External Factors Based on PESTEL Analysis - Lincoln Electric - Example

Argumentative Report for Lincoln Electric By: Professor: Class: University: City: State: Date of submission: Argumentative Report for Lincoln Electric Introduction Lincoln Electric is an international company with headquarters in the United States and deals in manufacturing of various welding products. Through the years, the company has been able to diversify its operations to various countries including the Middle East regions. With long years of operations, the company has been able to gain insight and experience in the industry; as a result, it made huge progress and acquired expertise within the industry through the study of the ever-changing markets and trends in demand. In addition, the long years of operation has also enabled the business expand and become one of the globally known companies that offer employment opportunities to huge numbers of workers (Siegel, 2007). The founder of the company, John C. Lincoln, had great ambitions of ensuring adequate transforming the business in conjunction with excellent management of institutional team. Furthermore, the business has been able to achieve its tremendous growth through focusing on its mission and vision statement; consequently, it managed to open operations in other states outside America. Although the company has registered success in its recent operations, the early ventures performed poorly across the globe due to various factors. The paper aims to explore the reasons behind such failures and opportunities in India. Causes of failures in early ventures outside US Internal: Based on valuable, rare, inimitable, and non-substitutable (VRIN model) One of the major that led to better performance in the US was commitment by the management to the workforce; as a result, it achieved competitive advantage. The resources that achieve such competitive advantage were efficient within the labour force. However, such performance failed to replicate in international markets. Using the VRIN model, the employees failed to meet value the practices that the business had transferred from the US due to cultural and legal differences. The workforce in international markets failed to prove to be tremendously valuable as initially assumed by the business by failing to meet the output levels. With the company’s aggressive expansion in the late 1980s, the business had inadequate upper managers with international experience since most practices happened within. When expansion began, the business assumed that its superior manufacturing operations would increase the efficiency and reduce operational irrespective of the location. However, the company failed to note the significance of culture and challenges it is likely to experience while making the changes. According to Hasting, the business went too fast, paid much, failed to understand the culture and international markets, and experienced challenges from global recession. Even though labour was valuable to the business, the business did not consider it rare. Moreover, with increased profitability within the industry, the products manufacture was not rare and to some extent, failed to meet the needs of the customers especially in Japan. Although in the US the management and compensation strategy spurred the efficiency and improved dedication of the employees, the workforce remained rare at that time. However, the replication failed to achieve the desired success. In addition, the company was unlucky for buying the companies in Europe before the global economic downturn, which greatly impacted its operations leading to failures (Lincoln Electric, 2009). Other factors that limited its international success were lack of international experience and failure by the management to provide the “sink or swim” form of corporate attitude. The company might have been looking at the long-term perspective and might have given up on such plants very early. In addition, the business lacked contingency planning related to corporate support, direction, and advice (Vermeulen, 2001, 32). Besides, Lincoln tried to apply its incentive management internationally across the countries and cultures. At such moment, it failed to understand the significance of tailoring the rewards and incentives within specific states and cultures. Even with high competition in the industry, the competitors remained reluctant in imitating the management and compensation strategy and methods used in attracting the potential customers. In addition, the competitors found it difficult to justify paying high wages and bonuses to the employees at the expense of organizational profitability. In turn, to achieve competitive advantage, the competitors used high costs of unionization, comparatively lower productivity, and high turnover (Cuervo-Cazurra, Newburry & Park, 2016, 155). The corporate culture used within the business stressed on open communication and trust starting with the top management. Since the commencement of the business, the approached used by Lincoln is that the business should never grow for a single person to manage. Company leaders employed stripped-down approach, which encouraged the workers to share their ideas with management and CEO (Alavi & Leidner, 2001, 115). Integration of that wide approach and incentive system lead to creation of dedicated and skilled workers. The business believed that replication of such management and incentive system would revitalize the international operations performance through energizing and committing the employees. However, the company failed to factor that it created and confirmed its corporate culture for many years but not overnight. External factors Based on PESTEL Analysis Political The human resource policies and management for the company are highly innovative which worked efficiently and effectively in the US market. The business entered the Chinese market through joint venture and the most challenging issue was government restrictions, which made it difficult to establish distribution channels. As a result, the business decided