Identify and Appraise the key Strategic Issues Confronting John Stropki as he leads the expansion of Lincoln Electric International Business in 2006
In the contemporary world, internationalization has become popular in all industries. According to Mellahi and Frynas (2011, p.6), convergence of global markets and technological revolution have necessitated firms to standardize their products, as well as adopt strategies that make them internationally successful.
Lincoln Electric was founded in the last decade of the nineteenth century, and over the years, the company grew to be one of the major players in the welding industry. However, it was not until 1980s that the company expanded its business/operations to international markets, thanks to the increasing popularity of globalization of trade.
Currently, the company is headed by John Stropki as the chief executive officer, who was appointed to the position in 2004. Upon taking over at the company, John Stropki’s priority was to improve the competitive advantage of the company, with internationalization being the primary strategy to achieve that competitiveness.
A brief view from the history of the company shows that, Lincoln Electric starting capital was only $200, with its initial aim being to produce and sell electric motors. In addition, its net income had increased from $15.8 to $48.0 between 1986 and 1994, while between 1995 and 2005, the company’s net income increased from $61.5 to $122.3 millions (Barnett and Beamish, 2011, p.16).
It is rather evident that the company had been operating on profits; therefore, John had to sustain the company’s competitive advantage and increase on profits.
By 2006, the company operated in 19 countries; the company had succeeded in joint ventures in several countries. Using the Porter’s five forces framework, this paper will appraise and analyze the strategic issues confronting John Stropki in expanding the business to India.
According to Hill and Jones (2009, p.43), the risk of entry by potential competitors can be a threat to profitability for an existing company, too many firms in the welding industry will increase rivalry in the industry as they compete for the customers and resources; this is a challenge that faces Stropki in the future.
Although the company had a geographically distributed network, it faced the challenge of new and increased competition from other firms seeking to reap profits from the industry. Indeed, Mellahi and Frynas (2011, p. 8) believe that, successful firms have to be proactive in their internationalization strategies, rather than waiting until their local operations become unprofitable, more so in this era of accelerating globalization.
Threat of substitutes in the market is another challenge that Stropki had to deal with. Lincoln has managed to maintain its profitability over the years because of its quality products and low costs, which stand as an advantage. According to Hamel, Doz, and Prahalad (1989, p. 137), “the quality and performance of a company’s products determines it competitiveness,” and building sustainable core competencies.
In this case, high performance will allow the firm to meet foreign demand effectively, more so when it sets up production facilities in the importing countries. This way, the company will be able to enjoy economies of scale input efficiency in production of products, thus delivering them to consumers at competitive prices.
The bargaining power of buyers is another aspect that Stropki had to address. For any business to survive, it must improve its customers’ relationships. Lincoln is involved in serving customers that specialize in building homes, cars, bridges, and power plants.
Therefore, customer service is an important aspect at Lincoln, which Stropki has tried to improve since he took over leadership. Finding new and improved ways to serve the customers better is a strategic issue that Lincoln had to emphasize on in order to gain customers’ loyalty.
This is also supported by establishment of a call centre phone, email responses, and customer surveys, which provide feedback for improvement (Smart business Cleveland (2011). Nevertheless, employees determine the sales of the company, such that, responsive employees contribute to customer attraction, and as a result, a positive relationship is created, leading to customer loyalty.
International business was another strategic issue that confronted Stropki (Barnett and Beamish, 2011, p.15). This is due to the intensity of competitive rivalry existing in the international market. Indeed, over a thousand companies were involved in the production of equipment and consumables whereby, the leading six companies accumulated 45% of the global market (Barnett and Beamish, 2011, p.16).
In order to succeed in competitiveness, Hamel, Doz, and Prahalad (1989, p. 134) call for collaboration, which would allow the company to learn from the skills and experiences of the rival/partner, but such an alliance must not lead to competitive compromise.
By the end of 2006, Lincoln had acquired Metrode Products Limited firm in the United Kingdom, a move that would contribute to the company’s income through high innovative solutions (NEMA industry news, 2006).
By using the hofstede cultural criteria, it can be deduced that the company faces a challenge in cultural conflict emanating from differences in practices, behavior, and communication. Primarily, Indians respect appearance highly, whether in official and casual matters.
In this case, the mode of dressing is important, with women not allowed to expose the upper part of their bodies or upper arms, while wearing of leather products is discourages due to the revere Indians have on cows.
On behavior, it is important to understand that Indians do not consume beef, prefer business lunches to dinners, do not open gifts in presence of the giver, and use some gestures (hand or head) that may be opposite to other cultures.
Finally, the mode of communication is important, considering that Indians respect the use of titles when addressing people, use indirect language when communicating a negative response and they do not accept use of ‘thank you’ after meals. Therefore, hiring and maintaining responsive employees will be important to ensure that employees understand and respect cultural boundaries existing between Indians and other cultures.
