112/04/12 1

SDSU Mkt710SDSU Mkt710Dr. Don JungDr. Don Jung

Lincoln Electric’s Harsh Lessons Lincoln Electric’s Harsh Lessons from International Expansionfrom International Expansion

Andy Ku, Jason Chen Mavis Lin, Sean Yeh

112/04/12 2

Company Profile

Founded by John C. Lincoln in 1895. Mainstay business : arc-welding products The arc-welding products took more than 87%(853M) in total sales of Lincoln. (=> 980M year earning)Until 1992, only 6 companies produce arc-welding products.Core competency: Low price, high qualityKey Successful Factors:

• Incentive system : • created in 1934, reward according to performance (rank and file)• combines a bonus with piecework; bonuses have constituted more than 50% of U.S.

employees’ annual incomes. (average wage: 70,000-80,000usd yearly)• an integral part of the company’s culture• Absentee rates: 1.5-2%; turnover rates: 3.5%; few supervisors

• Open communication: 29-member employee advisory board Competitor: ESAB (Sweden/ has global ambition-US, Far East, Latin America)

112/04/12 3

Divisional Structure

CEO + Corporate Staff

Division A Division B Division C

Finance/

Accounting

Marketing

Sales

Human

Resources

112/04/12 4

Mentality

We were so successful in U.S., we could be successful anywhere. The firm belief that if you had the lowest-cost, highest-quality manufacturing operation, you would automatically dominate the market. Lincoln’s employees are resources, not liabilities.

112/04/12 5

React through GlobalizationExpansion due to 1980s US recession/ antitrust law

To reduce costs by applying Lincoln’s expertise, equipment, incentive system into the acquisition list.

Before 1980s 1986/ Ted/ total cost: 325 M

US Main plants Japanbuilt greenfield plan

t

Canada 　 Venezuelabuilt greenfield plan

t

Australia marketing/ operation Brazilbuilt greenfield plan

t

Frence treated like colonies Germany/ Messer Grisheim/ 1991 acquisition

　 　 Norway/ Norweld acquisition

　 　 UK acquisition

　 　 Netherlands acquisition

　 　 Spain/ 1988 after Barcelona Olympics

acquisition

　 　 Mexico acquisition

112/04/12 6

Crisis formingBefore 1980s

Report to

Performance in 1991

1986/ Ted/ total cost: 325 MReport to

Performance in 1991

US Ted well Japan Ted make no money

CanadaDonald

well Venezuela Ted make no money

Australia Ted well Brazil Ted sinkhole

France Ted elusiveGermany/ Messer Grisheim/ 1991 Ted make no money

　 　 　 Norway/ Norweld Tedmarginally profitable

　 　 　 UK Tedmarginally profitable

　 　 　 Netherlands Tedmarginally profitable

　 　 　 Spain/ 1988 after Barcelona Olympics

Tedmarginally profitable

　 　 　 MexicoDonald

make no money

•Low achieving ratio in Europe; gap became larger after 1991.•Lack of the concern to boost revenue.

Still using old Mindset: Ethnocentric to manage a international company. Borrowing : a culture shock to US employees( cash reserve 70M and no debt 1992, 250 M (63% of equity)

112/04/12 7

A series of wrong decisionOverconfidence in domestic success, then believe LE can success anywhere

Wrong timing for acquisitions• A number of acquisitions were made at the peak of mar

ket cycles

Over trusted foreign partners and didn’t examine the information

Ineffective IHR practices

Late attention at warning signs

112/04/12 8

Issue facing after Globalization

Recession in Europe • Reunification of German

Lack of international knowledge • Neglect culture difference• Rely too much on foreign distributors• No testing before execution

Lack of running complex and dispersed organization • Decision made by CEO Ted only • Most board members are insiders: 12/15 • Integration issue

See more in the article…

112/04/12 9

Analysis

Hofstede’s Cultural Dimension

Trompenaars’s Cultural Dimensions

Synthesis of Country Clusters

112/04/12 10

Hofstede’s Cultural Dimension

Source: http://spectrum.troy.edu/~vorism/hofstede.htm

CountryPower

DistanceIndividualis

mUncertainty

Avoidance MasculinityLong term

orientation

USA 40 91 46 62 29

Canada 39 80 48 52 23

Australia 36 90 51 61 31

Mexico 81 30 82 69 　

Brazil 69 38 76 49 65

Venezuela 81 12 76 73 　

France 68 71 86 43 　

Germany FR 35 67 65 66 31

Great Britain 35 89 35 66 25

Netherlands 38 80 53 14 44

Norway 31 69 50 8 　

Spain 57 51 86 42 　

Japan 54 46 92 95 80

112/04/12 11

Trompenaars’s Cultural Dimensions

　United States

United Kingdom France Spain

Germany Japan Mexico

Venezuela Brazil

Individualism X X 　 X 　 　 X 　 X

Communitariansm 　 　 X 　 X X 　 X 　

Specific relationship X X X 　 　 　 　 　 X

Diffuse relationship 　 　 　 X X X X X 　

Universalism X X X 　 X 　 　 　 X

Particularism 　 　 　 X 　 X X X 　

Neutral relationship 　 X 　 X 　 X X X 　

Emotional relationship X 　 X 　 X 　 　 　 X

Achievement X X 　 X X 　 X 　 　

Ascription 　 　 X 　 　 X 　 X X

112/04/12 12

Synthesis of Country Clusters

Adapted from Figure 4–8: A Synthesis of Country Clusters

112/04/12 13

Difficulty would face

Incentive system• Individualism

• Uncertainty Avoidance

Open communication• Individualism

112/04/12 14

SolutionCareful about foreign acquisitions• Partner in a J.V or formed alliances

Changes at the top• new blood and expertise on the board and in top

management who with strong international and financial experience.

Restructuring• Scaled down or close operations

New product line/ special promotion

112/04/12 15

CountermeasureTalk to Banks: higher line of credit; ten-bank consortium

Changes at the Top. Need new blood and expertise on the board and in top management.

Revive the Patient. Rather than downsize, they turned to the U.S. employees for help.(21-points/ open communication/ 1.8M→2.1

M/ per day)

Down operations and restructure in foreign countries.• Scale down: UK, Spain, France, Norway, Netherland• Shot down: Japan, Germany/ Messer, Brazil and Venezuela

112/04/12 16

Worldwide Area Structure

CEO

North America

AsiaEuropeSouth

America

Country Manger: U.S.

Canada

Mexico

Brazil

Argentina

Ecuador

Germany

France

Czech Republic

India

China

Japan

112/04/12 17

Turning it around

　 Before 1992

1992 1993 1994

bonus 　 52.1M 55.3M 55M

restructure cost 　 　 70.1M 　earning after

bonus　 　 (38.1M

)48M

one-year turn around

　 　 　 86M

debt 250M 　 　 　equity 396M 　 　 　lift the credit

line75M 230M 　 　

112/04/12 18

Lesson learned

Mistake:• Leaders grew overconfident in the company’s ability an

d system.

• Assume incentive system and culture could be transferred abroad and work force could be quickly replicated.

• Ignore the employees’ concerns to widely expansion.

• Naïve to think they would be a global company with LE’s limited resources.

112/04/12 19

Lesson Learned

Build up management team and board of directors 5 years before expansionAllocate twice the money as the expansion budgetCareful about foreign expansion: JV (ex. Canada, Turkey)Successful transplanted the incentive system: Mexico, 2 years

112/04/12 20

Thank you