Introduction to Welding Technique
Added on - 22 Sep 2019
IntroductionWelding is a technique for joining pieces of metals by using the process fusion through theapplication of concentrated heat. The Process can be used to join the two metal items. Welding isalso the primary activity in most of the industries like manufacturing of construction equipment,machine tools etc. The predominant method of welding is Arc welding, where a welding is donewith the power source generate electric current. The Arc welding then melts a filler metal tocreate the bond between the two metal parts. The filler metal is in the form of a stick or wireelectrode, and the electrodes often a series of chemical coatings or shielding gases to protect thewelded metal from oxygen and nitrogen in the air and strengthen the bond.Competition in IndiaIndia has become the attractive market for welding Industry. After the 1991 due to LPG(Liberalization Privatization Globalization) India has on the pace of development. GDP of Indiais growing faster after the 1991 result in becoming the one of the faster growing countries in theworld. Welding market of India covers the one third of the Asia`s market of welding. Industrygrowth is ever high because the India is currently focused on construction and infrastructureprojects. The important feature of the Indian market is only the 56% of consumer of the weldingindustry are large firms and remaining 44% are the small firms which try to imitate the newdesign on the market and try to sale it as a sharp discounts. The Perfect competition of weldingIndustry in the India enables the cut throat competition among the industrialists. The major firmsengage in the welding Industry in the India are Ador Ltd which enjoy the same return of capitalemployed over the next few year due to economies of scale of operation. The Ador Ltd is alsoplanning to establish the one of its division in the government created tax free zone and byconcentrating the production at the smaller number of facilitator Ador Ltd has realized both theeconomies of scale and the tax saving. Another competitor in India is the ESAB India which iscontrolled by the Lincoln`s multinational competitor. ESAB India is building up its market byacquisition and lower market share as compare to Ador Ltd. The third major competitor in Indiais The EWAC Alloys Ltd is the joint venture between the Messer of German and L&T of Indiain 50-50 ratio. After the major competitor there are certain small industrialist who includes thedivision of certain global leader and the certain local private companies.India`s Labor MarketIndia is the market of labor intensive technology rather than the Capital intensive technology.The country is friendly to use of incentive pay for performance, although there are certainnotable regulation in place. The company established there is free to adopt piecework anddiscretionary bonus without getting approval from the union and the government and withoutincurring any future obligation, but in most cases the pay has to meet the minimum pay criteria.The Payment of bonus Act ,1965 and The Employees `Provident Funds and MiscellaneousProvision Act,1952 and The Payment of Gratuity Act,1972 are applicable on the CompaniesEstablished in India. According to which the minimum bonus, payment for provident fund andthe gratuity is calculated for the employees of the company.
AssumptionsIt has been assumed that the company will be able to maintain the same margin on salesas are earned by Ador Ltd in India.The market segment of the company will be gained by offering discounts to customersand aggressive marketing policies.The company will take over the market segment equal to half of the customers currentlyheld by Ador Ltd and the reason of such assumption is that company offers the betterquality product from Ador Ltd at a price which is 15% lower of the price currentlyoffered by Ador. The lower price is possible since the company has its own researchedtechnology and no costs with respect to patents are required to be incurred.Sales in India will increase by 25% during initial year of operation, then showing anincrease of 32% in next year and 37% post it. Then due to increased competition andcorrective measures that Ador would take by developing its technology the growth ratewould slower down to 22% in fourth year.Tax rate has been assumed to be 30% in India for Income Taxes. But company will alsopay Excise Duty on Manufacturing activity equal to around 12.36% in India.The company will be allowed to take additional depreciation during the first year ofoperations on the capital costs incurred by it. This would provide increased tax benefit tothe company in India.But staff cost in India would increase due to the reason that the company will pay joiningbonuses to the new staff and the salary to be offered to the staff will be higher ascompared to the competitors.Apart from India, the company’s growth in sales will decrease because of global increasein competition.Selling, Distribution and Administrative Expenses will increase due to increased cost ofadvertising expenses which will be incurred by company to survive the globalcompetition.Tax rate on global business has been assumed to be 25%.ConclusionLincoln has the option to enter in the Indian market through acquisition, joint venture or bybuilding the new plant by its own in India. Since the current competitors are well versed andquite established in their respective market segments it would be difficult for the company tolook for a proposed acquisition has the optimum costs. Further, hostile takeovers by thecompanies are quite restrictive by the laws and strictly administered by Securities and ExchangeBoard of India and the respective Stock Exchanges where the shared of Indian Companies aretraded. Apart from hostile takeovers it is really difficult and not optimum to go for any otheracquisition as the deal would cost too much as compared to a new investment being made.Further since the company has been operating in the adjacent markets like China, the businesscommunity at all the levels of Supply Chain are familiar with Lincoln’s product quality andbrand value. So it provides a benefit of reputation to our company to enter the market in a newseparate venture. Also from the projected financials (as shown in Exhibit) it is quite clear thatthe company will be able to gain a good market share within few years from the day it enters intodoing business in India and needless to say the profitability of the investment is quite lucrativefor the company to make such a decision.