Michael Gillespie, The Lincoln Electric Company’s new president for the Asia Region, was “encouraged to develop plans to open welding consumables factories in several Asian countries” by the new CEO, Anthony Massaro, and Gillespie had specifically “turned his attention to plans for Indonesia [O’Connell, main reference, p 1].” We worked with Gillespie to prepare for the September 1996 meeting with Massaro and the presidents of the other worldwide regions. We analyzed Lincoln’s current capabilities and its past experiences and prepared a transformative plan based on business concept innovation [Hamel, ch 3], documented by this report, with a three pronged approach for the Asia Region. The first prong would be to execute Massaro’s strategy, to grow revenue in the less-developed countries, by building a factory in Indonesia in a joint venture with SSHJ as a pilot step, to be followed by further expansion to other South East Asian countries, and to China. The second prong would be to build on Lincoln’s strengths as an organization, including its technical innovativeness and incentive system and its people, to prepare Lincoln for the expansion effort ahead. The third prong would be to extend Lincoln’s competencies to the level of a living system [Senge, ch 12] that learns, from the Asia Region expansion experience and from all aspects of its future existence, how to grow sustainably [Kaplan, ch 4]. Current Status
Lincoln was financially sound at this time to undertake the planned international expansion. After having been remarkably successful for nearly a century of existence, Lincoln started to slide in 1988 toward bankruptcy with a steep drop in cash from $61 million to $23.9 million, with $17.5 million from long term debt [p 19]. Return-on-sales dropped from 6.2% in 1987 to 1.7% in 1991 [Exhibit A. Financial Ratios]. Similarly, return-on-equity and return-on-assets, respectively, dropped from 13.5% and 9.4% in 1987 to 5.5% and 3.3% in 1991. Restructuring efforts between 1992 and 1994 [p 19] and the associated management changes [p 7] succeeded in the ensuing financial turnaround to return to pre-1987 status with 6.0% ROS, 18.6% ROE, and 11.2% ROA in 2005. A 40% equity public offering in 1995 [p 1] injected approximately $132 million[a]. With the financial leverage at 2.15x and quick ratio, current ratio, interest coverage, and long-term-debt/total-assets of respectively 0.9x, 2.1x, 9.1x, and 15.2%, Lincoln should be able to finance the Asian expansion. Four Lessons Learned
A major element for any organization to sustain success and to continue growth would be to build and maintain an institutional ability to learn. Because Lincoln had encountered failures in its previous attempt to expand internationally, Lincoln had the unique opportunity to learn lessons from these failures. 1. The Incentive Plan[b] should be implemented within the context in which it was grounded. The governing principle[c] from which the Incentive Plan was created was stated by James Lincoln in that “All those involved must be satisfied that they are properly recognized [p 2].” Thus the question one should ask was not “Should we implement the Incentive Plan?” Rather, the question to ask should be “How the Incentive Plan may be utilized to properly recognize customers, workers, management, owners, community, and society?” From 1987 to 1995, the Incentive Plan system had ensured exceptional productivity that resulted in gross-profit-margins within a range of 35.2 to 38.5. And yet, during the same nine year span, the three major profitability indices of ROS, ROA, and ROE had dipped into the red. Thus, the strict application of the Incentive Plan failed to properly recognize at least the owners. And, Lincoln’s poor overall financial performance during that period would have led to continued total incentives decline and to ultimate demise if Lincoln had depended solely on the Incentive Plan. Non-Incentive Plan...
