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MULTINATIONAL BUSINESS STRATEGY (INT700) LINCOLN ELECTRIC CASE ANALYSIS

Cevdet KIZIL (Graduate MBA)

Southern New Hampshire University Multinational Business Strategy (INT700) Prof. Aysun Ficici

September 28, 2004 Manchester, New Hampshire

Table Of Contents

Title Page Table of Contents I. II. III. IV. Organizational Strategy International Strategy Analysis of International Expansion Recommendations

i ii 1 2 3 4 iii

Bibliography

LINCOLN ELECTRIC: VENTURING ABROAD (CASE ANALYSIS)

I. Organizational Strategy Lincoln Electric had a unique organizational strategy with numerous creative ideas. First of all, to keep and better motivate its employees, the company implemented a special incentive system which properly distributed the resulting profits inside the firm. This system had four components: piecework, annual bonus, guaranteed employment and limited benefits. The piecework element was beneficial, because all of the employees had to ensure their own quality and there was no limit about how much one could maximum earn by working faster and harder. Then, the annual bonus element was also very important since the employees were awarded in according to their contribution to the companys performance in terms of output, ideas, cooperation, dependability and quality. Next, guaranteed employment element helped the firm assign his workers to different tasks when there were problems so that the company could prevent lay-offs. After that, the last element, limited benefits, helped the firm to minimize company-paid benefits. This component created a cost advantage for Lincoln Electric. Another strategy of the firm was to create a family-like atmosphere inside the company where both the managers and the employees respected each other. The hierarchical barriers were kept at minimum and open communication was valued. That organizational strategy provided the firm various suggestions, new ideas, improvement and innovation.

Following that, the strategy of encouraging teamwork and competition which was one of the most important components of company structure should be noted. One other organizational strategy implemented by Lincoln was to highly value its employees and customers. As an example, when the company made a profit, the employees got a good share for their work and this was also reflected to the customers via lower product prices. This strategy created a win-win-win approach for all of the parties.

II. International Strategy Lincoln Electric had an international strategy the first time under leading of Don Hastings and then Tony Massaro. One of the most important points about Lincolns international strategy was to hire executives with international experience, unlike the strategy of previous unsuccessful years. Also, the firm assigned top executives for each region Lincoln operated which increased their motivation in a great degree. This international strategy helped to establish a strong communication between the CEO and these top executives too. Additionally, Lincoln had enhancements in its incentive system for each different country, economy and culture. Moreover, the firm built a strong relationship with its suppliers, distributors and customers. In this context, brand awareness and loyalty was another goal.

III. Analysis of International Expansion Lincolns first international expansion occurred in Canada where the companys incentive system was almost completely adopted. Then, the firm expanded to Australia and France. However, these three foreign factories manufactured in a small scale and relied on U.S. plants for a number of key parts. Furthermore, company executives still paid little attention Canada, Australia and France. In 1986, Willis became the CEO and the company acquired plants in nine countries which were followed by the new ones in Japan and Venezuela. On the other hand, Lincoln implemented its original incentive system in the new countries completely without making any changes. The top executives were originally U.S. managers lacking international experience and the new subsidiaries were left to manage on their own. By time, resistance was observed in many quarters against the incentive system and the sales of subsidiaries were declining. Later, in 1992, Lincoln started to re-gain its strength with its new CEO, Don Hastings. The company looked outside and hired executives with international experience, conducted an extensive examination of Lincolns new overseas subsidiaries and located the reasons of problems. As a result, some subsidiaries were shut down and others went through serious changes. Then, long-term supply agreements were signed by key customers and tariff bills were reduced. Besides, new products were developed to meet European customers needs. The company also gave up trying to implement the full Lincoln incentive system. As a result of all this work, the European operations started to generate profits and the overseas subsidiaries rebounded.

In March 1996, Massaro was named the CEO of Lincoln and he started by extending the companys sales and distribution networks in Latin America and Asia. Then, he assigned presidents for each of five regions Lincoln operated. Massaro also chose the flexible way in Lincoln incentive system to have it fit better for each country and culture. Then, Gillepie was named as the new director of international operations by Massaro. The first target for the new factory in Asia was Indonesia and the administrative had to make a decision whether to go for this investment or not. Also, if the investment decision were to be taken, the preference of entry strategy & incentive had to be agreed.

IV. Recommendations I believe that Lincoln Electric should go with the investment in Indonesia because of several reasons. First of all, Indonesia has a population of 214,000,000 which stands for a serious number of consumers. Additionally, the Indonesian market is large in terms of welding products, the demand is high and the country is growing and will need much more developed machines in the future. Then, the rivals in Indonesian market are not that strong. The two multinational companies have distributor problems and the other local firms serve products of lower quality. Following that, Lincolns reputation is well established in Indonesia and consumers can easily switch to Lincoln if the firm maintains a competitive price. Next, the regulatory environment in Indonesia is rapidly improving and even 100% foreign ownership of manufacturing ventures is now permitted.

After that, the natural resources of Indonesia is very rich, the workforce is competitive, the location of the country is strategic, the nation is in favor of change and reform, government is committed to provide a good business and investment climate, Singapore & Japan are also highly investing in this country and finally the culture is diverse. For the entry strategy, Lincoln must enter the Indonesian market with a joint venture partnership. Because its better in terms of local language skills, helps understanding the local culture, risk is shared, support will be gained in dealing with government regulations and understanding of local competitive environment, it prevents over-competition, lowers the cost of capital, provides access to new customers, provides access to valuable natural resources, helps achieve lower costs, perfect for capitalizing on resource strengths and good to gain scale economies in production and marketing. Then, the best joint venture partner should be SSHJ since they work more professionally, have more experience and perform a much stronger financial condition. After that, regarding the incentive system, in my opinion the traditional management system of Indonesia must be implemented since its a better match for their culture and will reduce the risk on this issue. Overall, Lincoln Electric should go for the Indonesian investment with the joint venture partnership strategy by using the traditional Indonesian management style. However, Lincoln should implement this strategy with a small-scale first, going slowly. The financial strength and the big scale of Lincoln Electric enables it to spread the risk of this investment unlike most of its rivals, this advantage must be definitely used.

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