Feeding The Dragon

In the late 1990s, Lincoln Electric Co. entered a joint venture with Taiwan's Kuang Tai Metal Industrial Co., one of East Asia's largest producers of welding wire. By January 2000, the Cleveland-based manufacturer of arc-welding products and robotic-welding systems was the largest shareholder in Kuang Tai, and the joint venture was producing welding wire for customers throughout the Asia-Pacific region. That short-term achievement may not seem remarkable unless you know that the joint venture was producing the wire in a high-quality, low-cost plant in Pudong, an industrial district just outside of Shanghai, in the People's Republic of China. "When we initiated an aggressive global strategy in the late 1980s, we knew that China would be a critical component," says Anthony A. Massaro, Lincoln Electric's chairman and CEO. Manufacturing in the PRC is just one element in a business strategy that regularly has resulted in multimillion-dollar contracts for equipment and welding wire. But it is a critical element. Lincoln Electric's presence in China began in the mid-1980s with a lone sales office in Tianjin, east of Beijing. Yet even that modest presence allowed the company to begin learning the intricacies of the China market and to develop plans for marketing and a framework for distribution. Lincoln Electric now has a nationwide network of nine Chinese distributors and four more regional offices, each staffed with bilingual Chinese sales personnel and welding engineers who provide technical service, support and training to distributors and end-users. Lincoln Electric always relies on experienced international managers in its foreign facilities, which is why Peter Grant is sales manager for China and Hong Kong. Operating out of Lincoln Electric's principal office in the Wai Gao Qiao free trade zone in Pudong, Grant, an Australian, has more than 20 years' experience in the Far East. He understands the market, recognizes the potential roadblocks presented by government regulations, and works smoothly with Chinese-born colleagues, distributors and customers. Most important, he knows how to get things done, even within the Byzantine Chinese bureaucracy. Because a personal approach is vital in all Asian cultures, Lincoln Electric's managers have made a point of developing relationships with important individuals inside various Chinese enterprises and governmental entities. These relationships have grown stronger over time as Lincoln Electric has learned more about the needs of the Chinese and how best to serve them. The resulting bonds of trust and respect are often invaluable when contract bids are weighed. Since China's industrial economy is still developing, potential customers may need to be shown the value of the latest available technology. Lincoln Electric provides ongoing education and hands-on training for distributors and end-users, both in its on-site training facility in Pudong and in the field. Lincoln Electric also guarantees access to qualified service technicians and a broad range of support for even its most sophisticated products. This approach helped Lincoln Electric win a contract in April 2001 for about US$1 million of semi-automated welding equipment for use on a massive cross-country petroleum-pipeline network. The company first made an enormous effort to engage and build relationships with officials of the Chinese Pipeline Bureau, which oversees all aspects of the project. Lincoln Electric executives and engineers from China and from the company's Cleveland headquarters attended the Bureau's "West-East Pipeline Project" conference in March 2001, even bringing with them an entire automated welding system to demonstrate its effectiveness to more than 80 representatives of pipeline companies and the Chinese government. Since April 2001, Lincoln Electric has won more than $3 million in additional contracts for the project -- and at yearend 2001 the company was pursuing $12 million in contracts for the enormous quantities of welding wire that building the pipeline will require. But potentially the most significant element of its China strategy is synergy, Lincoln Electric's ability to maximize disparate strengths, as illustrated by a contract it won in June 2001 for $1.2 million of pipe-welding systems. The equipment was engineered and assembled at Uhrhan & Schwill of Essen, Germany, a unit of Lincoln's Electric's European subsidiary and imported into China through the Lincoln Electric (Shanghai) Trading and Warehousing Co. Utilizing its Shanghai trading company, Lincoln Electric can bring welding equipment and consumables into China from any of its manufacturing operations or subsidiaries around the world and warehouse them for ready access by distributors and end-users. Indeed, this capability allows Lincoln Electric to offer next-day delivery to Chinese customers, a key competitive advantage. Lincoln Electric also has begun to buy low-cost parts and components from Chinese manufacturers and export them through its trading company to Lincoln Electric manufacturing facilities elsewhere around the globe. This has the potential to substantially reduce the company's manufacturing costs, further increasing the value of Lincoln Electric's China investment.