Case Study: Lincoln Electric in China

Presented By: Lilian Ho Steven Lo Cynthia Lam

Agenda

Lincolns success in Cleveland & international expansion plans into Shanghai Problem Statement Situation Analysis Recommendation Implementation

Lincolns Success in Cleveland: Lincoln Incentive System

Piecerate payment scheme Year-end bonus system based on performance paid in time for Christmas, bonus can be as large as the size of annual salary

Other factors that have contributed to Lincolns Productivity in Cleveland

Stock purchase plan for employees who have worked for more than one year Guaranteed Employment Policy at least 30 hours of full-time work for employees who have worked 3 years or more Policy of promoting from within Employee Advisory Board meetings run by President Open-door policy

Current Situation

To bring Lincoln to Asiato produce within the region for the region, products that were appropriate to the regionlots of locally owned stick companies that are fighting each other to death and we saw the opportunity to come in with a good quality automatic technology, both for the China market and for export

Joint Venture (JV)

Pros 1. Gain access to local knowledge, distribution channels, and guanxi of local partner Cons 1. Slow down decisionmaking process 2. Dilution of control 3. Different styles of management 4. Profits/ losses are shared

Wholly-Owned Foreign Enterprise (WOFE)

Pros 1. Autonomy in decisionmaking process 2. Protection of intellectual property rights Cons 1. Closer scrutiny from Chinese government 2. National level approval 3. Requirement of 30% export quota

Organizational Structure
Gillespie President for Asia Ray Bender VP Manufacturing Julius Wu GM for SH Kundrach Acting GM

Jason Foo Finance

Dr. Li Plant Manager

Peter Grant S&M Manager

Shan Bing Finance & Control

Problem Statement

Should the Lincoln incentive system which has worked so well in Cleveland be suitable for implementation in China? If so, when and how should it be implemented?

International Expansion
Potential Problems: Difference in organizational cultures Chinese hierarchy National and regional differences government laws, unions Language barriers & cultural differences

Cultural Lens

Workforce would not speak out or make suggestions in the hierarchical Chinese Society

Push and encourage people to debate and argue at the right time.

Workers in the country wont accept the remuneration system if the companys performance is unstable/ in doubt Introduce the system when the company is steady and stable, which the workers could be clear about their rewards

Strategic Lens

The upper management in United States highly believes in the piecework system, they plan to implement this to all branches People need reason and time to adopt

Management of local employees is complicated and varies in different regions Each country/region has specific cultural traits that could inhibit traditional Lincoln management practices

Political Lens

New acting GM, Jeffrey Kundrach in 1998 because Julius Wu was ill. Uncertain leadership in the future. Dr. Li would be a main character in the incentive system since he is the only bridge between the upper management and the workers

Recommendation

To progressively implement the piecework incentive system in Lincoln China

Implementation

Hire staff, possibly in the time-study department, with command of English and Chinese and with foreign and China working experience to execute the plan for effective communications Create channels such as employees committee and informal gatherings for the workforce to speak out and make suggestions

Implementation

Establish a long trial period to better estimate the piecework price of each worker Introduce the piecework system only to the experienced workers to minimize the chance of adjusting the piecework price

Implementation - Others

Need to remember that other factors contributed to Lincolns high productivity:

Stock purchase plan Guaranteed Employment Policy Employee Advisory Board Open-door policy Policy of promoting from within

These should also be implemented alongside the piecerate incentive system!

Question & Answer thank you!