it is to meet its growing demands and has planned increase in the nuclear power share from current 2.6% to 10% by 2022 and 26% by 2052. The same will not be possible without Private Public Partnerships (PPPs); though, at present, Nuclear Power Corporation of India Ltd (NPCIL) is the sole authority supervising India's civil nuclear program.
Punj Lloyd recognises that this area offers long term growth opportunities for its engineering and construction businesses. Over a period of time, the following business opportunities will arise for it in the nuclear power generation business:
Engineering, procurement and construction
Decommissioning of Nuclear Power Plants and nuclear waste management
Nuclear Fuel and Consultancy
Operations and Maintenance
The focus of this research concerns the possible opportunities in Indian nuclear power sector. Currently Punj Lloyd is focussing on the complete turnkey project execution that includes Engineering, Procurement and Construction and Successful Commissioning of the nuclear power project.
With the announcement of new nuclear power projects by NPCIL, this research projects will enable Punj Lloyd to focus on potential avenues and formulate strategies in establishing it as a successful order winner for the engineering, construction and commissioning of these nuclear power projects. This research project also enables Punjllyod to create distinct competitive advantage thereby ensure the sustained growth.
5.0 LITERATURE REVIEW:
To be able to provide valuable recommendations to Engineering, Procurement and Construction (EPC) companies, numerous areas must be addressed. This can only be done through systematic examination and critical evaluation of significant theories and concepts.
In order to carry out the literature review, the following areas are to be addressed:
Characteristic of relationship between customers and contractor
Various pieces of research have been studied as a part of this literature review such as bidding strategies, project marketing and system selling (Cova etal., 2002; Cova et al., 1994; Dubois & Gadde, 2000; Hobbs &Andersen, 2001), relationship marketing (Gummesson, 1990, 1991; Grönroos, 2000); incomplete contract theory (North,1996), the literature on partnering in construction industry (Barlow & Jashapara, 1998; Bresnen & Marshall, 2002; Sai-On et al.,2003; Scott, 2001; Turner & Simister, 2001). Project marketing research also emphasizes the role of relationships and networks or milieus in project marketing (Cova,Mazet, & Salle, 1996).
5.01 Bidding Strategies:
Construction bidding process is related to the systems approach, which is used to model the behaviour of firms as observed by Male. He established that the contractors define a strategic domain at the corporate strategy level with the domain to ascertain the market dimensions within which framework, the contractors plan to operate and compete for that work. Contractors then choose the contracts that they wish to bid for in accordance with their business strategy level. For that bidding, the cost estimate is formulated at the operational strategy level and reverted to the business strategy level for deciding the appropriate level of mark-up. According to Skitmore, only bids which are derived from a detailed cost estimate along with a realistic mark-up are genuinely competitive, whereas, other activities are procedural and termed non bona-fide. Bids thus, may be classified as serious or non-serious bids.
Contractors adopt various strategies to enhance the probability of successful bidding. Fine has identified several strategies for successful bidding including random bidding, selective bidding and severely competitive bidding. Stone has suggested that lower standards of work or efficiency may be accepted due to cost constraints. The key factors that affect bidding decisions are categorised as job characteristics, economic environment and competition condition. Based on similar rationale, factors influencing bidding behaviour were grouped by Drew and Skitmore as the behaviour of contractors as a group depending on market conditions, number and identity of competitors; individual contractor behaviour and behaviour toward the characteristics of the contract.
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Flanagan and Norman identified that bidding behaviour is affected by the size and value of the project, and construction and managerial complexity required to complete it; regional market conditions; current and projected workload of the tenderer; type of client and project.
Flanagan and Norman examined the bidding performance of small, medium and large contractors in respect of type and size of construction work. They discovered that when bidding the small contractor considered both the type and size of construction work, whereas the large contractor was more successful on bidding for large contracts and the medium contractors' competitiveness was not related to the type and size of construction work.
