Lincoln Electric is an American multinational and leading producer of industry electric and welding technology products which formed by John C.Lincoln with a small capital investment of $200 in 1895. Lincoln is headquartered in Euclid, Ohio in United States. Lincoln has over 150 year of experience in welding industry. The company has $2.9 billion of total sales and 10,000 employees in 2013. In 2017, Lincoln Electric is one of the world’s largest manufacturers of arc welding products. Arc welding equipments, welding consumables and robotic welding system is their main products which bring the most profits to Lincoln. Besides that, there are 44 manufacturing locations in Russian, China, France, German etc and 160 countries covered Lincoln’s worldwide distribution network and sales offices. Acquisition is the main international expansion strategy that Lincoln Electric is using. An acquisition is an international expansion strategy to buy another organization’s ownership stakes to assume control of it. Mexico, Scotland, UK etc are the countries that entered by Lincoln Electric by using acquisition strategy. Besides that, Lincoln Electric also using joint venture as their international expansion strategy in Taiwan and South Africa etc.
Lincoln Electric has a good human resources and incentive system to motivate their employees and maximize their contribution. Lincoln was the first company to introduce a number of HR innovations, for example, incentive bonuses, employee stock ownership, insurances, piece pay work, and worker suggestion system. All the HR innovations motivate their employees and fulfill their potential and richly reward to those employees based on their work performance. By providing right incentive and reward to right employees, it can enhance and increase the level of efficiency in the organization. Besides that, technology development is one of the essential factors that give positive impact to their company growth. ‘R&D contributes to business sustainability and helps to create a competitive edge over its competitors (Venkatesh, 2014). Lincoln Electric invested many resources on Research and Development (R&D) to develop latest information and technology for creating new products and diversify its production across multiple welding technologies to satisfy different customer’s needs and wants from different nations. Lincoln has expanded their engineering development centers into different country to collect and develops new technologies which bring huge positive impacts on their company growth in the future. Next, diversified product mix is one of the strength in Lincoln Electric. Diversified product mix is the largest competitive advantages that Lincoln Electric had to satisfying customers need and want. Lincoln brings convenience to customers by focusing on the value of providing welding solution rather than just individual products, for example, both arc welding equipment and consumables product into one integrated package. Convenience and product quality is the factors that consumers willing to spend money on Lincoln products.
Lack of latest knowledge of labor practices and laws in entering new foreign countries is the weakness of Lincoln Electric. Different countries are practicing different method of management, for example, China factory pay great attention to employee’s productivity rather than employee’s satisfaction. Therefore, Lincoln Electric has to do more research and develop a suitable strategy before entering a new foreign country. Besides that, cultural difference is the next weakness of Lincoln Electric. Cultural differences are the main challenge that all MNCs are facing. In Lincoln Electric, majority of top managers and supervisor in foreign operation are expatriates. Power distant and uncertain avoidance etc are the examples of cultural difference. Conflicts and misunderstanding between managers and their workers who have different culture perspective may bring negative impact to company growth.
2.0 Analysis of Business Expansion
Lincoln Electric should expand their production facility to India market. There are many opportunity and threat Lincoln should consider which give huge impact on their business operation in India. Huge profits will result from the company expanding its business to India market.
2.1 Expanding Business to India Market
Strong Market Growth /High Population Growth
India is a country with great opportunity and keeps growing economy. ‘India will be the world’s second largest economy by 2040 with huge growth potential in business’ (Liam, 2014). According to the Worldometers (2017), India has 1.3billion people with 1.2% population growth rate per year in India which is the second largest population in the world. ‘A growing population in a country means greater demand that generate profits which attract foreign investors to start their business in India’ (Adam, 2016). Therefore, demand for welding products and consumables will increase. There are many organizations starting up their subsidiary, for example Apple Inc, Microsoft etc. Lincoln should expand their business in India which known as a high potential markets to generate better profits than other countries. Positive population growth in India is one of the opportunities that help Lincoln to expand their business with more potential customers. Lincoln could attract new customers with different needs and wants by using Lincoln’s strength which is diversified product mix. Therefore, high level of population growth will give positive impact on business growth.
Low Business Operating Cost
Besides that, low business operating cost is the opportunity when Lincoln expanding their business to India. Raw materials and labor cost is the example for operation budget. ‘India offers flexible pricing options in raw materials and labor cost which allow companies the freedom and creativity in managing their cost and helps them to generate higher profits’ (Outsourcing2India, 2014). Although labor cost in India is significantly lower than UK, but India’s labor are talented professionals, higher skills and experience in welding industry. Lincoln can optimize their budget by hiring skilled and experienced employee in a reasonable price. Besides that, Raw materials and welding component are cheaper in India. Lincoln should use bulk purchasing as their main strategy of purchasing raw materials and welding component. ‘Managing utilization of business goods allows them to use bulk item more efficiency, larger the volume ordered, the higher the discount with transportation’ (Anuja, 2014). By buying in bulk strategy, Lincoln can reduce their cost on welding raw material and component. Business operation costs in India are significantly lower than other countries that bring positive impact to Lincoln’s growth.
