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

ii

I.

Organizational Strategy

II.

International Strategy

III.

Analysis of International Expansion

IV.

Recommendations

Bibliography

iii

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.

REFERENCES
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http://www.indo.net.id/mbs/legal_aspects_of_foreign_investment_in_indonesia.htm
6- Limberg, S.T. (2004). International Expansion and Taxes. University of Texas
McCombs School of Business Department of Accounting Professor Stephen T. Limbergs
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http://www.mccombs.utexas.edu/dept/accounting/limberg/topics/t04-exp.doc
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Infoline Ltd. Website. http://www.indiainfoline.com/lega/enst.html
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