...LincolnElectric (LE) has been a producer of electrical and welding technology products since the late 1800's. The company remained primarily a family and employee held company until 1995, then approximately 40% of its equity went to the public. James Lincoln, one of the founders, developed unique management techniques that effectively motivated the employees. These management techniques were implemented as an unusual (for the era) structure of compensation and benefits called "incentive management". The incentive management system consisted of four key areas: factory jobs based solely on piecework output; a year-end bonus that could equal or exceeded an individual's regular pay; guaranteed employment; and limited benefits. Management successors to James Lincoln continued with this successful philosophy even during hard times. This incentive system provided LincolnElectric with a significant competitive advantage over its domestic competitors. This incentive system plus the bonus allowed Lincoln employees to earn more than their counterparts at other firms, which contributes to employee motivation. One additional aspect of Lincoln's incentive system was that of limited benefits. James Lincoln developed a system of minimal company paid benefits, where he rationalized that; fewer benefits would equate more funds available for employee bonus and compensation. The...
...most important issues that LincolnElectric is faced with are as follows. First, the inability to meet customer demand because of the shortages in supply creates opportunities for competing firms to enter the industry. What resources and capabilities does LincolnElectric have that can mitigate this threat of entry. Second, the emphasis put on the monetary incentive plan leaves the company vulnerable in economic hardships. How canLincolnElectric continue to encourage competition and quality without a high emphasis on monetary incentives?
Examining the arc welding product industry structure will help identify the opportunities associated with that structure. Arc welding is part of the emerging, mature, and international industry. In an emerging industry an opportunity arises in technological leadership. More specifically, firms in the arc welding industry that invest in particular technologies that create greater cumulative volume of production at a lower cost are implementing the technological leadership strategy. LincolnElectric takes advantage of this opportunity by developing its own proprietary equipment used on the manufacturing assembly line. In a mature industry, process innovation is an important opportunity for arc welding products. The cost advantage of process innovation is done by reducing manufacturing cost, increasing product quality, and...
...Lincoln Proposed Resolution:
1.1 International Expansion Team
• The root of Lincoln Electric’s troubles began with the quick expansionist mindset of George Willis. The main trouble was the speed of the expansion. LincolnElectric should have formed international expansion team focusing on the key areas that initiates a market analysis to spearhead strategic directions of developing good governance framework and promoting inclusive growth. They are also responsible to evaluate alternative mode of entry into selected regions with the following mode of entries: Joint Venture, Acquisitions, Partnership and Trading.
2.1 Develop culture profile of every country it has operations or going to have a presence. Understanding other people's languages, cultures, government’s laws and business etiquettes is of great value in expanding Lincoln’s market globally.
3.1 Standardized and cap group bonus pay-out base on agreed performance measures and score card. These measures will benefit Lincoln’s to have an effective policy and operational efficiency.
4.1 Be willing to tweak it’s performance measurement system. Lincoln must learn how to adapt in-country conditions, government policies, laws and regulations
5.1 Strategic Planning Functional Team. This proposed team from Head Quarters must be able to identify the broad as well as the detailed issues concerning international transaction.
The problem foe LincolnElectric is that they are having less than expected revenues from their overseas venture. Their management system worked so well in their original facility in Ohio. They had such high confidence in the way they made their products there that they thought that if they do what they did in another country, they will reap the same benefits. When they applied the same management principles in other countries, they had net losses that are so high, that they are enough to offset the yearly bonuses of the employees in the Ohio plant. The company decided to borrow money in order to not lose the trust of the American employees.
One has to wonder at first about the reason LincolnElectric would want to set up camp in another location in the first place when they are having lots of profits already. According to chapter 4 of our textbook which is about doing business overseas, the reasons companies are (1) to outsource their products or services in order to make its operations cost cheaper and (2) to develop markets for finished goods or services. Most likely, the latter reason is why LincolnElectric sought new business ventures in other locations. When companies are making profits, they usually expand their business in order to make more profits. One reason for this is that the high population...
...The LincolnElectric Company
Headquartered in Euclid, Ohio, a suburb of Cleveland, The LincolnElectric Company is a world leader in welding and cutting products, as well as a premier manufacturer of electric motors. The company is well known for its dedicated, talented workforce and its superior technology. LincolnElectric Company gives its customers total solutions along with a commitment to quality. LincolnElectric Company is also well known for its incentive management system. Many companies strive to duplicate the success that Lincoln has enjoyed over the years.