According to Grant (1991, p.116), Resource-based theory explains that resources are the main capabilities of a firm’s survival, as they provide the direction for a firm’s strategy as well as they are the main source of profit for a firm. A firm’s resources and capabilities define its identity in terms of what the firm is capable of doing to satisfy customers’ needs.
Lincoln has over the years improved on its income, therefore increasing on its resources and capabilities, as well as competitive advantage. The resource-based theory also argues that a company’s ability to earn profits depends highly on the attractiveness of the industry location and its competitive advantage capability over its rivals.
According to Stonehouse and Campbell (2004, p.175), a firm’s position in the industry determines whether its profitability is above or below average; sustainable competitive advantage results to the basis of above average. John Stropki has the task of ensuring that Lincoln electric adopts a favorable generic strategy that would sustain its competitive advantage.
He can turn to cost leadership strategy that involves being the lowest cost producer in the industry of welding. The company can also adopt differentiation strategy, whereby, the firm chooses to be unique in satisfying the needs of customers, for instance, by producing unique products in the industry.
The Influence of Shareholder and other Stakeholders upon Lincoln Electric’s Strategic Development
Shareholders of Lincoln Electric legally own shares of stock in the company. They have the right to sell their shares, vote on the directors nominated, purchase new shares, and share dividends (Sharma, N.d, p.136). Shareholders sustain their shares in a company depending on its profitability; Lincoln has been a major attraction to many shareholders due to its sustainability in the market.
At Lincoln Electric, the annual report informs shareholders on all the activities throughout the year including acquisitions, expansions, new products, and developments among others.
This company values its shareholders and seeks to generate the shareholder’s value; for instance, in their annual report of 2010, they generated shareholder value via increased growth from expansions, share buybacks, increased dividends, and acquisitions (2010 annual report, 2010, p.6).
In 1999, Lincoln Electric’s shareholders agreed to a reorganization of the capital and corporate structure, and new holding company, Lincoln Electric holding Inc., was created. In 1998, stock option plan was preferred by majority shareholders to replace the incentive plan of 1988; this new plan offered options for 5,000,000 shares of the company to the key employees for a period of 10 years (Lincoln electric holdings Inc, 2001 p19).
According to Anon (1999, p.6), shareholders require a fair return for their investment, which is one of the main aims of Lincoln Electric company; as a result, the shareholders contribute positively towards the company’s decisions, leading to strategic development via expansion or acquisition.
Employees at Lincoln have selected an advisory board that consists of few employees’ representatives who have the right to question the company’s top management decisions. Stakeholders have an interest in a company; however, they do not own it unless they own shares. Stakeholders may include employees, suppliers, shareholders and customers.
Stakeholders influence the strategic development of a company in various ways. When employees receive favorable working conditions and fair pay, they are motivated to maximize on productivity. Suppliers become loyal to a company if they are paid on time and business is conducted regularly, while customers require safe products at fair prices.
A community within the business environment of the company should benefit from job opportunities and positive impact to their environment; for instance, minimum disruptions and lack of pollution. In addition, a company should be in a position to foster social responsibility.
According to the case study, the CEO aims at globalizing the company; to achieve this strategy, the company has to rely on its employees and customers in order to sustain its operations in a foreign market.
Employees are part of Lincoln stakeholders who play a huge role in the development of the company via increasing production and performance. Despite the fact that they receive a salary, employees need to be motivated. At Lincoln Electric, creating a positive working place is among the company’s top priorities.
The company ensures that employees practice the values of honesty, respect, and fairness, as well as creating equal employment opportunities for everyone regardless of gender (Lincoln electric code of corporate conduct and ethics, N.d, p.22).
Therefore, Lincoln electric has over the years ensured that the employees working conditions are safe and healthy, and in return, employees have been able to contribute to the company’s development through productivity. Even as the company continues to expand, the probability of attracting and retaining competent workforce will be high, since its policy addresses employee’s needs.
The main stakeholders of Lincoln are customers; over the years, the company has relied on its customers on crucial steps such as expanding. Indeed, Lincoln has managed to satisfy customers globally, and recently received an award for customer value creation through addressing the pressing challenges in the industry of welding and consumables.
Lincoln’s mission statement emphasizes on customer satisfaction and customer expectations by providing solutions not just equipments. By providing quality products to customers at low prices, the company is able to attract many customers globally, hence increasing their capability of developing.
According to Barnett and Beamish (2011, p.16), by 2005, Lincoln had made a significant number of sales geographically despite the stiff competition that existed; in china 17%, India 3%, North America.23% Latin America 5%, South East Asia 9%, Europe 21%, Russia 6% and Japan 16%.
Lincoln Electric is evidently influenced by its stakeholders and shareholders, especially in development; they are a determining factor, and without them, the company cannot be complete.