Researcher agrees that the corporate level strategy plays a significant role in choosing the contract. To be the bid to be competitive researcher agrees to the fact that detailed cost estimate with realistic mark-up is must. Researcher is also inclined with the notion of bidding behaviour affected by the size and value of project.
5.02 Project Characteristics:
Designing and constructing of a nuclear power plant is a herculean task as it involves lot of uncertainty and complexity. Construction activity is based on a very strong commitment towards quality owing to the nature and quantum of risks associated to a nuclear plant. Also, such plants are highly capital intensive projects requiring a high level of dedication for the successful execution of these projects.
The choice of the contract design entailed by the customer is analysed on concept of uncertainty as explained by institutional economics (North, 1996; Williamson, 1985) and by business-to-business marketing scholars (Håkansson, Johanson & Wootz, 1977). Uncertainty refers to the projects according to the project marketing literature (Barlow & Jashapara, 1998; Cova et al., 2002; Smyth, 2000; Turner & Simister, 2001).
For a customer, the uncertainties are connected with development of specifications, the transaction method and also, with the supplier's ability to complete the project successfully (Cova et al., 2002; Smyth, 2000).
The researcher also believes that the uncertainties in terms of cost and time impact on successful execution of the project.
The problems, requirements and specifications cannot be precisely defined by a client if the project is technically complex and the characteristics of supply market are heterogeneous and unstable. (Cova et al, 1994). The clients may then approach experts to decipher the overall complexity of a given technological field in order to decrease associated risks due to technological incompetence. In such situations, bid-winners are generally involved from the ideation stage of the project to help the customer in killing the issues from the beginning. Thus, if the perceived risk is higher for a customer, he may opt for collaboration or co-development (Guillou et al., 2003; Hobbs & Andersen,2001; Kadefors, 2004; Scott, 2001; Salle & Silvestre, 1992;Turner & Simister, 2001).
Researcher agrees on the ideology of the taking assistance from the expert when the project is technically complex and the associated risk is high.
In case of a contract ex ante (dependant on a future happening), the customer may not be able to use the traditional competitive bidding procedures for the project (Brousseau and Fares, 2000). In such cases, arm's length approach may not be considered and open-contracts are generally adapted on mutual trust of the parties (Kadefors, 2004). Cova, Damgaard and Mazet (1993), Scott (2001), Turner and Simister (2001), as well as Good and Schultz (1997) have all outlined the complexities of projects owing to contractual approach of the customer.
Researcher agrees on the point of adopting different contractual approach according to the varying complexities of projects.
5.03 Customer's Characteristics:
It has been researched and observed that few clients appear to be naturally open to early co-operation with a contractor instead of splitting the design and the execution phases (Sai-On et al., 2003; Scott, 2001). Cova et al. (1996) points out that joint development of demand mostly occurs when the client is culturally open to a direct interaction with the suppliers. Sai-On et al. (2003: 341) also stressed the existence of "behavioural blockages to cooperative contracting". This was also confirmed by Scott (2001) and by Brennan and Turnbull (1999) for whom the client's "business culture" or "managerial orientation" must promote an atmosphere of trust and mutual respect to engage in a relational contract.
Customers belonging to public sectors appear to be very rigid and follow formalized procedures restricting the possibility of early engagement with contractors.
Further, clients having internal design capacities also appear to be more reluctant to delegate the design of formulation to an external agency or consultant/supplier (Guillou et al., 2003). On the other hand, the customers who lack in the design capabilities are inclined to rely on the expertise of consultants or their suppliers on advice for an appropriate approach to their project (Smyth, 2000).
Researcher argues on the point of being reluctant on delegating the design of formulation to external agency if client has the designing capability. Delegation to an external agency is not limited to capabilities but also is a effect of cost, time, co ordination and the flexibility involved in project.
5.04 Contractor's characteristics:
The inherent characteristics of a contractor's business culture in terms of goals and values must be compatible with the customer to create an atmosphere of trust. This will eventually lead to co-development of the project (Bresnen & Marshall, 2002; Costantino & Pietroforte, 2002).