Opportunity on Joint Venture or Alliance with Welding Company in India
The third opportunity when Lincoln expands business to India is joint venture or alliance with welding company in India which is the largest welding company in India, for example, ADOR and ESAB. ‘There are many advantages of joint venture and alliance, for example, better resources, increase capacity, share risk and new insight and expertise’ (Anna, 2012). Every business has its own competitive advantages. With ADOR and ESAB’s experience in India market, Lincoln Electric could learn and understand India’s welding background, marketing strategy and culture behavior, instead of an aggressive push into a new market without any knowledge and information and lose a great opportunity. Therefore, joint venture and alliance is the opportunity for Lincoln to expand their business in India.
There is high level of competition in welding industry in India market. Welding industry in India market comprises small, medium and large companies that manufacture welding products and consumables. Besides that, there also many large international businesses that invested in India welding industry, for example, Voestalpine AG, ESAB, ADOR etc. ‘The competitors have its own unique characteristic on their products to create awareness among people in India market’ (Sudip, 2015). For example, ESAB has the cheapest welding products in India market. Besides that, ‘Lincoln’s competitors have strong presence than Lincoln’ (Nachiket, 2015), they might have better experience and knowledge in managing their organization to compete with other competitors. Lincoln’s market share might decrease because of the number of competitors in welding industry. Competitor’s advantages are the threats for Lincoln Electric. Lincoln Electric has to create own competitive advantages to get market share, improve profitability and sustainability in a high competition market. Diversified product mix and technology level in Lincoln are the factors that attract customers awareness in India. Lincoln manufactures different welding products and consumables to fulfill consumer with different needs and wants. In the process of manufacturing welding products and consumables, high level of technology allow Lincoln to create these products in higher quality with lower prices. Both of the factors are the competitive advantages For Lincoln Electric in India market to compete with their competitors. Therefore, diversified product mix and technology are the solution to overcome the threats from competitors.
Cultural difference is the next threat that all international businesses are facing. Cultural differences are the main consideration for Lincoln when they expand business to a new country. ‘While dealing business with people of various cultures, cultural difference and language barriers are the consideration’ (Mariah, 2012) Different cultures have their different ways on looking at things. Cultural difference between employees and expatriate will cause conflict, misunderstanding and bring down work efficiency. According to Geert Hofstede (1973), there are six dimension of national culture, for example, power distant, individualism versus collectivism, uncertainty avoidance, masculinity versus femininity, long term orientation versus short term orientation and indulgence versus restraint. All the dimensions of culture are to determine employee’s working behavior and pattern which give great impact on business operation. For example, workers in UK have a higher confidence level than workers in India. Lincoln has a good human resource and incentive system which can overcome the problem of cultural difference between employees. There are several training and assessment for their expatriate in Lincoln, for example, cross cultural training, in-country coaching and preliminary visit to India. Therefore, cultural differences are the important consideration on Lincoln business expansion on India market.
2.2 Strategy Options
An acquisition strategy happens when a company buys over a company with cash, stock or a combination of the two. ‘Buyer company is able to gain benefits from seller company, for example, competitive edge, acquire new technology, skill sets (Frederiksen 2016). If Lincoln is using acquisition strategy, small and medium welding company is the best choice to enter into India market. S.K Engineering, Koike company and Mangalam are the examples of small and medium welding company in India.
Joint venture is an international expansion strategy that expand their business by cooperate with a company. ‘Joint venture strategy is a business arrangement by two or more parties that agree to pool and share their resources for the purpose of accomplishing goals and objectives’ (Mark, 2013). Lincoln should corporate with ESAB and Ador by using joint venture strategy. Both of the companies are the largest welding company in the welding industry.
Building a new plant
Building a new plant is an expansion strategy by building up a new subsidiary without cooperates with others. If Lincoln is using this strategy, they have to find business location, resources and employees to setting up their new factory to manufacture welding products. Masharashtra, Telangana, West Bengai are the best location for Lincoln to setting up their new subsidiary.
3.0 Suitability, Acceptability and Feasibility (SAF) Analysis
Suitability Yes. Acquisition is suitable expansion strategy for Lincoln Electric to expand business into India market by taking over customers, technologies and resources in small and medium welding company. For example, Mangalam company is the best acquisition target with Lincoln. By combining experience and technology of Lincoln with small and medium welding company, it can easily create customers awareness and expand their market share to compete with large welding company. Besides that, combination of Lincoln with small and medium welding company also can overcome the cultural difference problem. All the existing employees are mostly Indian and less cultural problem happens when acquisition with India domestic welding company.
