Cevdet KIZIL
                      (Graduate MBA)

            Southern New Hampshire University
Multinational Business Strategy (INT700) – Prof. Aysun Ficici

                   September 28, 2004
                Manchester, New Hampshire
Table Of Contents

  Title Page                                    i

  Table of Contents                             ii

  I.     Organizational Strategy                1

  II.    International Strategy                 2

  III.   Analysis of International Expansion    3

  IV.    Recommendations                        4

   Bibliography                                iii

I. Organizational Strategy

         Lincoln Electric had a unique organizational strategy with numerous creative


         First of all, to keep and better motivate its employees, the company implemented

a special incentive system which properly distributed the resulting profits inside the firm.

This system had four components: piecework, annual bonus, guaranteed employment and

limited benefits. The piecework element was beneficial, because all of the employees had

to ensure their own quality and there was no limit about how much one could maximum

earn by working faster and harder. Then, the annual bonus element was also very

important since the employees were awarded in according to their contribution to the

company’s performance in terms of output, ideas, cooperation, dependability and quality.

Next, guaranteed employment element helped the firm assign his workers to different

tasks when there were problems so that the company could prevent lay-offs. After that,

the last element, limited benefits, helped the firm to minimize company-paid benefits.

This component created a cost advantage for Lincoln Electric.

         Another strategy of the firm was to create a family-like atmosphere inside the

company where both the managers and the employees respected each other. The

hierarchical barriers were kept at minimum and open communication was valued. That

organizational strategy provided the firm various suggestions, new ideas, improvement

and innovation.
         Following that, the strategy of encouraging teamwork and competition which was

one of the most important components of company structure should be noted.

         One other organizational strategy implemented by Lincoln was to highly value its

employees and customers. As an example, when the company made a profit, the

employees got a good share for their work and this was also reflected to the customers via

lower product prices. This strategy created a win-win-win approach for all of the parties.

II. International Strategy

         Lincoln Electric had an international strategy the first time under leading of Don

Hastings and then Tony Massaro.

         One of the most important points about Lincoln’s international strategy was to

hire executives with international experience, unlike the strategy of previous unsuccessful


         Also, the firm assigned top executives for each region Lincoln operated which

increased their motivation in a great degree. This international strategy helped to

establish a strong communication between the CEO and these top executives too.

         Additionally, Lincoln had enhancements in its incentive system for each different

country, economy and culture.

         Moreover, the firm built a strong relationship with its suppliers, distributors and

customers. In this context, brand awareness and loyalty was another goal.
III. Analysis of International Expansion

       Lincoln’s first international expansion occurred in Canada where the company’s

incentive system was almost completely adopted. Then, the firm expanded to Australia

and France. However, these three foreign factories manufactured in a small scale and

relied on U.S. plants for a number of key parts. Furthermore, company executives still

paid little attention Canada, Australia and France.

       In 1986, Willis became the CEO and the company acquired plants in nine

countries which were followed by the new ones in Japan and Venezuela. On the other

hand, Lincoln implemented its original incentive system in the new countries completely

without making any changes. The top executives were originally U.S. managers lacking

international experience and the new subsidiaries were left to manage on their own. By

time, resistance was observed in many quarters against the incentive system and the sales

of subsidiaries were declining.

       Later, in 1992, Lincoln started to re-gain its strength with its new CEO, Don

Hastings. The company looked outside and hired executives with international

experience, conducted an extensive examination of Lincoln’s new overseas subsidiaries

and located the reasons of problems. As a result, some subsidiaries were shut down and

others went through serious changes. Then, long-term supply agreements were signed by

key customers and tariff bills were reduced. Besides, new products were developed to

meet European customers’ needs. The company also gave up trying to implement the full

Lincoln incentive system. As a result of all this work, the European operations started to

generate profits and the overseas subsidiaries rebounded.
       In March 1996, Massaro was named the CEO of Lincoln and he started by

extending the company’s sales and distribution networks in Latin America and Asia.

