International Business

LINCOLN ELECTRIC CASE REPORT

SUBMITTED TO: Dr. R Raghunathan Assistant Professor, HOD Management Group SUBMITTED BY: Manikanta Varma S 2011H149241

BIRLA INSTITUTE OF SCIENCE & TECHNOLOGY PILANI, RAJASTHAN -333031 13th August 2012

Introduction:
Founded by John C. Lincoln in 1895 in Cleveland to manufacture electric motors and generators. Later on it became a world leader in sales of welding equipment and supplies. James F. Lincoln, Johns younger brother joined in 1907. His independent ideas about human motivation formed the basis of Electrics management methods and incentive compensation. Incentive management at Electric is very well structured and it contains four main components: Piece work, Annual bonus, guaranteed employment and Limited benefits. Lincolns incentive program and innovative management style like open door policy established a very strong culture that encouraged every individual employee to produce and innovate. Lincoln entered into the markets of Canada in 1916, Australia in 1938, and France in 1955 and they succeeded in these ventures mainly because of their incentive system and it is the most essential factor for their competitiveness. Local authorities were given the power to manage the ventures as they would have better understanding of local conditions. Assistance was given from management at USA through deputed managers. Because of severe recession in Europe and Japan, the companys sales were hit hard in few of the subsidiaries and in France. Hence, the company decided to shun the subsidiaries making losses. Rest of them was rationalized for improved product lines and cooperation. In 1995, they realized the necessity of expanding globally and they did it in a style by creating an international HUB which includes five operating regions. In each region they carried out a detailed analysis to get clear insight of local conditions and adapt accordingly.

Problem Definition:
Michael Gillespie, President of Lincoln Asia had to devise a strategy to setup a factory at Indonesia by considering the local conditions. His choices in implementing the idea are, Whether to build the factory in Indonesia at all? If yes, whether to enter the market through a wholly owned factory or a joint venture? Whether to adopt Lincolns famous incentive system or not?

Analysis:
Indonesian market for welding products was very large and it really has a huge demand for Lincolns products because the local firms in Indonesia have significant market share but their products are of very poor quality and Lincoln has established reputation for its product quality in Indonesia. Its not possible to enter into Indonesian market through a wholly owned factory because many news papers cited that the government was one of the worlds most corrupt. In that situation, it is difficult to get licenses and to perform other functions. The risks involved in political and economic instability are serious and causes are severe in the future. But, now Indonesias regulatory environment had been improving. In addition to that, the government imposed no restrictions on repatriation of profits and rupiah was freely convertible.

Recommendations:
After detailed analysis, the following are the few possibilities of entering into Indonesian market. 1. Enter into Indonesian Market by joint venturing in manufacturing and distribution with Tira Austenite and Suryia Surana Hidupjaya (SSHJ) because of Tiras extensive government contacts and SSHJs professional sales style and financial strength. Incentive plan should not be implemented as it is because the Indonesian workers are very good at traditional management methods. Hence, the compensation should be at the prevailing rate at large manufacturing companies i.e., 250,000 rupiah per month + an annual bonus equal to two month salary. 2. Enter into Indonesian Market by joint venturing in manufacturing and distribution with Tira Austenite and Suryia Surana Hidupjaya (SSHJ) because of Tiras extensive government contacts and SSHJs professional sales style and financial strength. Implementing the incentive plan as it was in the parent organization and tying the incentives over the minimum wage to the overall performance of the plant.