Co-development generally focuses on the pre-tender stage of the project. This requires the contractor to be in regular contact with customer for an early engagement in the project design and contribute to development of the project. It is also pertinent to note that research reveals that degree of freedom to move in a project decreases over passage of time and in proportion with the degree of irreversibility of project decisions (Milder 1995).
Researchers believes that atmosphere of trust can not only related to client's compatibility with contractor's goals and values but also the contractors past experience of successful execution of project.
Characteristics of relationship between customer and
For co-operation and co-development for a project, it is essential that the customer and contractor/supplier have mutual trust, commitment and minimum of shared goals. Undoubtedly, trust plays a significant role in a fruitful collaboration (Gummesson, 1990, 1991; Håkansson & IMP Group, 1982; Ring Smith & Van de Ven, 1994). Trust strengthens a relationship and reduces the factors causing conflicts among parties.
In a construction project, three qualities are required for the building mutual trust: ability, benevolence and integrity.
The sense of commitment of parties helps them to develop required resources, efforts and investments to develop a successful relationship (Grönroos, 2000; Moorman, Zaltman & Deshandé, 1992). The commitments are shown and proved "credible" by the specificity of the assets or investments made by
the parties to develop the relationship (Alix-Desfautaux, 1995; Michel et al., 2003).
The creation of a co-operative relationship between two parties relies on a minimum level of shared goals and expectations.
Researcher agrees on the credibility of contractor commitments in successful development of relationship with the client
There are several literature reviews on the bidding strategies and the project marketing which are critical for market penetration for EPC companies. Incorrect choice of the bidding strategy leads to losing the nuclear power projects. The lack of knowledge is specific to competitive bidding and project marketing in Indian public sector enterprises operates in nuclear power which is highly committed to socialism.
Research is an active, diligent and systematic process of inquiry in order to discover, interpret or revise fact, events, behaviours or theories, or to make practical applications with the help of such facts, laws or theories.
A good blend and systematic approach are required between the practical situations and theoretical applications to be able to achieve the required level of success in any venture. The first task is to understand what the contemporary techniques present for a research project and choose the one which best full fill the objectives. Completing every step properly will allow further progress in the research. Hence the methodology will decide what mode of analysis is done and eventually the outcome of the research.
A multi-strategy approach will be employed to achieve the aim and objectives of this research. Triangulation will provide the stability by balancing the strength and weakness of different methods of research Tricker (2004:205), Gill and Johnson, (2002:202), and Mason (2002:33).
The approach researcher will adopt in order to carry out this research is inductive approach rather than deductive. Researcher will start with the reviewing processes and events takes place in the organisation, analysing the collected data and then proceeding to theory formulation from this data.
For carrying out this research project, I will follow these three modes:
6.1 Desk-based Research:
Since this research paper requires a deep understanding of current treaties and agreements, present scenarios and available data of the industry, the desk-based research is the first step. Researcher will review various journals, articles, online resources and empirical material to gather information necessary for analysing the approaches required for engineering and construction industry to penetrate the upcoming nuclear power market. This is a continuous process which will be the source of data during the entire duration of the project. The advantage associated to it is the easy access of knowledge sources. The information gathered through this method will pave way for necessary start required for the study.
The literature review and the filtered specific data provide the limited information which necessitates the collection of the primary data.
The government guidelines and policies are a must-read to under the practice in the Indian nuclear power sector. Review to these guidelines is also a requisite. These guidelines can be obtained through journals and online resources etc.
To gain the understanding of the Indian Nuclear Power Sector some academic and business journals, newspapers, magazines and organisation's survey data will be used.
6.2 Field-based Research:
Qualitative data will be used to carry out research further. There are numerous ways to gather primary data. According to the objectives of study, researcher will collate the primary data through semi-structured interviews and questionnaires.
