Lincoln Electric Case Study

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- Under Tony Massaro, Lincoln’s international strategy is tactical and enables Lincoln to be successful.

- Focus on less-developed countries

- Massaro “judged North American and European markets will grow half as fast as less-developed countries.”

- First, Lincoln began distributing in Latin America and Asia.

- Once there is evidence of a solid customer base, Lincoln will move to build manufacturing sites there.

- This plan is cautious but has the potential for high yields.

- The CEO (Massaro) will oversee international ventures

- Under CEO George Willis, Lincoln’s top executives paid little attention to overseas ventures. They were only concerned about their headquarters in Cleveland. Because of their ignorance, the international subsidiaries failed.

- There are now five presidents to encompass all the regions, and Massaro meets with them every two months to “discuss global strategy.”

- Lincoln will no longer enforce the incentive system internationally.

- Massaro acknowledges that this system works well in the US, but other cultures may not benefit

- International managers are encouraged to assess their cultures and employ parts of the incentive system or adapt it as they see fit.

- Because of the CEO’s increased role in international business and the ability to implement parts of the incentive plan, Lincoln will be more successful.

4. Should Lincoln go ahead with its investment in Indonesia, i.e., what advice would you give to Mike Gillespie with regard to his Asian expansion strategy; particularly his plans for entry strategy, ownership/partnership structure, and worker compensation system?

- Lincoln should invest in Indonesia because:

- Market Share in Indonesian Welding Market Segments

- Lincoln already has a great presence in Indonesia’s market shares through Lincoln Electric (especially in automatic welding process) and the Suryiasurana Hidupjaya company

- Building a factory in Indonesia would allow Lincoln to lower cost of selling in Indonesia and initially compete with lower quality stick consumables

- As Indonesia’s economy grows, the industries will move to the semi-automatic and automatic welding processes, and by building a factory and gaining market share, Lincoln will be able to easily provide to the construction and manufacturing industries for the better, automatic products

- Great Industry Growth

- Indonesia’s construction (12.4%) and manufacturing (11.0%) industry growth is attractive, particularly if Lincoln advances its welding processes and moves to semi-automatic and automatic welding processes

- Job Sector

- The estimates for underemployment is at 40%, meaning that Indonesians are highly skilled workers who are being underpaid or are not satisfied with their jobs

- With a combination of traditional Indonesian and Lincoln’s methods of employment, Lincoln could hire highly skilled candidates who will produce innovation and quality products

- Political Uncertainty

- There is a considerable amount of risk within Indonesia’s government due to President Suharto who has no

- Coups and riots have taken place before, making it strategic to build the factory far from the political centers of the country

- Economy

- The economy is growing rapidly but is marred by corruption and ineffective government intervention

- The Indonesians prefer dealing with their own countrymen and local companies dominate the market and distribution

- In order for Lincoln to penetrate the Indonesian market, they must partner with a company already established in the country with ties already in distribution

- Because of the widespread corruption and bribes, Lincoln must protect its reputation which affects its success in other regions of Asia

- Entry Strategy

- Lincoln should build a factory to establish a market share in the stick consumables segment at a competitive price

- As Indonesia’s economy grows, becomes more matured, and demand for construction and manufacturing increases, Lincoln’s reputation as a high-quality producer will allow them to quickly dominate the market

- Ownership/Partnership Structure

- Lincoln should invite both companies to join a joint venture. The two companies compliment each other very well by allowing Lincoln to reach a broader area of the market

- The advantages of partnering with Tira are their widespread distribution and access to many medium-sized and large customers in Indonesia. Tira also has high-level relationships with the government officials allowing Lincoln to access the market with less resistance

- SSHJ already has vast experience with Lincoln and Lincoln’s products. They have the financial strength to help Lincoln build the factory, and could help Lincoln expand to markets in Vietnam, Burma, and China.

- Worker Compensation System

- Indonesia is a strong collectivist culture, meaning that that the people emphasize family and work group goals above individual needs and desires. Lincoln’s American compensation system would not work as well in Indonesia as it would in the individualistic America

- Lincoln should set a pay structure that is competitive with similar companies in Indonesia for the base strategy. With 40% underemployment, Lincoln has an opportunity to attract smart, innovative managers and workers who are familiar with Indonesia’s industry. The base salary for the employees should be at least 250,000 rupiah per month

- Lincoln could also adapt part of James Lincoln’s philosophy for the plant in order to encourage a greater quality and quantity of work. It would be most effective to establish a collectivist reward rather than an individualistic one. Bonuses should be given based on the factory’s