Lincoln Electric Case Essay

capital of Nebraska galvanizing community in the year 1895. The first productions that the community produced and sold were electric motors that he had designed himself. A some years later, in 1907 his brother James, a recently graduate from the Ohio State University, joined as a senior manager He was also the atomic number 53 who would introduce different and very innovative human resource policies over the next few decades.These policies included things like employee stock ownership, the creation of an Employee advisory board, as well as piecework pay. Most of these ideas were later adapted as standard US wide practices. The Welding business, which not really was one of the main focuses of the Lincoln Electric Company, became the main source of income by 1922. Welding which a special technique of -under heat bringing together different sources of metals. It is used for basically al close of the industrial areas, from pipeline manufacturing to petrochemical complexes.From 19 86 onwards, the confederacy pursued a course of extensive internationally expansion. This was started already way earlier in 1933 first, with the establishment of the Lincoln Electric Company in Australia and in 1953 with its expansion to France. However, from the mid 1980s onwards, Lincoln Electric expanded its manufacturing operations into 16 countries. This expansion peaked in 1995, when the order reached the $1 billion in sales the first time. It was also the year Lincoln began to trade its shares on the Ameri discount stock marketplace the NASDAQ.By 2005 it became the worlds booster cable manufacturer in the conjoin labor. Nowadays, (Dec. 31 2010) Lincoln Electric has net sales of $ 2,070 million. Why go abroad? As the Lincoln Electric Companys idea and concept proved to be successful in the US from the 1930s onwards, it also operated outside of the region. Due to its success in its pedestal market, the companies management was able to first throw out enough market kno wledge in order to enter new markets were a certain proficiency is required. Nevertheless, as markets and industries around the world differ in to each other (e. g.consumer tastes) the best idea was for Lincoln Electronic to first enter a market were the so-called Psychic Distance is not so high and less doubt.Therefore Australian was chosen, as this is psychological wise not so far from the legal residence / US American market. This phenomenon can be seen in the Uppsala Model. It includes four different steps, from first acquiring mother in the home market to wholly owned international operations. This go forth be explained in more detail later. However, as we can see in the Lincoln Electric case, the company first gain sufficient knowledge in their home market and later expanded internationally. simply step by step further away (political, language and farming wise) from its home market. Uppsala Model Looking at the process of internationalization of Lincoln Electric, most of the facets of the Uppsala Model can be identified. So, this entry mode theory is most applicable in our opinion. In this section, we will elaborate upon the internationalization of Lincoln Electric while applying the tips of the Uppsala model. During the first demo companies tend to solely gain experience of their domestic markets.In the case of Lincoln Electric, it can be stated that it mainly focused on becoming the leading manufacturer in the joined States. Core competencies are most important for the success of an MNE and for all companies those core competencies are their higher-order riotous specific advantages (FSAs). In this first stage of the Uppsala Model we will try to recognize all the FSAs of Lincoln Electric. The first FSA is the companys human resource policy, in which many facets can be recognised that fork over productivity advances and which results in a variability of 60 percent of the personnel costs.Those facets are performance-based rewards, employee sto ck ownership, a piecework payment system, and bonuses based on company profits. Another FSA is that the company cuts costs in acquiring personnel, and simultaneously keeps holding a very well experienced and integrated workforce by grammatical construction trust among the employees with policies like an employee advisory boards, employee suggestion systems, annuities for retired employees, group life insurances, and a no-layoff policy. The third acknowledge FSA is the companys R&D program this program is the most aggressive, comprehensive and successful in the welding industry.This FSA led the company in new market introductions and quality performance. Fourthly, an important FSA for consumer relations is the ability to provide full welding solutions. The company is able to provide this due to the fact that it manufactures both arc welding equipment and consumable products. Summarized, the core competencies which provide the company with competitive advantages are the ability to cut personnel costs, the highly trained technical sales force, and the ability to provide excellent service for customers.The second stage in the Uppsala model states that the firm begins to operate abroad in a nearby market, and then slowly penetrates far away markets. When applying this to Lincoln Electric, it can be seen that the company encountered its first international experience in countries such as Canada, Australia and France in the 1940s. These countries assimilate a small psychic distance from the get together States, therefore, the market uncertainty is perceived as low.Canada, Australia and France are psychically nearby, because issues with regard to trade unions, labour practices and laws are treated similarly in those countries. Furthermore, Canada and Australia are linguistically similar to the United States, and all the previous countries are western countries, so the cultures are not significantly different. Lincoln Electric started its first major internationa l expansion amongst 1986 and 1992. It then increased its presence into 15 other countries, which were achievements in Venezuela, Mexico, Brazil, Scotland, Norway, the UK, the Netherlands, Spain, and Germany.However, this expansion was a real failure, the company faced difficulties due to executives inexperience with trade unions and their lose of knowledge of labour practices and laws in other countries. The companys aim was namely to operate the new acquisition in Lincoln USAs image, however they learned from this experience and as can be seen in stage four, their renewed global expansion is much more improved. The third stage of the Uppsala model states that companies tend to enter markets through export, instead of using sales or manufacturing subsidiaries of their own.However, this does not suit Lincoln Electric due to the fact that it is excessively costly to ship welding products because of their weight. It was for Lincoln Electric and other companies in the welding indust ry essential to set up a local or regional production facility. Therefore, Lincoln Electric had to instantly set up sales or manufacturing