Case Study: Lincoln Electric in China Presented By: Lilian Ho Steven Lo Cynthia Lam

Agenda Lincoln’s success in Cleveland & international expansion plans into Shanghai Problem Statement Situation Analysis Recommendation Implementation

Lincoln’s 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 Lincoln’s 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 Asia…to produce within the region for the region, products that were appropriate to the region…lots 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 Cons 1. Gain access to local knowledge, distribution channels, and “guanxi” of local partner 1. Slow down decision- making process 2. Dilution of control 3. Different styles of management 4. Profits/ losses are shared

Wholly-Owned Foreign Enterprise (WOFE) Pros Cons 1. Autonomy in decision-making process 2. Protection of intellectual property rights 1. Closer scrutiny from Chinese government 2. National level approval 3. Requirement of 30% export quota

Organizational Structure 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 won’t accept the remuneration system if the company’s 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 Lincoln’s 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!