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Case#2: Lincoln

Electric: Venturing
Abroad
With an effective and well-established, albeit
abnormal, business model driving a consistently
successful and profitable domestic business,
Lincoln Electric was determined to gain
worldwide market share in the welding
equipment and consumables industry by
venturing into the developing markets of Eastern
nations. International management correctly
identified Indonesia as a logical point of entry for
the Eastern markets. The nation’s construction
and manufacturing industries were growing
rapidly (12.4% and 11.0%, respectively, in 1996),
and Lincoln Electric already had an established
reputation for producing a high quality product.
The future success of the company in the
developing nations of the East hinged heavily on
how Michael Gillespie, president of the Asia
region, would plan and execute his entry strategy
into Indonesia.

Jason Sansoucie
10/24/2009
INTB 6200 FA2 L
Partnering with SSHJ, a subsidiary of Sin Soon Huat, in a joint venture would
prove 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 shift
the Indonesian welding market to Lincoln Electric. Moreover, SSHJ had the local
industry knowledge and government contacts that Gillespie’s marketing manager
deemed “essential” in maintaining some level of stability and support in what some
believed to be an unstable economy. SSHJ also had the financial strength (and
confidence in Lincoln’s business strategy, which had been displayed previously
when 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 stick
welding consumables1. In a market where stick welding was prevalent, the
company would have considerable growth potential if it were to manufacture
consumables in a local, low-cost facility. This, in turn, would allow for the company
to market and bring exposure to its higher-margin welding equipment. Clearly, a
successful joint venture between these two companies in Indonesia would be the
branding Lincoln needed in order to gain market share in the Eastern bloc, and
would allow the partnership to expand its focus to the other developing Eastern
nations in which SSHJ distributed Lincoln’s products (such as China).

Over the years, Lincoln Electric received varying levels of success with regards to its
unique compensation plan from its foreign employees. Indonesia, like other Asian
countries, was typically known for being a collectivistic culture2. Gillespie must
acknowledge that the collectivistic people of Indonesia may not blindly accept a
compensation plan heavily weighted by individual achievement. By utilizing a more
traditional management approach and compensation system, the company should
be able to gain the trust and respect of the workforce. Once this is accomplished,
Lincoln Electric can re-assess the potential risks/rewards associated with
implementing some, or all, of its domestic compensation plan’s techniques.

1
Lincoln Electric: Venturing Abroad. Northeastern University, Ivey School of Business, 2002.
2
Geert Hofstede Cultural Dimensions. http://www.geert-
hofstede.com/hofstede_indonesia.shtml.