Lincoln Electric Essay

Lincoln Electric’s CEO Massaro was correct in his assessment that, markets in developing countries would grow faster and yield a higher return. This strategy was critical and in alignment with the organization’s goal to reach 50% foreign sales revenue. As president of Lincoln Asia, Mike Gillespie faces a great challenge with his decision to enter the Indonesian market. If Mr. Gillespie does decide to enter Indonesia, he must also decide whether to do it alone or through a joint venture, and how to structure employee compensation.

It looks like Gillespie conducted enough corporate anthropology research to identify viable consumer product needs that Lincoln Electric will be able to provide (stick consumables vs. automatic consumables segments). I understand that investing in Indonesia offers many benefits to the organization, mostly towards increased profit margins and market share of consumable products (for further information regarding the strategic planning for entering Indonesia see Exhibit 1).

However, in my opinion, Gillespie does not have enough data to make an informed decision regarding this move. Fear of a rekindled Civil War, unstable inflation rates, and other activities in the country revealed both economic and political instability. Other issues to be considered include labor issues of Indonesia 1. I would recommend further market and cultural analysis to aid his decision-making. If Gillespie decides to enter Indonesia, it is my recommendation to enter with a partner.

I support this recommendation because, through his own market analysis and consultation it was identified that due to the political structure a local partner with in-depth knowledge, and political connections would be essential for success. I understand that a joint venture will decrease Lincoln Electric’s profit margins, but in my opinion, the joint venture will minimize investment risk, especially if a partner is able to provide capital towards the cost of building a facility. Gillespie’s choice in partners should be based off of a predefined set of criteria.

These criteria should include current relations/contracts with Lincoln Electric, current market share, knowledge of local market and culture, political and business contacts. The partner should also have the ability to withstand any financial risk toward this investment. See table 2 for a breakdown of both potential partners and how they compare to the criteria. I would recommend a joint venture with both companies (Tira and SSHJ). The reason for this recommendation is due to the diverse benefits, which both companies can bring to the venture.

However, I have concerns regarding the loyalty of either partner to the Lincoln Electric brand. If we apply the social exchange theory to this situation, one could speculate that when more than one partner is included in a business relationship, the loyalty of each business partner may decreases due to competition and fear of favoritism 2. It is Gillespie’s intention to implement a piecework compensation structure and I support this decision. It is also the intent of Lincoln Electric to exceed minimum wage requirements and prevailing rates.

Gillespie has concerns regarding the ability for all employees to meet minimum wage using piecework compensation. It is my recommendation to set the minimum daily quota at the minimum wage rate. I would also implement an aggressive performance bonus paying out monthly vs. annual. I would highly recommend further cultural analysis with a focus on time perceptions and labor perceptions of the local culture. The compensation structure should be adjusted as time goes on and favorable trends in compensation are identified.

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