Problem Statement
The problem identified in the case “Lincoln Electric” has been that the company is looking to expand itself in the Indian market. In spite of being a lucrative market for the company, still the CEO John Stropki is not sure how to enter the Indian market. He has to decide whether Lincoln Electric should enter the Indian market by acquiring a firm, or by forming a joint venture with a local manufacturer or setting up company plant in India.
Key issues
The key issues identified in the case “Lincoln Electric” is that when the company entered into expanding itself, the company failed to establish itself where it suffered an operating loss of $325 million in 1992. The losses were so serious that the company had to borrow money from the market to pay bonus amount to United States employees. The reason for the failure was simple, the company had no idea or prior experience of blending with local rules and regulations. They were dubious regarding various aspects that were important to address before entering a new market. The company Lincoln Electric was overly dependent upon North American market to bring in sales. Another key issue which was faced by the company was that European market was engaged in duplication of products. With the mergers failed during the initial phase, Lincoln Electric has to close down its unprofitable business from Venezuela, Brazil and Germany.
Analysis
As the company is looking to expand itself in the International market, the three options available for the company is to either enter India through acquisition, joint venture or by starting up their own manufacturing plant.
Acquisition
The first option for the Lincoln Electric while entering new market in India is to enter by acquiring a local welding firm in India. The option will be a rather feasible one because by acquiring a local firm the company will not have to face the issues of government rules and regulations as the acquired company will guide Lincoln to work in the new region. Secondly, by acquiring a local firm the company will be aligned with the vision of the company which has been to enter new markets by actually blending itself with the local suppliers and dealers by acquiring a firm in the market. This can be a positive move for the company because through acquisition the decision making authority will rely upon Lincoln Electric which has been a strong and a well-known brand name in the welding industry.
Joint Venture
Another option to enter Indian market for Lincoln Electric is to enter through forming a joint venture with a local firm. This option is again a feasible one because eventually the local firm will help Lincoln to penetrate in the Indian market rather easily. However, the option of forming a joint venture will not provide control over operations to Lincoln electric as the local firm will have equal authority to make decisions and to formulate strategies. However, the option of joint venture will ensure easy transition into the Indian market without a lot of risk involved.
Build own Plant
The third option for the company Lincoln Electric is to enter Indian market by establishing its own manufacturing plant. This is a rather risky and an expensive move. The reason is simple, Indian market was one of the fastest growing market for welding goods because of the heavy construction in the country. But the problems were that manufacturing company plant will be requiring trade license, dealing with the government rules and regulations and finding the right suppliers and dealers for the company. Manufacturing company plant will be given control over the business affairs but it will make the overall cost increase for the company.
Recommendation and Implementation
Acquisition
With the three alternatives available for the company to enter Indian market, the option of acquiring a local firm will be the most feasible option. Acquiring the local firm will ensure that the decision making authority within the company will lie in the hands of Lincoln Electric. It will be the final decision maker regarding operations and strategic decision making. Therefore, it is recommended that Lincoln Electric should enter the Indian market through acquisition because it will eventually help the company to start its operations. Finally, it can be concluded that the option of acquisition is the most feasible out of all the options available for the company to expand itself in the Indian market.......................
Lincoln Electric Case Solution
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Covers strategies and management practices of the world's largest manufacturers of welding equipment. We discuss the system of compensation and company culture and leadership style of management.
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by Norman A. Berg, Norman D. Fast Source: HBS Premier Case Collection 30 pages. Publication Date: August 1, 1975. Prod. #: 376028-PDF-ENG
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