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Lincoln Electric

Lincoln Electric. Team. What is the Best Way to Enter India?. B y acquisition B y Joint venture B uilding a new plant on its own. Operation Red Elephant: Entering India. The Ador Welding Joint Venture. Outline. PEST Strengths and Weaknesses Organizational Structure Culture

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Lincoln Electric

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  1. Lincoln Electric Team

  2. What is the Best Way to Enter India? • By acquisition • By Joint venture • Building a new plant on its own

  3. Operation Red Elephant:Entering India The Ador Welding Joint Venture

  4. Outline • PEST • Strengths and Weaknesses • Organizational Structure • Culture • Strategy • Recommendations

  5. PEST

  6. Strengths & Weaknesses

  7. Key Points • Core Competencies • Product mix • Technical Developments • innovation, • technology. • Customer Relations & Marketing • Quality • Service • Operations • speed • Productivity • efficiency • Logistics • Financials • Culture & Leadership • Management • Organization • Decision-making abilities

  8. Product Mix • Lincoln could solve customers’ process problems and improve process productivity with its ability to combine both equipment and consumables development needs into one integrated package.

  9. 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

  10. Tech Development • More than 50% of Lincoln Electric’s equipment sales in 2005 were generated by welding machines introduced in the previous five years. • 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.

  11. 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

  12. Costumer Relations Weaknesses • Geographical distance; logistics

  13. Marketing Strengths • Strong brand identity Weakness • Strong brand identity

  14. Operations Strengths • Efficiency • Solutions oriented • Supply chain and FANUC Robotics • Harris Colorific acquisition Weaknesses • Maintaining operational efficiency internationally • Incompatible power source

  15. Logistics Weaknesses • Local production presence

  16. Is Your Unique Competency aSound Basis for an Effective Strategy?

  17. Inimitability Product mix Technical Developments Customer Relations & Marketing Operations Logistics 5 4 3 3 2

  18. Durability Product mix Technical Developments Customer Relations & Marketing Operations Logistics 3 4 5 4 4

  19. Appropriability Product mix Technical Developments Customer Relations & Marketing Operations Logistics 5 5 5 4 4

  20. Sustainability Product mix Technical Developments Customer Relations & Marketing Operations Logistics 3 3 4 3 2

  21. Competition

  22. Ador Welding Ltd. • $50 million in sales in 2005 with a 15% operating margin, and a portion of its shares traded on the local stock exchange. • Cost-adjusted annual revenue growth rate at 20% over the next two years, which should continue with a return on capital employed at over 40%.

  23. Ador Welding Ltd. • The company has shifted some production to Silvassa, a government-created tax-free zone, and by concentrating production at a smaller number of facilities Ador had realized both economies of scale as well as tax savings. • In July 2006 the company’s publicly traded shares were valued at 10.9x FY07 estimated net earnings per share, and EBITDA per share was predicted by the same local analyst to grow at a CAGR of 29% and net earnings per share to grow at a CAGR of 23% over the next two years.

  24. Ador Welding Ltd. • Ador had annual sales of 241.6 crore (large values of India’s currency, the rupee, are counted in terms of crore, with one crore the same as 10,000,000 rupees). • The company had produced 17,217 MT of consumable welding products in FY06, and Ador had previously constructed plant lines that could produce far more than that should the market continue to grow.Ador had in FY06 paid a dividend of 15 rupees, equal to a 4% yield on the stock.

  25. ESAB India • Over $50 million in sales in 2005. • 18% operating margin in 2004 • Newly Restructured • New $4.6 million, 50,000 square foot, greenfield manufacturing plant

  26. EWOC Allows Ltd. • $30 million in revenues in 2005

  27. Smaller Competitors • D & H Sécheron • $3.5 million in sales in 2005 • Indo Matsushita • Anand Arc • Manufactures fullrange of welding consumables • Claims that it produces the highest-quality electrodes in India

  28. Competitive Superiority

  29. Financials

  30. Cashflow • Long-term company financial targets included sales growth at double the rate of growth in worldwide industrial production • Operatingmargins over 15% • Earnings growth of 10% annually • Return on equity exceeding 20%

  31. Cashflow

  32. Access to Outside Capital • India market booming so credit may be easily accessible. • Still, any significant welding acquisition would likely require paying an acquisition premium greater than Lincoln Electric had been used to paying in the past

  33. Other Scheduled Plans • As of 2005 the company spent approximately two-thirds of free cash flow for international expansion

  34. Hurdle Rate • Aminimum internal rate of return, based upon total investment, of an initial 10% increasing to a minimum of 18% over the first 3–4 years (with synergy credits) • Theacquisition price was less than 8x EBITDA

  35. Other Data • 2005: operating income was $153.5 million and net income was $122 million on sales of $1.6 billion.

  36. Other Data • Domestic Reliance • Over-forecast and spending • Extensive resources required • Human capital • Manufacturing

  37. Regional Performance

  38. 2005 Revenue for Largest Competitors in $13 Billion Welding Market • Lincoln Electric’s main competitors are ESAB (European based company) and ITW (Illinois Tool Works). • Lincoln Electric also owns assets in Air Liquide, the fourth largest competitor in the market. • Total revenue is important, but the total net income far more important.

  39. Industry Benchmarkand Competitors • Note: ITW and EASB India earned $1.3 billion, while Lincoln Electric earned $1.6 billion. • In 2005, ESAB India gain more capital from investor causing higher ROE. A huge increase of £123.6 million.

  40. Organizational Structure

  41. Introduction

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