not to produce high-tech advanced products in China. In addition, issues such as corruption and riots in some international branches contributed to the failures. With the change in government regulations across the borders, the business changed some of its operations to meet the needs of the local markets. Economic For efficient success, there is for better economic performance; however, the business chose to exploit the Europe market, which experienced the negative effects of economic recession. Even with such difficulties, the business focused on its competitive advantage strategy of retaining the employees, which lead to losses and failure of certain projects. Most of the projects failures occurred in Asia. Establishing certain operations proved difficult especially finding competent local managers, difficulty in dealing with the local government authorities, establishing the distribution channels, and difficulty in making the operations profitable, which led to establishing operations with Taiwanese partner. Social Organizational culture plays important role in ensuring that the business achieves its success. At early stages, the business aimed at achieving growth through focusing on its mission and vision states across its branches without considering cultural differences in these countries. The US culture differs from those of the Western Europe and Asia making it difficult for the business to replicate its strategies in other markets (Pacek & Thorniley, 2007, 176). Another issue that led to limited success of the business in the expansion strategies is over reliance on the incentive system. Even though the business made numerous innovations while expanding to international markets, its incentive system remained institutionalized due to the assumption by the management that it would work in every place (Johnson, 2003, 35). Technology The business realized potential opportunities in Japan, South Korea, and China and considered them as advanced version of the welding market. Within these countries, the rate of competition was high especially as the native businesses were manufacturing products of high quality. The business entered the Japanese market when the market has reached a steady state in which the market demanded the latest and the highest level of technology in manufacturing welding products. In addition, the consumers needed high quality consumables at competitive prices, the level that Lincoln Electric had not reached. On the other hand, China had moved from production of low-end consumables, a stage in which the company was, to embracing the most improved welding technology (Bansal, Mendelson & Sharma, 2001, 65). These developments presented limited market opportunity for the business to thrive. Lincoln also lacked distribution channels, brand recognition, and the sales force in these countries to help sell their products. Environment The power supply situation in Japan presented challenges for welding machine requirements where there were two voltages and frequencies in use (Cuervo-Cazurra, Maloney & Manrakhan, 2007, 713). These challenges impaired the performance while the customers were reluctant in paying a premium for the products that were not optimized for the market. Legal With employee management issues, the business failed to attract and retain talent required in building the capabilities in its supply chain logistics, quality assurance, purchasing and sourcing, and product development. Among such challenges, Lincoln Electric was not overly concerned with the loss its intellectual property; as a result, the business focused on reserving the option of producing the most technologically advanced products in the future (Ciuriak, 2009, 162). In addition, the company management left the system on the autopilot besides seeking the methods of modifying it with an aim of meeting the needs and values of the eve changing environments. As a result, the systems experienced legal barriers. For example, the German law was against piecework payment and in Brazil, the laws of fixed bonuses restricted the implementation of the incentive system which was organizational setback. Lincoln Expansion in India The market entry strategy is important while getting into getting into international market. The need to involve other companies, which involves two companies joining, is joint venture method. These businesses get into similar markets and make similar production but share the risk and profit depending on agreement terms (Reuvid, 2008, 142). Hence, Lincoln Electric has a chance of venturing in the Indian market through joining with other companies. Through the strategy, the business has the opportunity to attract wider share of the market. However, it is important to consider political, economic, and social integration (Bartlett & Beamish, 2011, 188). For the business, it has to consider achievements associated with market increment. About Indian market structure, introducing a welding company is important with respect to technology improvement. While focusing on the joint venture strategy in the international market, it is important to consider business environment. Different companies have tries entering the market through either merging or acquisition but found it rough to succeed within the markets. Considering that Lincoln is grounded properly financially and needs to establish itself as an international business, it needs to make the necessary structures required to enter the Indian market. In addition, the company to ensure that it is in a position of should adopt all the basic installation required to be in a position of competing competitively (Kumar & Pattnaik, 2014, 116). The business is also in a position of expanding its production capacity when formed on its own. Therefore, it would not be tired from the commitments that result from the merging activities. The joint venture is market entry strategy that needs to be based on the formation of new company that would utilize different inputs for the production of the products. The strategy is critical in Lincoln’s case. In places