Lincoln Electric Case Summary

1. Problem/Key Issues

        a. What is the main problem to be solved?

        Expanding into a new market is a big undertaking, the new CEO for Lincoln Electric John Stropki is determine to employ lessons learned from the Asian expansion, by selecting the appropriate method, acquisition, joint venture, or building its own plant in India, the fastest growing economy in the world.

        b. What are the key issues (sub-problems) that need to be resolved in order to solve main problem?

        The company seems to be over their previous expansion efforts (1986- 1992) which produced lackluster performance, as the company expanded from 5 plants in the US, Canada, Australia, and France to 22 plants in 15 countries which included: Mexico, Brazil, Scotland, Norway, UK, Netherlands, Spain, and Germany.  Today, Lincoln Electric must consider its competition and their business model.  The top six companies accounted for 45% of global market operating in Japan, South Korea, China, and India.  These companies compete around price, brand preference, product quality, customer service, breadth of product offering, and technical expertise and innovation.  

        While every market has its difficulties, based on the previous efforts Lincoln Electric encountered difficulties finding local managers, difficulties with government authorities, difficulties establishing distribution channels within Asia, these areas must me address in order to make operations profitable.  The company must also determine the appropriate methods to establish reliable production and distribution networks. They must also locate experienced bilingual operations managers, determine methods to address Indian bureaucracy, and uncertainties of partnering with state-owned enterprises.  Additionally, in order to reduce its shipping costs, strong efforts most be made in developing distribution and marketing, along with developing a local R&D capability.  Lastly, while a joint venture determine the success of the company in China, India and its sheer size will require an appropriate level of investment and resources to appropriately enter the fastest growing economy in the world.  Making the right decision, will require an appropriate valuation method and full financial and legal due diligence before making a final commitment.

2. What case data/facts helped you resolve the key issues?

        Reviewing the whole case, the company and its competition, methods, and implementation helped understand the key issues and determine a plan.   Key areas considered, global economic growth previously predicted to 3% in 2006. Growth was actually 5% in 2005 driven by welding products in China, India, and Eastern Europe.  When you consider the sales numbers and geographical areas, Asia was responsible for 45%, North America 23%, and Europe 21%, however India is expected to eclipse these numbers almost by itself.  In 2005, the Indian market reached US$415 million, compared to the Americas’ as a whole with US$601, and US$312 million for “all” countries in Europe.  Making India a natural expansion location for Lincoln Electric.   Additionally, India’s labor market is compatible with Lincoln Electric Human Resources initiatives and methods as seen below:

3. What business acumen (analytical tools or concepts) did you apply to the resolution of the key issues?

        As with any company, its essential to understand how the company makes money and how a thorough understanding of what drives profitability and cash flow, a market focused approach to the business, and an overall big picture understanding of the business and its interrelationships.  Lincoln Electric made financial acumen essential to its workforce by implementing several key incentives, entrepreneurial environment, employees are given great deal of autonomy for problem solving and reporting their own piecework wages.  They also have to accomplish any rework on their own time off the clock.  Large number of their compensation comes from the annual discretional bonuses.  Bonuses are based on merit ratings, and both leadership and employees are impacted on downturns or less profitable years. These tools help their leaders and employees have a comprehensive understanding of what drives profitability and cash flow.  It also helps them understand the firm’s financial statements, key performance measures, and how their decisions impact value creation.