Lincoln Electric, a US-based welding company, aggressively expanded internationally in the 1980s through acquisitions. However, it struggled with low performance overseas due to applying its US management style and incentive system without considering cultural differences. This led to financial losses and crisis. Lincoln Electric subsequently restructured its international operations, installing new leadership and learning to better adapt to local cultures.

1. SDSU Mkt710 Dr. Don Jung Lincoln Electric’s Harsh Lessons from International Expansion Andy Ku, Jason Chen Mavis Lin, Sean Yeh

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 quality Key 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)

3. Divisional Structure CEO + Corporate Staff Division A Division B Division C Finance/ Accounting Marketing Sales Human Resources

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.

5. React through Globalization Expansion due to 1980s US recession/ antitrust law To reduce costs by applying Lincoln’s expertise, equipment, incentive system into the acquisition list. acquisition Mexico acquisition Spain/ 1988 after Barcelona Olympics acquisition Netherlands acquisition UK acquisition Norway/ Norweld acquisition Germany/ Messer Grisheim/ 1991 treated like colonies Frence built greenfield plant Brazil marketing/ operation Australia built greenfield plant Venezuela Canada built greenfield plant Japan Main plants US 1986/ Ted/ total cost: 325 M Before 1980s

6. Crisis forming 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) make no money Donald Mexico marginally profitable Ted Spain/ 1988 after Barcelona Olympics marginally profitable Ted Netherlands marginally profitable Ted UK marginally profitable Ted Norway/ Norweld make no money Ted Germany/ Messer Grisheim/ 1991 elusive Ted France sinkhole Ted Brazil well Ted Australia make no money Ted Venezuela well Donald Canada make no money Ted Japan well Ted US Performance in 1991 Report to 1986/ Ted/ total cost: 325 M Performance in 1991 Report to Before 1980s Low achieving ratio in Europe; gap became larger after 1991. Lack of the concern to boost revenue.

7. A series of wrong decision Overconfidence in domestic success, then believe LE can success anywhere Wrong timing for acquisitions A number of acquisitions were made at the peak of market cycles Over trusted foreign partners and didn’t examine the information Ineffective IHR practices Late attention at warning signs

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…

9. Analysis Hofstede’s Cultural Dimension Trompenaars’s Cultural Dimensions Synthesis of Country Clusters

10. Hofstede’s Cultural Dimension Source: http://spectrum.troy.edu/~vorism/hofstede.htm 80 95 92 46 54 Japan 42 86 51 57 Spain 8 50 69 31 Norway 44 14 53 80 38 Netherlands 25 66 35 89 35 Great Britain 31 66 65 67 35 Germany FR 43 86 71 68 France 73 76 12 81 Venezuela 65 49 76 38 69 Brazil 69 82 30 81 Mexico 31 61 51 90 36 Australia 23 52 48 80 39 Canada 29 62 46 91 40 USA Long term orientation Masculinity Uncertainty Avoidance Individualism Power Distance Country

11. Trompenaars’s Cultural Dimensions X X X X Ascription X X X X X Achievement X X X X Emotional relationship X X X X X Neutral relationship X X X X Particularism X X X X X Universalism X X X X X Diffuse relationship X X X X Specific relationship X X X X Communitariansm X X X X X Individualism Brazil Venezuela Mexico Japan Germany Spain France United Kingdom United States

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

13. Difficulty would face Incentive system Individualism Uncertainty Avoidance Open communication Individualism

14. Solution Careful 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

15. Countermeasure Talk 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->2.1M/ per day) Down operations and restructure in foreign countries. Scale down: UK, Spain, France, Norway, Netherland Shot down: Japan, Germany/ Messer, Brazil and Venezuela

16. Worldwide Area Structure CEO North America Asia Europe South America Country Manger: U.S. Canada Mexico Brazil Argentina Ecuador Germany France Czech Republic India China Japan

17. Turning it around 230M 75M lift the credit line 396M equity 250M debt 86M one-year turn around 48M (38.1M) earning after bonus 70.1M restructure cost 55M 55.3M 52.1M bonus 1994 1993 1992 Before 1992

18. Lesson learned Mistake: Leaders grew overconfident in the company’s ability and 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.

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

20. Thank you