For the purpose of understanding the practices employed in the nuclear power sector, it is necessary to carry out surveys through semi-structured interviews. It will also be essential to conduct face-to-face interviews with Nuclear Power Head of Department of Punj Lloyd, Senior Manager Nuclear Power and Marketing Head (Power), which will provide the insight and knowledge of the company's policies and relevant information. The advantages of semi-structured interviews are that depending on the responses, specific areas of interest can be examined in more details.
In order to understand the whole dynamics of Indian nuclear power sector, the interview with two competitor will also be conducted covertly as "it is often argued that the people may behave differently when aware that they are under observation"(Gill,Johnson,2002:146) . This will initiate the reliance on secondary source of information.
Secondary sources of data can be categorised into three main subgroups: documentary data, survey data and multiple sources data (Saunders et al, 2003). Access to company's website and reliable public websites will provide some additional data required to full fill the purpose.
In order to validate the question being asked two pilot tests will be conducted which will provide the opportunity to modify these questions if necessary.
The interviews may be recorded on tape with consent. Some interviews may be conducted on phone or on video conference. This transcript will be coded and analysed. Data collected from the interviews will be further used to identify the themes and commonality in the interviewee's responses. This data will be used to construct the survey questionnaire, to be posted to 40 participants. The survey is limited to 40 participants because of the constraint on availability of knowledge based people on nuclear sector.
6.3 Case Study:
According to (Lamnek, 2005): "The case study is a research approach, situated between concrete data taking techniques and methodological paradigms."
Case study can be a study of an individual, group or communities. Case study in the instant case is related to the Indian nuclear power sector for exploring avenues and formulating strategies for Punj Lloyd to be a successful order winner.
Case studies can be based on any mix of quantitative and qualitative evidence.Â Single-subject researchÂ provides the statistical framework for making inferences from quantitative case-study data.Â
The outcomes of field-based research (i.e. the primary and the secondary data), will be gathered and studied in order to construct the case study.
"The case study has the considerable ability to generate answers to question 'why?', 'what?' and 'how?'"(Saunder et al, 2003). After considering all the ideas together with the study the answer to the question "What will be the strategy of Punj-Lloyd to penetrate the upcoming Indian Nuclear Power sector" can be deduced thereby satisfying the aim.
Research Ethics in research refer to the framework of broad ethical principles and responsible conduct of research relevant to field research. It deals with the collection and dissemination of information during a research.
The Economic and Social Research Council, UK's leading research and training in "Research Ethics Framework" defines 'Research ethics' as the moral principles guiding research, from its inception through to completion and publication of results and beyond - for example, the curation of data and physical samples after the research has been published.
I will strive following these principles of ethical conduct (adapted from Shamoo and Resnik - Responsible Conduct of Research) during my research project:
I will honestly report the data, results, methods and procedures followed. I will not fabricate, falsify or misrepresent data and will not deceive colleagues, granting agencies or the public.
I will protect the confidential communications with Punj Lloyd and other agencies. I will not reveal the confidential information gathered during this project against the company or any other agency providing such information. I will ensure that confidential documents are stored adequately.
I will seek consent of the examinee or interviewee or information provider before conducting the interview or survey or collating any data. I will not seek consent through any fraudulent means or by causing deception.
I will ensure that the line of privacy is maintained during the course of collection of information. I will ensure that there is no violation of privacy of individuals or groups due to my research.
Storage of information
I will ensure that the information collated during the research and other data or reports or confidential papers are stored in proper way so that no other person can access such information or cause injury using the said information.
Reporting of accurate data
I will ensure that final report contains only accurate information and does not contain any false or fabricated information. I will be careful of any negligence in reporting.
Acknowledge the Intellectual Property Rights
I will seek permission to use the unpublished data, methods or results for my research. I will not violate copyrights or nay other forms of intellectual property. I will properly acknowledge or credit for all contributions to research. I will not do plagiarism in any form.
I will obey the relevant laws and governmental policies during my research project and its publication.