Lincoln Electric Company - Managing in Strategic Context - Case Study Example

Managing in Strategic Context Module 2000 Word Based on Lincoln Case Study Name: Course Professor’s name University name City, State Date of submission Introduction Lincoln Electric Company is focusing on its global strategy choices in their move to expand their operations in India. Lincoln Electric is thus deciding whether proceeding with a strong push into the Indian wielding market should form part of its next strategy into globalisation efforts of the company. Lincoln Electric is to decide whether to apply the lessons learnt in China and across Latin America, Europe and the wider Asia as it seeks to enter India. Various options to entry exist as the company could opt to invest in a major facility in India, whether to enter through acquisition of existing incumbent Indian companies or through a joint venture. The point of interest is to analyse the viability of the company investing in a major facility in India. However, such a move should be considerate of the risks and the benefits review on the economic and political situations, competitive situation and nature of the Indian market. Thus, an analysis of the external environment of the Indian market will be carried out using PESTEL framework in order to ascertain whether Lincoln Electric should go into India or not. External Industry Analysis (PESTEL) Political India is remarkably the largest democracy globally ruled by a federal government. Multivariate political factors such as taxation, privatisation and international trade regulations influence the operation of the business environment in India (Murthy, 2000). The three-tier government structure composed of the rural and urban bodies, state and the union makes taxation very efficient. The income taxes, custom and excise duty, service and sales taxes are imposed by the Union government. The State government levy land revenue, state excise, principal taxes and stamp duties. The Local bodies levy taxes such on properties, markets and utilities (Chakranarayan, 2009). Political interference on privatisation is minimal and therefore creating efficiency in privatisation. The international trade also operates on flexible regulations. Finally, India has experienced political stability over the past two decades with no internal or external wars (Murthy, 2000). Economic The 1991 industrial reform policies have made the economy of India considerably stable. The reforms led to liberalisation of the economy through deregulation and thus improving its global competitiveness. Thus, the economic situation has been improving (Chakranarayan, 2009). For example, by 2009, the GDP was estimated at $3.965 trillion and thus ranking third behind US and China. The country has also experienced an average GDP growth rate of 6% over the past decade with high rates of foreign direct investment. Thus, the purchasing power parity of the Indian consumer is increasing and thus a good opportunity for businesses. The Indian economy has also been able escape major global economic readjustments (Chakranarayan, 2009). Social The changes in trends and tastes of the consumers have had major impacts on the Indian business landscape. In the recent years, a tremendous increase in pension costs to firms and rising recruitment of aging workers due to the country’s aging population has been the case. With approximated 1.2 billion people, over 70% fall in the 15-65 age brackets. The latter age structure comprises of the country’s workforce and depicts varying levels of mobility, education and skill level, income distribution attitudes and leisure (Chakranarayan, 2009). Technological Technological advancements affect the development of new products including the invention of brand new processes. In India, technology has had great effects on innovation, quality and cost reduction. India boats of the most advanced and sophisticated Information Technology (IT). The Indian government fully supports continuous technological developments and innovations. Thus, the country experiences a continuous development in IT, technology funding and technological transfer (Chakranarayan, 2009). Legal India has experienced several changes in its legal framework that include emphasis on recycling, an increase on minimum wage and legislations touching on disability discrimination which directly impact businesses. Other legislations impacting the businesses directly include the Trade Mark Act of 1995, Weights Act of 1969, Standards and Measures Act and the 1969 Consumer Protection Act (Murthy, 2000). The government also imposes legislations on businesses such as copyrights, licensing, trade and product restrictions, health and safety regulations and compliance to EU laws. Recently, the government imposed added legislations to stop environmental degradation. Such included legislations on noise controls and waste disposal (Murthy, 2000). The above external environment analysis using the PESTEL framework underscores on the negative/risks and capitalises on the benefits of the Indian market and business environment. Thus, the answer to the question on whether Lincoln Electric should expand into India through investment in a major facility is a Yes. Evaluation on the Best Entry Strategy in Indian Market Acquisition Acquisition is the process of acquiring the effective control by one firm over the management or assets of another firm without any combination of the two firms (Schuler & Jackson, 2008). The evaluation of acquisition by Lincoln Electric will focus on the following areas: Suitability: As a strategy for entry into India, acquisition is not yet appropriate for the situation due to a number of factors. First, the wielding industry is heavily dominated by three large Lincoln Electric competitors (Ador Wielding, ESAB India and EWAC Alloys). These three competitors possessed a massive 56% market share leaving only 44% of the market share to over 300 small companies (Siegel, 2008). In addition, there are no defined criteria with which Lincoln Electric could employ to go ahead with an acquisition. The latter is in contrast to other markets where the company could employ a defined set of criteria (Siegel, 2008). Acceptability: The aspect of acceptability is evaluated on the basis of the available risks and the return on investment. First, acquisition presents very high risk as an entry strategy and does not in any way guarantee success in globalisation efforts of the company’s move in India (Siegel, 2008). Prior experience with other entry modes such as export in South Korea and Joint venture in China had proven to be far more successful strategies. Since acquisition would demand high investment, the risks are also high as to whether a return on investment would be achieved (Jordan, 2008). Feasibility: The feasibility aspect of evaluation is based on whether the company has adequate resources, both financial and human resources to undertake an acquisition. The prior experience of the company indicates that Lincoln relies on mostly the expatriate labour due to the high turnover of the local human resources as in the case of China and thus high labour costs (Jordan, 2008). Joint Venture A Joint Venture (JV) is