John C. Lincoln founded LincolnElectric Company in 1895 with a capital investment of $200. At first he only designed electric motors, but in 1909, he began to build welding machines. In 1814, he hired his brother James to be the VP and manager of his company.
In 1934, the famous Lincoln bonus plan was instated as employees enjoyed bonuses of 25% of their base pay. By 1940, Lincoln employees enjoyed two times the average pay and productivity of similar Cleveland workers.
Lincoln has built a very profitable company. This by way of treating all of its stakeholders with the utmost importance. Lincoln always kept its prices very fair, if not...
Submission Date: Nov 20, 2009
Lincoln’s Vision Statement
“We are a global manufacturer and the market leader of the highest-quality welding, cutting and joining products. Our enduring passion for the development and application of our technologies allows us to create complete solutions that make our customers more productive and successful. We will distinguish ourselves through an unwavering commitment to our employees and a relentless drive to maximize shareholder’s value.”
Lincolnelectric was founded by John C Lincoln in 1895 to manufacture motor generators. James F Lincoln joined the company in 1907 and in 1911 company built its first arc welding machine. James mechanical genius gave company a head start in welding. He developed a portable welding machine which was a significant improvement from stationed machine which gave L.E a lead in this industry.
During World War II, Mr. Lincoln responded to Government call and offered to share his proprietary methods and equipment designs with the rest of the manufacturing industry. In 1955 L.E again started manufacturing electric motors and its position in the market has grown steadily since then.
LincolnElectric started its first major global expansion in 1986. It went from 5 manufacturing facilities to 22...
...1. Should LincolnElectric expand into India by investing in a major production facility there?
I think that LincolnElectric (LE) should definitely has a production facility in India because of its growth and foreseen opportunities, but if I were LE I would suggest to enter with a local partner in order to gain knowledge and experience in how the country operates in terms of bureaucracy, labor, culture and so on.
LE is known for its high quality products and its technical innovations. On its 60 years of international experience, the company gained valuable knowledge on what to do and what to avoid when moving abroad, and that is why they refocused their expansion strategy into joint ventures, instead of acquisitions avoiding the problems suffered in the early 1990s. Moreover, their technical know-how and sales structure allow them to provide the best solution for its customer’s worldwide and differentiate from its competitors.
On the upside of moving to India, the country represents a huge growth opportunity for the company. With a GDP increase of 6% in 2005 and the projection done by Goldman Sachs to become the fastest-growing economy in the next 50 years globally, a lot of chances will emerge for LE in the region. India foresees an increasing demand on construction and infrastructure projects that will require a lot of wilding machinery and consumables. Being the 3rd market in Asia and having...
...Lincoln Electric’s CEO Massaro was correct in his assessment that, markets in developing countries would grow faster and yield a higher return. This strategy was critical and in alignment with the organization's goal to reach 50% foreign sales revenue. As president of Lincoln Asia, Mike Gillespie faces a great challenge with his decision to enter the Indonesian market. If Mr. Gillespie does decide to enter Indonesia, he must also decide whether to do it alone or through a joint venture, and how to structure employee compensation.
It looks like Gillespie conducted enough corporate anthropology research to identify viable consumer product needs that LincolnElectric will be able to provide (stick consumables vs. automatic consumables segments). I understand that investing in Indonesia offers many benefits to the organization, mostly towards increased profit margins and market share of consumable products (for further information regarding the strategic planning for entering Indonesia see Exhibit 1). However, in my opinion, Gillespie does not have enough data to make an informed decision regarding this move. Fear of a rekindled Civil War, unstable inflation rates, and other activities in the country revealed both economic and political instability. Other issues to be considered include labor issues of Indonesia 1. I would recommend further market and cultural analysis to aid his decision-making.