Lincoln Electric’s Generic Strategy of Social Responsiveness in 2006
According to Husted and Allen (2001, p.3), social responsiveness involves giving back to the community through positive activities, creating support from stakeholders. This is necessary for the survival of a firm, and as a result, it creates a competitive advantage.
In addition, Mellahi and Frynas (2011, p. 104) emphasize the importance of corporate social responsibility for companies that seek to thrive in the global market, arguing that all stakeholders should be involved, as they are directly or indirectly affected by the operations of the company.
In 2006, little is evident on the company’s social responsiveness; however, according to Cascio (2002, p.75), by 2002, the company had provided employment opportunities for over 3400 in the United States, and was operating in 17 countries with a turnover rate of less than 5%.
Boycotts and strikes were unheard-of at Lincolns Electric since it began, and until 2005, the company had a no-layoff policy. Moreover, the company’s profits were shared with its workers via annual bonuses.
When losses occurred, workers shared the pain too; and the management started considering implementing an incentive pay–for-performance system in 2005 (Barnett and Beamish, 2011, p.20). The pay for performance system is still used at Lincoln as an incentive performance system, used for bench marking.
Today, the company has implemented programs aimed at reducing negative impact on the community. The company also collaborates with the American Welding Society with an aim of attraction young people to the profession of welding.
Lincoln Electric’s green initiative awareness program enables the company to promote its initiatives to reduce environmental impact of its manufacturing processes.
The improved technological advancement has contributed to the reduction of negative impacts on the environment. Nevertheless, Lincoln should continue exercising social responsiveness in order for the firm to attract more stakeholders and retain the existing ones for the survival of the firm in the future.
Ways in Which Lincoln Has Developed Dynamic Capabilities through Learning from Japan, South Korea, and China Experiences
According to the case study, by 2005, Lincoln Electric posted high sales, thanks to high demand in the welding industry. The sales were as follows: in China 17%, India 3%, North America. 23% Latin America 5%, South East Asia 9%, Europe 21%, Russia 6% and Japan 16%, (Barnett and Beamish, 2011, p.16).
Given that the company’s CEO was still planning to penetrate fully in the Indian market, performances in other countries would be the main determinant of what needed to be improved in order to operate in India.
According to Kim and Mauborgne (1993, p.13), for a company to succeed in global strategies, understanding the target market is crucial, while communication between the head office and the management in the foreign country should be frequent in order to foster mutual trust and unity.
Lincoln Electric’s operations in China, Japan, and South Korea are our focus, including how the company has developed its dynamic capabilities through its experiences from these countries.
Lincoln Electric, commenced its operations in China in 1989, and the company has consolidated its operations in the country by opening representative offices in shanghai, Beijing, and Guangzhou over the years. In 1997, the company opened the first manufacturing facility in China, which was a welding plant that aimed at manufacturing MIG and flux cored wires.
Further, in 2006, Lincoln Electric Boashan facility was converted to Shanghai Lincoln Electric Company, which is the main operation in China serving the Asia market and contributing to China’s long-term growth (Lincoln Electric China, 2010).
Shanghai Lincoln Electric has over the years provided a basis for Lincoln Electric’s growth in China, with the company managing to expand its machine production and having various acquisitions.
Lincoln Electric’s operations in China have been successful, comprising of 2,500 employees in six manufacturing subsidiaries; its contribution to the Chinese economy is an added advantage to the company in its efforts to penetrate to other foreign markets like India (Lincoln Electric China, 2010).
In 2002, the company acquired Hyundai Welding Limited for $143million, which was a welding consumables manufacturer in South Korea. This move aimed at strengthening the market in Asia and increasing the shareholder’s value.
Lincoln’s high customer value, advanced technology, and quality products evident in their operations were the main determinants of the acquisition, as Hyundai Limited had faith in them. The company aimed at dominating the Asian market, which is marketable and profitable, hence taking risks and embracing uncertainties (Lincoln Hyundai, 2002).
Throughout its operations, Lincoln has always been successful, not only in its home country, the United States, but also in the foreign markets. However, the company’s plan to build new plants in Europe, Venezuela, and Japan in 1993 was unsuccessful, leading to declaration of financial loss (Caligiuri, Lepak, and Bonache, 2010).
This was due to the barriers that hindered the successful transfer of Lincoln Electric system of incentives. In addition, Lincoln managers were not provided with international business training, a major contribution to the collapse of these operations abroad (Caligiuri, Lepak, and Bonache, 2010).
Changes Needed in Lincoln Electric Resource Management Strategy to Succeed in India
Lincoln’s intention to expand to India in 2006 could only be successful if the current CEO, John Stropki, learnt from the mistake of the previous chief executive officer. Hofstede’s cultural dimension assists organizations in understanding workplace values globally, thus being in a position of working in different cultures effectively.