an agreement between businesses whereby the parties involved reach an agreement based on developing, for a specified time, a new entity with new assets through contribution to equity (Schuler & Jackson, 2008). The parties involved share control, assets, revenues and expenses. The discussion will form an evaluation on Lincoln Electric JV as a mode of entry in India. Suitability There are a number of factors that seem to validate a move to form a joint venture as the best decision. First, Lincoln Electric faces the inadequacy of well defined criteria for conducting an acquisition as possible in other world markets. Also, since the economy had grown steadily at 6% per annum, an acquisition would be too costly for the company. Secondly, 56% of the Indian Wielding market share was held by Lincoln Electric’s major competitors while 44% was shared among by over 300 small firms (Siegel, 2008). Therefore, Lincoln Electric could seek to form a Joint venture with one of the major competitors with an aim of increasing the market share for both companies. The move towards a Joint Venture is also appropriate for the situation since Lincoln Electric would evade the implications of their new designs being copied by smaller firms which would sell them at sharp discounts and thus giving an unrivalled competition to Lincoln Electric (Siegel, 2008). Acceptability: If Lincoln Electric sought to undertake a JV with one of its major competitors, it would benefit from the already established manufacturing, distribution and marketing networks already possessed by its other party (Siegel, 2008). Thus, there is minimal investment required in terms of establishment in the new market. Secondly, the already established market would guarantee sales of Lincoln Electric products and thus giving a guarantee on return to investment and minimal risks (Vesper, 2000). Feasibility: Data from the Lincoln Case Study Financial Reports indicates that the company was the global market leader in the wielding and consumables industry with total global sales of $1.6 billion. The company has also a well developed structure of management that would provide the required human resources for the JV. Therefore, in its current position, a JV is feasible (Siegel, 2008). Greenfield Suitability: In its simplest Definition, a Greenfield refers to a project deficient of errors related to prior projects. In this case, a Greenfield is appropriate as a move towards entry into the Indian market for of reasons (Vesper, 2000). First, the Greenfield would give the company the benefit of full control of operations including decision making. Secondly, since acquisition failed to meet the company’s criteria, a Greenfield remains as the only option where the company could have full control of their operations as opposed to a JV (Siegel, 2008). Acceptability: The company’s return on investment depends on the sufficiency of the resources dedicated to the entry strategy in order to start competing with major competitors effectively. A Greenfield strategy requires dedicated resources meant to spearhead the fight for the industry’s market share. Therefore, the risks on a Greenfield depend heavily on whether Lincoln Electric will provide sufficient resources to counter major competitors (Vesper, 2000). Feasibility: The company does not have the required human resources for its new Greenfield. However, an appropriate human resource strategy would guarantee that this deficit is met. In terms of the financial resources, the company enjoys a vast amount of resources to enable its Greenfield operation. In conclusion, a Greenfield is the best decision for entry into the Indian market based on the above analysis (Vesper, 2000). Challenges of Expanding Into another Country As the Lincoln Electric Company seeks to use a Greenfield as its strategic choice towards expanding into the Indian market, challenges ahead of its implementation are inevitable. First, the process of acquisition to a Greenfield is potentially very costly and often potentially complex (Vesper, 2000). The Greenfield venture requires massive investment of the company’s resources since it implies starting from scratch in a new business environment and thus high risks on investment. The latter may be so since some sites lack the necessary infrastructure such as sewer and water lines, roads, electricity connections and so forth (Root, 2008). Secondly, a Greenfield venture is liable to face the entire three-tier tax system in place in India due to an included tax on property which further cuts down on the profit margins of the company. Thirdly, the new waste disposal and environmental degradation legislations available in India increase the cost of production since they impose restrictions towards unsafe waste disposal and degradation of the environment (Chakranarayan, 2009; Root, 2008). The other challenge is in the transfer of value chain and competencies of the parent company to the subsidiary plant in India. The latter presents an even daunting task of replicating and adapting the value chain of the company together with the human resource competencies required to run the facility (Root, 2008). Recommendations There are several Recommendations that seek to address the Greenfield challenges that the Lincoln Electric Company may face as they enter the Indian market. First, the company should design to develop the Greenfield in several phases that cover a span of a justifiable and efficient time frame. The development should first ensure that only crucial production facilities are set-up first to facilitate the company’s entry into the Indian market. In the meanwhile, the company will determine whether the venture will give a good return on the investment and thus avoid suffering catastrophic loss in case of a failure. Secondly, the company should first assess where to set up the Greenfield in terms of availability to support infrastructure in order to avoid added development costs and in turn save resources and reduce the risk to investment. Thirdly, the company should seek to engage with the local authorities in order lessen the approval time frames on new sites and avoid future legal conflicts. Fourthly, the company should seek to utilize the local human resource and skill in order to save on operational costs. Adapting a local value chain would serve to reduce the costs and time of replicating a new value chain and thus saving resources for the company. References Chakranarayan, R., (2009). Indian Market-A PESTEL Analysis. Pearson Education. Johnson, G., Scholes, K., & Whittington, R. (2008). Exploring corporate strategy: text & cases. Pearson Education. Jordan S. I., (2008, November). "Lincoln Electric." Harvard Business School Case 707-445. Murthy, W. B., (2000). A PESTEL Analysis of the Indian Business Environment. NY. Root, F. R. (2008). Entry strategies for international markets. Opportunities and Challenges. San Francisco, CA: Jossey-Bass. Schuler, R. S., & Jackson, S. E. (2008). Strategic human resource management. John Wiley & Sons. Siegel, J., (2008, August 25). Lincoln Electric. Harvard Business School. Vesper, K. H. (2000). New venture strategies. University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship. Read More