Then, he assigned presidents for each of five regions Lincoln operated. Massaro also

chose the flexible way in Lincoln incentive system to have it fit better for each country

and culture. Then, Gillepie was named as the new director of international operations by

Massaro. The first target for the new factory in Asia was Indonesia and the administrative

had to make a decision whether to go for this investment or not. Also, if the investment

decision were to be taken, the preference of entry strategy & incentive had to be agreed.

IV. Recommendations

       I believe that Lincoln Electric should go with the investment in Indonesia because

of several reasons.

       First of all, Indonesia has a population of 214,000,000 which stands for a serious

number of consumers. Additionally, the Indonesian market is large in terms of welding

products, the demand is high and the country is growing and will need much more

developed machines in the future.

       Then, the rivals in Indonesian market are not that strong. The two multinational

companies have distributor problems and the other local firms serve products of lower


       Following that, Lincoln’s reputation is well established in Indonesia and

consumers can easily switch to Lincoln if the firm maintains a competitive price.

       Next, the regulatory environment in Indonesia is rapidly improving and even

100% foreign ownership of manufacturing ventures is now permitted.
       After that, the natural resources of Indonesia is very rich, the workforce is

competitive, the location of the country is strategic, the nation is in favor of change and

reform, government is committed to provide a good business and investment climate,

Singapore & Japan are also highly investing in this country and finally the culture is


       For the entry strategy, Lincoln must enter the Indonesian market with a joint

venture partnership. Because it’s better in terms of local language skills, helps

understanding the local culture, risk is shared, support will be gained in dealing with

government regulations and understanding of local competitive environment, it prevents

over-competition, lowers the cost of capital, provides access to new customers, provides

access to valuable natural resources, helps achieve lower costs, perfect for capitalizing on

resource strengths and good to gain scale economies in production and marketing.

       Then, the best joint venture partner should be SSHJ since they work more

professionally, have more experience and perform a much stronger financial condition.

       After that, regarding the incentive system, in my opinion the traditional

management system of Indonesia must be implemented since it’s a better match for their

culture and will reduce the risk on this issue.

       Overall, Lincoln Electric should go for the Indonesian investment with the joint

venture partnership strategy by using the traditional Indonesian management style.

However, Lincoln should implement this strategy with a small-scale first, going slowly.

The financial strength and the big scale of Lincoln Electric enables it to spread the risk of

this investment unlike most of its rivals, this advantage must be definitely used.

1- Barry, D. (June 2003). Now’s the Time for Asia. U.S. Government Export Portal

2- Broadfoot, R. (October 2, 1998). The Importance of Political Risk. Political and
Economic Risk Consultancy, Ltd. Website.

3- Eicher, T. & Kang, J.W. (September 2003). Optimal Entry Modes for Multinationals.
University of Washington Website.

4- Embassy of the Republic of Indonesia (2003). Doing Business in Indonesia. Website
of the Embassy of the Republic of Indonesia

5- (2004). Legal Aspects of Foreign Investment in Indonesia. Indo Website.

6- Limberg, S.T. (2004). International Expansion and Taxes. University of Texas
McCombs School of Business Department of Accounting Professor Stephen T.
Limberg’s Website.

7- Mehta, P. (May 2, 2000). Entry Strategies for Foreign Direct Investment (FDI). India
Infoline Ltd. Website.

8- Myers, R. (June, 2002). Is A Subsidiary In Your Future? American Institute of
Certified Public Accountants Website.

9- Purba, K. (2004). Singapore keeps neighborly with RI through investment. The Jakarta
Post Online Website.

10- Toemion, T.F. (2003). Message from The Investment Coordinating Board, Mr. Theo
F. Toemion. Badan Koordinasi Penanaman Modal – A Guide for Foreign Investors.
Website of Badan Koordinasi Oenanaman Modal (The Investment Coordinating Board of

11- US-ASEAN Business Council. (2003). Doing Business in Indonesia – Business
Regulations. Website of US-ASEAN Business Council.

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