Therefore, for Lincoln Electric to excel in India, it must understand the cultural dimension of India, which would enable it in building connections in the country. It is therefore important to note that what works in one country may not work in another.
Hofstede’s five dimensions of culture eliminate the problem of culture differences. According to India business etiquette & culture (1998), India has a 77 ranking of power distance score, as a high level of inequality of wealth and power is evident. Its long-term orientation dimension is ranked at 61, as its culture is perseverant. Moreover, India’s masculinity is rated as 56, as a great gap of values exists between men and women.
Uncertainty avoidance is the lowest ranking in India standing at 40 mainly because the society has fewer rules governing uncertainties (India business etiquette & culture, 1998). Therefore, for Lincoln electric to succeed in India, it must be aware of the existing cultural dimensions of the country.
Hofstede’s cultural dimensions India
Therefore, for John Stropki to succeed in India, application of hofstede cultural criteria would be important. His managers must be educated on foreign markets, and incorporating some personnel from the foreign market is an added advantage. Hofstede rates India’s individualism at 48% compared to other countries.
Therefore, for Lincoln to improve on individualism in India, it must aim at building and sustaining strong relationships, and as a result, low job turnover will be evident. India’s level of power distance index is high, showing that there is a huge gap between managers and employees.
Therefore, for Lincoln electric to motivate employees, it can reduce on power distance, hence creating a close relationship between managers and their employees. As a result, the US Lincoln managers will be in a position to learn from Indian based employees.
The United States managers learn from the Indian based personnel, therefore understanding the foreign market better. In addition, Lincoln has always operated under 19th century incentive system, which should be reconsidered due to the changing world of business.
For Lincoln Electric to succeed in India it has to align its strategies to those of India; for instance, the company should emphasize on social responsiveness, since India is a developing country and Indians are more conservative in business.
In India, cases of child labor are not acceptable, while employees’ wages and benefits should be fair in accordance to the Employment Act. From the research above, it is evident that the Asian countries value customers, quality of products and technology advance; therefore, these factors should also be applied in India, which will boost its economic growth, as it is a developing country.
In order for the company to succeed in India, it should focus on attracting and retaining its major stakeholders, for instance, its competent employees, customers, and suppliers among others.
Motivating its employees and providing quality products and quality customers services to its customers is a strategy that will boost the company’s operations. In addition, Lincoln should also focus on adding both the shareholders and stakeholders’ value by increasing sales and profitability, hence achieving sustainability and a competitive advantage in India.
Reference List
Anon. 1996. Lincoln Electric: The Company, Its Operations, and Its Values. Web.
Barnett, A., & Beamish, W., 2011. Transnational management. 6th edition. New York. Mc Graw-Hill.
Caligiuri, P., Lepak, D., & Bonache, J., 2010. Managing the Global Workforce Global Dimensions of Business. NJ: John Wiley and Sons publishers.
Cascio, W., 2002. Responsible restructuring: creative and profitable alternatives to layoffs. NY: Koehler Publishers.
Grant, R., 1991. The resource-based theory of competitive advantage: implications for strategy formulation. Web.
Hamel, G., Doz, Y. L., & Prahalad, C. K., 1989. Collaborate with your Competitors and Win. Harvard Business Review. (Attached article).
Hill, C., & Jones, G., 2009. Strategic Management Theory: An Integrated Approach. 9th Edition. OH: Cengage Learning Publisher.
Husted, B., & Allen, D., 2001. Toward a model of corporate social strategy formulation. Web.
India business etiquette & culture. 1998. Geert Hofstede Analysis for India. Web.
Kim, W., & Mauborgne, R., 1993. Making global strategies work. Sloan management review, 34(3). (Attached document).
Lincoln Electric China. 2010. The history of Lincoln Electric China. Web.
Lincoln Electric Inc. 2011. The welding experts; company history. Web.
Lincoln Electric code of corporate conduct and ethics. Ethical commitments: essential in business. Web.
Lincoln Electric Holdings Inc. 2001. Increasing shareholders value. Web.
Lincoln Hyundai. 2002. Lincoln Electric Signs Agreement to Acquire Hyundai Welding Ltd. Web.
Mellahi, K., & Frynas, J. G., 2011. Global Strategic Management. Second Edition. Oxford: Oxford University Press.
NEMA industry news. 2006. Lincoln Electric Announces Acquisition of Metrode Products Limited. Web.
Sharma, A. Company Law and Secretarial. NY: FK Publications.
Smart business Cleveland. 2011. How Lincoln Electric uses innovation to enhance the customer experience. Web.
Stonehouse, G., & Campbell, D., 2004. Global and transnational business: strategy and management. Second Edition. John Wiley & Sons publishers.
2010 annual report. 2010. Lincoln electric, the welding experts. Strong and growing stronger. Web.