Acceptability Yes. Acquisition is acceptable from Lincoln’s shareholders. Acquisition strategy helps Lincoln to take over small and medium company’s market share, resources and technology to reduce the risk of business expansion into India. It also helps Lincoln to reduce the number of competitors in the India welding industry.
Feasibility No. There are many considerations and complicate processes when u acquiring small and medium company, for example, standardization, restructuring resources etc. Lincoln has to spend extra money and time on standardizing their company to fit in the India market.
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Suitability No. Joint venture is not a suitable strategy for Lincoln Electric to expand business into India market. Although joint venture with large international company has benefit on getting customers, technologies and resources, but there are a lot of restriction, Lincoln is no fully control the business activities. Besides that, joint venture also create problem on cultural difference, for example, ESAB is a Swedish welding company. There are many cultural differences between Swedish, Lincoln and India employee. If Lincoln is using joint venture strategy, they have to spend a lot of money on standardizing work process; develop international HR strategy and solving misunderstanding and conflict between employees.
Acceptability Yes. Lincoln able to get back their break-even in a short term because of the existing market and technology prepared by joint venture partners. Although Lincoln is not fully control company activities, but the risk and cost of expansion strategy to India market is the lowest and acceptable from shareholders.
Feasibility Yes. Although joint venture partners have their existing resources and technology, Lincoln is able to optimize it by transferring new technology and resources to improve organization performance in India market.
Building a new plant
Suitability Yes. Build a new plant is suitable for Lincoln to expand their business into India market. By building a new plant in India market, Lincoln are fully control on their business activities and develops suitable market strategy to increase market share and create customers awareness. Lincoln has good human resource, incentive system and technology to building up a new plant. Besides that, Lincoln also has high level of reputation in India market to attract customers, therefore, building a new plant is a best expansion strategy that Lincoln has.
Acceptability Yes. In a long term, building new plant strategy is the best business expansion strategy in India. India market is keep growing and will be the second largest market in the world. Lincoln has many competitive advantages to sustain and compete with competitors in India. This strategy brings the highest return of investment (ROI) in a long term which is acceptable from shareholders.
Feasibility Yes. Lincoln has the resources, capabilities and competences to carry out the strategy. Although starting cost and risk of building a new plant is the highest among expansion strategy, but India has a high potential market to generate great profits. In a long term, Lincoln has competitive advantages to compete with their competitors and get big market share in India welding industry.
4.0 Winning strategy
Building a new plant is the best international expansion strategy for Lincoln Electric to expand their production facilities in India. Lincoln should pick a suitable location for setting up new production facilities that are easy to get resources and employees. For example, Masharashtra, Telangana, and West Bengai are the best choice for Lincoln to build their production facilities. There are few factors that made building a new plant is the best entry mode choice.
Fully control on organization resource
By using building a new plant expansion strategy, Lincoln is fully control on organization resource to optimize organization resources and activities to generate profits. According to Amilia (2014), there are four types of organization resources that are important to starting a new plant, for example, physical resources, information resources, financial resources and human resources. By setting up a production facilities in a strategy location, Lincoln can easily find two of the resources to starting up their business which is physical resources and human resources. For example, the suggested strategy locations which are Masharashtra, Telangana, and West Bengai are easy to get professional and skilled human resources and physical resource. Besides that, it also located in middle of the country with good transportation system which easier to find physical resources with a lower transportation fees. ‘There are many company fail to reach their goals and objectives due to lack of management of organization resources (eResource Scheduler Specialist (2013)’. Effective organization resources management is a basic requirement for Lincoln to successfully expand their business into India market.
Long Term versus Short Term
In a long term perspective, building a new plant is the best strategy for an organization to expand their business into different country. ‘India welding industry has a good potential to growth rapidly from 2016 to 2020, it’s an opportunity for foreigner investor to start their business in India’ (BDB India Private Limited (2016). Lincoln should focus on their long term objectives which is get the biggest market share in India market. In short term perspective, Lincoln has to spend a lot of money of purchasing organization resource to setting up production facilities in a strategy location. Although Lincoln’s budget requirement and risk on expansion strategy is the highest, but it’s bring the highest return of investment in a long term perspective. ‘Lincoln brand is valued in India and will help Lincoln establish a strong manufacturing base to penetrate the India market (Vendredi, 2011)’. Lincoln has a good reputation on their quality of product in a reasonable price which helps Lincoln to easily create customer’s awareness. Diversified product mix, technology and good HR incentive system is the competitive advantage to compete with competitor in welding industry.