subsidiaries of their own without starting with solely exporting. In the fourth stage it is said that a company establishes wholly owned or majority-owned operations still after several years of experience.This can also be recognized as being the case with Lincolns internationalization. In 1996 their renewed globalization strategy started. This is characterized by many joint-ventures, acquisitions and start-ups over the world. Between 1996 and 2004, many expansions chip in been completed. At the end of this expansion period, the company tried to gain majority or wholly ownership in many of their acquisitions and joint-ventures, because they experienced that they could not in full control their operations in the way they wanted it. Attractiveness of IndiaOne of the most significant questions in the global strategy field is how multinational fir ms should aviate their way through multiple and often conflicting host-country institutional environments (Ghoshal and Westney 1992, Morgan et al. 2001). This is no different for Lincoln Electric who faced some problems while expanding overseas. When crossing borders, prospect is mostly the driving force behind the expansion. Between 1986 and 1991, Lincoln took on unprecedented debt in order to finance foreign acquisitions, mostly in Europe.They initially had a lack of international management skill, and did not take into manageation local environment in each country when expanding globally. This was caused because not all of their firm specific advantages (FSAs) where as transferable as they had hoped. For instance the incentive system that works very well in the U. S. did not work in European countries with different working environment and ethics. Lincoln had already tried to penetrate the Asian market before landing its eye on the India.Theoretically, a country will be attrac tive to a foreign investor if, in investing in that country, the investor gets a return that is equal to or higher than their risk-adjusted weighed cost of capital. (Urkude and Seshanna 2008) So how attractive is India for Lincoln Electric. With assessing a countries attractiveness two main categories can be distinguished Country Risks, Market Opportunities and persistence Opportunities. For Lincoln there is only one country risk which is corruption, for the rest India is a stable, fast growing country with a solid political system. World Map Index of perceptual experience of corruption 2009iHowever there are a number of market opportunities. Indias infrastructure is still underdeveloped, and therefore demand for welding products is increasing with the future construction and infrastructure activity in the next checkmate of years. Import sales to India were up by double digits in 2006, driven mostly by orders from the pipe mill and pipeline sector, and more recently from the aut omotive sector. (Lincoln Electric annual report 2008) The growth of the welding industry is similar to the growth of the replete(p) economy of the particular country, and for this reason India makes an attractive opportunity.As seen in the graph below Indias GDP has grown dramatically over the last couple of years, and it is expected the welding industry will grow among these lines as well. Indias market is quickly growing as shown in the graph on the right. non only the population but also GDP and exports. And the one below shows that the industry sector is coming on as well. For this reason the welding industry will benefit from the economic growth and be in the lift as a lot of these new construction projects require welding consumables.Industry opportunities lie in India as well, as demand for steel declined all over the world, it grew in India by as much as ten percent. (Frost and Sullivan 2010) But India is also a highly competitive market as 56 percent of welding consumable s were being produced by large firms that had developed their own engine room and 44 percent was being produced by a number of small firms that immediately tried to copy the large firms, as soon as their product became available on the market.So for Lincoln to be successful, they would have to keep innovating their products and make it hard for others to copy their products. Another point of interest is that with the welding market booming, a high price would have to be paid if Lincoln would want to enter the market by acquisition. This making it difficult for new entries in the market, but the two other options which are a joint venture and building an own factory are as much appealing as an acquisition.Lincoln already had some experience with joint ventures in China, but had trouble with the joint decision making that came with it. And with building their own factory they would have to weigh off the benefit off total control towards the starting up costs of the factory. The India n government had also granted some fiscal and financial incentives by setting up tax-free zones and increasing the foreign direct investment (FDI) percentage in the aviation and real estate sector, which could reelect a high demand for welding equipment.Overall it can be said that India is a very attractive market for Lincoln Electronic if they can get into the market either via acquisition, a joint venture or by building their own factory. Advice for Management The advice we would give the managers from Lincoln Electric, to help them to come about enhancing their market share and improve their geographical dominance in the welding industry is to acquire a smaller welding company.An option, which Lincoln Electric should consider is the case of ESAB, as, mentioned in the case In 2000, ESAB had agreed to be purchased by Lincoln Electric for 750 million plus the assumption of $300 million in ESABs debt. Yet Lincoln Electric decided that same year not to go forward with the acquisitio n after antitrust and other issues arose in the due diligence process. Even though these plans fell through, Lincoln Electric should reconsider purchasing ESAB, since it represents 75% of revenues of its parent company Charter, which is European- based company with a large global presence.ESAB India, which is part of ESAB, is also one of the main competitors of Lincoln Electric in India. Therefore, if Lincoln Electric could dissolve the antitrust problems and other problems that arose in the due diligence process, they will be able to acquire ESAB and to double their market share. To enforce the market share dominance of Lincoln Electric globally, an acquisition with a company like ESAB would be economically gainful.Analyzing the graph below, an acquisition with Lincoln Electric and a smaller company would create a welding market dominance. This will result in other competitors being left with a smaller market share due to a much big dominating competitor. In this case, Lincoln E lectric has the opportunity to purchase ESAB or another smaller welding company due to the high profits from the profitable US market. Because of that opportunity we would advice them to purchase and expand by means of increasing their market share by purchasing a competing company.