like China, the company needs to establish itself on its own considering that legal issues could arise in case the business enters the market through joint ventures with other companies. Partnership would restrict the growth of the business and disputes associated with sharing of profit could emerge (Wong & Chan, 2012, 201). In addition, with the strategy, the right decision could not be made at the right in places such as China since the method takes time to arrive at the decision. With increased demand in the welding materials within South Korea, the distributor of the company failed to cater for the requirement needs of the shipping company. In such case, the company could have catered for the demand if it had established own its own to deal with the production of the welding requirements. The strategy forms the base of the business to establish the plant itself in demand to cater for the future changes in demand. In places like South Korea, the business failed to cater for the demand of its products, as it was not involved in the manufacturing process (Siegel & Larson, 2009, 1530). Joint ventures tend to limit the production within the company. Moreover, Lincoln had no market link; therefore, it never had the final market demand for its products. In Japan, the business should have entered with the necessary machines required to produce its products; as a result, it would have positioned itself competitively to compete with other competitors within the region. Therefore, it is recommended for the business to enter the Indian market on its own to cope with various challenges associated with delaying of production (Hill, 2009, 122). Through entering the Indian market, using other strategies would imply that business would not be in a position of handling the pressure resulting from the competitors. Within the Indian market, the demands for welding products are high; thus, Lincoln needs to establish a renowned plant to assist in the manufacturing of its products (Chilton, 2016). However, there are challenges associated with adoption of such approach. It is hard for the business to establish itself with various companies located in India. Additionally, the Indian market is made of different companies dealing in the production of welding materials; as a result, for effective establishment of its products, the business would need advanced marketing strategies to outshine the major competitors (Heifetz, Grashow & Linsky, 2009, 142). A properly executed plant development and training of the workforce might give the business the opportunity of becoming the leader within the Indian welding industry with generation of the long-term strategy for the protection of all the stakeholders. In India, the business might find it hard to cope within the market considering that some of the customers would not regard the manufactured products. Huge capital outlay to establish itself is another challenge the business is likely to experience if it pushes on with the entry strategy. Considering that Lincoln electronics is establishing a new plant, it would require a lot of money for making the making structures and buying the equipment. In addition, the legal process required for establishing the plant could be tiresome; as a result, the business might take time to begin its operations within the country (Prange, 2016, 201). Therefore, it is important that the business consider some important aspects before resolving on the expansion to the Indian market. There is need for careful analysis of the market situation within the country to assist the company in careful analysis of the competitors and their products. Competitors are important which makes it critical for the business to be realistic and develop strategies that would deal with competition. The strategy that Lincoln Electric should use in entering the Indian market is joint venture as it offers various entry grounds. In India, the wielding industry is dominated three large competitors and small businesses that sell their products at low cost to the customers (Hoek, 2010, 136). Focusing on the performance of the major competitors, there is high competition level, which make the entry strategy for the business to have great impact on the market. Considering that Lincoln Electric is multinational business with operations in various countries, it should be in a position of standing alone and providing its products to the target market. Conclusion Lincoln Electric is one of the businesses that have been successful in effective mastering of the incentive and reward system in motivating the employees. However, while entering the international markets, the business failed to consider cultural differences, market structures, and legal issues associated with business operations that resulted in several failures. In Western Europe, the business entered the market before the occurrence of economic recession that negatively impacted its operations. Integration of that wide approach and incentive system lead to creation of dedicated and skilled workers. The business believed that replication of such management and incentive system would revitalize the international operations performance through energizing and committing the employees. However, the company failed to factor that it created and confirmed its corporate culture for many years but not overnight. Considering that Lincoln is grounded properly financially and needs to establish itself as an international business, it needs to make the necessary structures required to enter the Indian market. Joint ventures tend to limit the production within the company. Moreover, Lincoln had no market link; therefore, it never had the final market demand for its products. References Alavi, M., & Leidner, D. E. (2001). Review: Knowledge Management and Knowledge Management Systems: Conceptual Foundations and Research Issues. MIS Quarterly, 25(1), 107-136. Bansal, H. S., Mendelson, M. B., & Sharma, B. (2001). The impact of internal marketing activities on external marketing outcomes. 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