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Advances in technology, specifically inverter technology, will be necessary in India Given their limited access to such technology, the efficiency of this technology, and the high cost of electricity in India. This provides a huge opportunity for Lincoln Electric
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Advances in technology, specifically inverter technology, will be necessary in India • Given their limited access to such technology, the efficiency of this technology, and the high cost of electricity in India. • This provides a huge opportunity for Lincoln Electric • Capitalize on its previous technological achievements in a new market • Developing newer technologies for more developed markets. • Reasons for the level of expansion in India’s market growth: • The projected level of governmental infrastructure projects • The development of several thousand miles of new oil and gas pipeline, • these infrastructure improvements encourage further build-out. • The Indian market will be highly profitable through at least 2050
Ador Welding Ltd. • The company has shifted some production to Silvassa • a government-created tax-free zone, resulting in tax savings • Concentrated production realized economies of scale • In July 2006, analysts valuation of ADOR: • Publicly traded shares were valued at 10.9x FY07 estimated net earnings per share, • EBITDA per share was predicted at a CAGR of 29% • Net earnings per share to grow at a CAGR of 23% over the next two years.
ESAB India • Over $50 million in sales in 2005. • 18% operating margin in 2004 • Newly Restructured due to a poorly executed acquisition strategy • New $4.6 million, 50,000 square foot, greenfield manufacturing plant
Smaller Competitors • 55% of the market is small local operations • D & H Sécheron • $3.5 million in sales in 2005 • AnandArc • Manufactures fullrange of welding consumables • Claims that it produces the highest-quality electrodes in India
Access to Outside Capital • India market booming and credit is readily accessible. • Any significant welding acquisition would likely require paying an acquisition premium greater than Lincoln Electric had been used to paying in the past • Rates for commercial loans were 2% below MIBOR (10.5%)
Product Mix • Lincoln Electric currently: • solves customers’ process problems with expertise • improve process productivity with its ability • one integrated package • combine both equipment and consumables development needs • Physical goods are selling well • Consummable makes up a significant proportion of the LE portfolio • Equipment developed in last 5 years makes up 45% of equipment sales • Most equipment is sold in developed, steady-state markets
Tech Development Strengths • Technological innovation allows the company to earn a price premium for many of its products. • Industry leader in new market introductions and quality performance. • The most aggressive, comprehensive, and successful R&D program in the welding industry
Operations Strengths • Efficiency • Solutions oriented • Supply chain and FANUC Robotics • Economies of Scale and Scope realized in Welding Industry Weaknesses • Maintaining operational efficiency internationally • Incompatible power sources for International markets • Logistical hurdles • Equipment ships from Cleveland, Ohio
Tech Development • Known as “The Welding Experts,” vs. its leading competitors who chose to diversify their resources far away from welding. • In 2004 began building regional engineering development centers worldwide.
Costumer Relations Strengths • Product support and guarantees, allows the company to earn a price premium for many of its products. • Customer support • Training • Consultation • Guaranteed Cost Reduction Program Weaknesses • Geographical distance; logistics
Company Data • Domestic (US market)Reliance • US market makes up 60% of Lincoln Electric’s Portfolio • US market growth is slow, at 2% per year • Need to position in grow • Extensive resources required • Human capital • Manufacturing
Division of management responsibilityand degree of managementindependence • Attempts by parent companies to micromanage an enterprise that may be thousands of miles away are doomed to failure. • A better strategy is for them to set up clear operational parameters and then let the venture’s management succeed or fail on its own.
Ownership and control problems • Product line disputes • Material and component sourcing • Technology utilization • Cultural problems
Culture Strengths • Industry-leading productivity advancesthrough innovative human resource and incentive systems. • stock ownership • incentive bonuses via merit ratings • Employee Advisory Board • employee suggestion system
Culture • annuities for retired employees • group life insurance. • No lay-off policy • The entrepreneurial spirit • Piecework • Work days • Merit ratings • Trusting relationships
Culture Weaknesses • Synergies of acquisitions • Incentive and bonuses