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Case#2: LincolnElectric: VenturingAbroad

With an effective and well-established, albeitabnormal, business model driving a consistentlysuccessful and profitable domestic business,Lincoln Electric was determined to gainworldwide market share in the weldingequipment and consumables industry byventuring into the developing markets of Easternnations. International management correctlyidentified Indonesia as a logical point of entry forthe Eastern markets. The nations constructionand manufacturing industries were growingrapidly (12.4% and 11.0%, respectively, in 1996),and Lincoln Electric already had an establishedreputation for producing a high quality product.The future success of the company in thedeveloping nations of the East hinged heavily onhow Michael Gillespie, president of the Asiaregion, would plan and execute his entry strategyinto Indonesia. Partnering with SSHJ, a subsidiary of Sin Soon Huat, in a joint venture wouldprove to be the most effective entry strategy for Lincoln Electric into Indonesia.Having primarily distributed Lincoln products for 20 years in Singapore, Vietnam,Burma, and China, SSHJ had the product knowledge and expertise needed to shiftthe Indonesian welding market to Lincoln Electric. Moreover, SSHJ had the localindustry knowledge and government contacts that Gillespies marketing managerdeemed essential in maintaining some level of stability and support in what somebelieved to be an unstable economy. SSHJ also had the financial strength (andconfidence in Lincolns business strategy, which had been displayed previouslywhen Sin Soon Huat had voluntarily takes losses for Lincoln to enter new markets)to invest in a new manufacturing facility.The potential growth and earnings for this partnership was significant.Previously, due to local import tariffs, Lincoln Electric only manufactured 1% of stickwelding consumables 1 . In a market where stick welding was prevalent, thecompany would have considerable growth potential if it were to manufactureconsumables in a local, low-cost facility. This, in turn, would allow for the companyto market and bring exposure to its higher-margin welding equipment. Clearly, asuccessful joint venture between these two companies in Indonesia would be thebranding Lincoln needed in order to gain market share in the Eastern bloc, andwould allow the partnership to

expand its focus to the other developing Easternnations in which SSHJ distributed Lincolns products (such as China).Over the years, Lincoln Electric received varying levels of success with regards to itsunique compensation plan from its foreign employees. Indonesia, like other Asiancountries, was typically known for being a collectivistic culture 2 . Gillespie mustacknowledge that the collectivistic people of Indonesia may not blindly accept acompensation plan heavily weighted by individual achievement. By utilizing a moretraditional management approach and compensation system, the company shouldbe able to gain the trust and respect of the workforce. Once this is accomplished,Lincoln Electric can re-assess the potential risks/rewards associated withimplementing some, or all, of its domestic compensation plans techniques.