Lincoln Electric Case Essay

capital of Nebraska galvanic Company in the course of study 1895. The startle products that the participation produced and sold were electric motors that he had designed himself. A Few old age later, in 1907 his br oppositewise James, a late graduate from the Ohio State University, joined as a senior motorbus He was excessively the superstar who would introduce different and very mod human resource policies over the undermentioned few decades.These policies included things a the like employee stock letership, the creation of an Employee advisory board, as well as piecework pay. more or less of these ideas were later adapted as standard US wide practices. The weld business, which non really was one of the chief(prenominal) focuses of the capital of Nebraska Electric Company, became the main source of income by 1922. Welding which a special technique of -under waken bringing together different sources of metals. It is used for basically close to of the industrial aras, from pipeline manucircumstanceuring to petrochemical complexes.From 1986 onwards, the caller-up pursued a course of extensive internationally expansion. This was started already way earlier in 1933 starting signal, with the establishment of the capital of Nebraska Electric Company in Australia and in 1953 with its expansion to France. However, from the mid 1980s onwards, capital of Nebraska Electric expanded its manufacturing operations into 16 countries. This expansion peaked in 1995, when the company reached the $1 billion in gross revenue the head start time. It was also the year capital of Nebraska began to trade its sh ares on the American stock grocery the NASDAQ.By 2005 it became the spheres leading manufacturer in the join exertion. Nowadays, (Dec. 31 2010) capital of Nebraska Electric has net sales of $ 2,070 million. Why go abroad? As the Lincoln Electric Companys idea and concept turn out to be lucky in the US from the 1930s onwards, it also give wayd international of the boorish. Due to its success in its home foodstuff place, the companies management was able to first gain enough grocery knowledge in order to read 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 cypher a market were the so-called psychical Distance is not so eminent and less uncertainty.Therefore Australian was chosen, as this is psychological wise not so far from the theatre / US American market. This phenomenon can be seen in the Uppsala Model. It includes four different steps, from first acquiring experience in the home market to all in all owned international operations. This leave be explained in more expound later. However, as we can see in the Lincoln Electric slip-up, the company first gain sufficient knowledge in their home market and later expanded internationally.But step by step mer ely away (political, language and culture 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 entrust elaborate upon the internationalization of Lincoln Electric while applying the storeys of the Uppsala model. During the first horizontal surface companies t sack to unaccompanied gain experience of their domestic markets.In the subject area of Lincoln Electric, it can be stated that it mainly cogitate on becoming the leading manufacturer in the linked States. aggregate competencies are most important for the success of an MNE and for all companies those core competencies are their higher-order firm 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 recognized that provide productivity advances and which results in a variability of 60 percent of the personnel costs.Those facets are performance- base rewards, employee stock ownership, a piecework payment system, and bonuses establish 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 create trust among the employees with policies like an employee advisory boards, employee tincture systems, annuities for retired employees, group life insurances, and a no-layoff policy. The third recognized FSA is the companys R&D program this program is the most aggressive, comprehensive and successful in the conjoin industriousness.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 conjoin solutions. The company is able to provide this due t o the fact that it manufactures both sheer join 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 near 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 have a small psychic distance from the United States, therefore, the market uncertainty is perceived as low.Canada, Australia and France are psychically nearby, because issues with debate to trade unions, effort 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 westward countries, so the cultures are not significantly different. Lincoln Electric started its first major international expansion between 1986 and 1992. It then increased its movement into 15 other countries, which were acquisitions 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 lack of knowledge of labour practices and laws in other countries. The companys aim was namely to operate the new acquisition in Lincoln USAs image, as yet 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 Linco ln Electric due to the fact that it is too costly to ship conjoin products because of their weight. It was for Lincoln Electric and other companies in the weld industry essential to set up a local or regional production facility. Therefore, Lincoln Electric had to straight off 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 completely owned or majority-owned operations barely 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 have been completed. At the end of this expansion period, the company tried to gain majority or alone ownership in many of their acquisitions and joint-ventures, because they experienced that they could not fu lly chink their operations in the way they wanted it. Attractiveness of IndiaOne of the most significant questions in the global strategy field is how multinational firms should sail 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 product borders, opportunity is for the most part 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 consideration 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 count ries with different working environment and ethics. Lincoln had already tried to penetrate the Asian market forrader landing its eye on the India.Theoretically, a country will be sweet 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 winning is India for Lincoln Electric. With assessing a countries attractiveness two main categories can be distinguished Country Risks, Market Opportunities and Industry Opportunities. For Lincoln there is lonesome(prenominal) one country risk which is corruption, for the rest India is a stable, fast ripening country with a solid political system. World Map force of perception of corruption 2009iHowever there are a yield of market opportunities. Indias infrastructure is still underdeveloped, and therefore demand for welding products is change magnitude with the upcoming construction and infrastructure activity in the next couple 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 automotive sector. (Lincoln Electric annual report 2008) The growth of the welding industry is similar to the growth of the entire economy of the particular country, and for this effort India makes an attractive opportunity.As seen in the graph below Indias gross domestic product 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 readily growing as shown in the graph on the right. Not only the population moreover 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 overthrow as a lot of these new construction projects require welding consumables.Industry opportunities lie in India as well, as demand for leaf blade 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 consumables were being produced by braggy firms that had developed their own technology and 44 percent was being produced by a number of small firms that immediately tried to model the wide-ranging 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, precisely 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 jo int 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 work towards the starting up costs of the factory. The Indian government had also apt(p) some fiscal and financial incentives by setting up tax-free zones and increasing the foreign direct investment (FDI) percentage in the melody and real estate sector, which could generate 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 both 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 continue enhancing their market office and improve their geographical dominance in the welding industry is to lead a little 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 acquisition 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 dismantle 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 fortune. To enforce the market share dominance of Lincoln Electric globally, an acquisition with a company like ESAB would be economically paying.Analyzing the graph below, an acqu isition 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 larger rule competitor. In this case, Lincoln Electric has the opportunity to purchase ESAB or another(prenominal) 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.