Lincoln Electric Case Summary

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In addition, Lincoln Electric understands how the external environment. This is clear by their previous expansion efforts and their recent successful China expansion. They were able to analyze and synthesize market and competitive data in China. Currently, they are taking a deep look to better understand the customer’s business objectives and local purchasing criteria as well as an appreciation of the value of each customer and their training needs to the company.

The company also showed a strategic perspective, the leadership demonstrated a big picture understanding of the business. This means Lincoln Electric demonstrated an understanding of interdependencies across functions and divisions like training and manufacturing requirements based on geographical areas. They also grasp, the short and long-term trade-off’s of business decisions by considering their expansion efforts in China. They have learned many lessons, but none more important than understanding the capabilities in each of their operating sectors to ensure success. Their previous expansion failures and divestures thought them about implementing a thorough due diligent methods for mergers & acquisitions. Because of their global reach, they continue to maintain a clear understanding of the global market and mindset. They continue to innovate both from a technical perspective by developing state of the art high tech equipment and training methods.

4. What is the solution?

Lincoln Electric will need to identify abdicate resources to enter this market. Because of the sheer size and potential, the company should plan in implementing a hybrid, multi year, multi phase market integration. The solution is to initially enter the market by acquiring one or two of the smaller companies with resources and potential for expansion. Currently there are two companies which may be ideal for this process, Anad Arc with plants in Mumbai and Pulgar. This plants will reduce shipping needs, identify already established personnel for key leadership position, and develop local expertise and credibility. As with some of its competition, they have learned the timing is important, then the amount of resources is critical.

Lincoln Electric must take a look at the competition thru their due diligence. As with its competitor, Ador Welding Ltd., the company must implement and shift production to Silvassa, tax free zone. Focus its production with smaller number of facilities. Ador Welding Ltd., realized both economies of scale s well as tax savings. ESAB India, another competitor controlled by ESAB, realized over $50 Million in sales 2005. They entered the market 17 years ago (in 2005) with the acquisition of Philipss Indian welding plant. They also acquired several other acquisition, however had little profitability. After a write off they began construction of their own greenfield 50,000 SqFt manufacturing plant. EWAC Alloys Ltd, 50-50 venture between German Messer and L&T of India. A combination of these examples can be used to enter the market, first the typical way Lincoln Electric has enter the market has been by acquisition. There are hundreds of smaller competitors, but one is highlighted by the case, which would make it a good acquisition for Lincoln Electric, Anand Arc, privately held Indian company with $3.5 million in sales in 2005, it manufactures a full range of welding consumable with claims highest-quality electrodes in India with plants in Mumbai and Pulghar manufacturing electrode for welding all types metals.

5. What steps need to be taken to implement and evaluate this solution?

Implementation

Throughout process, the company must keep their purpose in mind. As stated earlier, the CEO Lincoln Electric John Stropki is currently determining how to expand its business in India. His dilemma is to determine the expansion criteria and method to break into the fastest growing economy, India. He must select the appropriate method, acquisition, joint venture, or by building its own plant in India.

First, the company should determine their action plan and determining the timeframe. In this case, the hybrid plan of acquiring an existing company, with gradually acquiring additional smaller companies and finally within the next 5 years establishing a new manufacturing plant or expanding existing through acquisition. Once its determine by their due diligence, the proper merger should be executed and monitored against its already established criteria as noted below.

Ways to Enter the Market

Acquisition

Joint Venture

Building New Plant

If met the following criteria

Unclear valuation to apply

Accredited immediately under new FASB goodwill rule

Internal rate of return, based upon total investment, of an initial 10%

Increase to 18% over the first 3-4 years (with synergy credits)

Acquisition price less than 8x EBITDA

Company balance sheet would continue to justify corporate-targeted credit ratings

All liabilities were recognized appropriately on the balance sheet

Full financial and legal due diligence

Before commitment

Control

Once implemented, leadership must ensure its plan has been implemented as designed and all leadership and employees are on board. The company leadership must also make any modification to the plan if needed. Progress must be monitored as outlined ensuring the internal rate of return equals 10% of its original investments. Also the company must implement controls to ensure they hit the targeted 18% increase over the first 3-4 years.

Contingencies

There are always future events or circumstances that are possible but cannot be predicted with certainty. With the project market growth in India, the company might not implement enough resources to appropriately acquire, updated and maintain existing company capital investments. Additional resources should be set aside to address a surge in capital requirements. Additionally, because its is impossible to plan for every emergency or contingency. Leadership must identify the must plausible and plan accordingly.