Lincoln Electric Company: Case Study

Summary of the facts

Lincoln Electric is the leading competitor in welding and cutting systems. In 1998 Julius Wu became ill and Jeffrey Kundrach, a seasoned employee of Lincoln Electric, stepped in as general manager. Lincoln Electric is based in Cleveland, Ohio, and is known for its quality products and employee bonus system. The incentive system, also referred to as the piece rate payment scheme is given towards the end of the year before Christmas. The goal of the price rate scheme is to encourage high productivity and individual performance. The incentive system is successful in the United States and was implemented well. Given the societal structure and that Lincoln Electric is an American company Lincoln had a home court advantage. The same cannot be said for Lincoln Electric's international expansion into the Asian market. The Chinese /Asian market differs from the Western globe in cultural values and politics. To the present day, Asian and Chinese cultures function as collective societies and are heavily influenced by the government. In that same sense, the incentive used to motivate and reinforce western employees would not be successful in china. Therefore, Lincoln Electric had to come up with a strategic plan as to how to introduce the incentive system to the employees, because they were not motivated by the same means as western citizens. Peter Grant, the head of sales and marketing, thought that “the traditional Lincoln system would also require the ability of the workforce to speak out and make suggestions for improvements in processes, something that would not come easily in the hierarchical Chinese society where superiors were expected to make initiatives and decide on most organizational matters” (Bjorkman and Galunic). Grant supposed that an incentive system would also be beneficial for the Asian culture and the government.

Problems

Lincoln Electric's human resources and management were unsure as to how to implement the incentive system and when it should be done. The Asian market is the second largest globally because of the outsized population with the citizens holding very little debt and a lot more money to spend. The debt-to-income ratio is ideal and another reason Asian consumers are popular amongst businesses. However, to succeed in Asian markets it is difficult for western businesses to enter the Chinese market and maintain success. Big cultural differences in attitude and values make it challenging for foreigners, for example, “colors can have very specific meanings for the Chinese people; red, for instance, is associated with good fortune. While white symbolizes purity, it is also the color most associated with death. These facts can be crucial for your branding considerations in the country” (entrepreneur.com). Also, although many western and European companies have business operations in China, most foreigners do not agree with the Chinese government and their social and political practices concerning their citizens. The main reason foreign companies abide by China's ruling is because of the great financial benefits they offer to businesses. In totality, the attitude of the western culture is to maximize individual success. Although there are major concerns for the right of Chinese citizens, those rights do not directly impose on the business or impact their incomes. However, the Asian government is not particularly a fan of western business because they like to impose their beliefs on the Chinese citizens. This contributes to the culture clash between the government and American business. The Asian government does not want foreigners starting trouble in their country, which could create a possible civil uproar between the citizens and the government.

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This chart illustrates the negative views 25 other countries have towards China. It is challenging for a company to succeed if they do not understand the people in the country. Human relations will face difficulties with employee retention as well as training and development. This is because in each country the law states that you must hire a majority percent of the country’s citizens. This adds to the health of the government and the development of the citizens. Expatriates are welcomed during training and development and startup operations but are not encouraged for permeant staffing. The graph depicts that “a median of 66% across 25 countries say the Chinese government does not respect the personal freedoms of its people” (pewresearch.org). Most are not favorable to China's stance towards their citizen’s personal freedom, and in hindsight, China is aware of and often reluctant to welcome foreign practices.

Analysis

Given the structure of the government in relation to the Lincoln Electrics system, the employees are anticipated to have a difficult time adjusting to the incentive system. The projected outcomes are positive and beneficial to the company and the employees. Lincoln hoped the piecework system will encourage the citizens to speak up, have a voice, and challenge their government as how they would in the workplace. “The Chinese employees observe a cult-like following for the Kai-Fu Lee practice, where they want to have a close tie to the company’s national leader” (Marchington & Grugulis, 2000). Cultural differences should not be undervalued. Western businesses need to understand and respect the influence collectivism has on the citizens of the country. This influence is embedded into their culture and day-to-day lives. Therefore, many Asian and Chinese natives are not t fond of foreigners coming into their country and attempting to disrupt their way of living. Although some elements of Western-style individualism have begun to enter into Chinese culture, for many people individual accomplishments or desires will still come secondary to societal, familial, or organizational operations (entrepreneur.com).

Recommendations

Diversity and values are big issues for Lincoln Electric to consider. Change does not occur overnight and the citizens of the country are going to take a period of time to adjust to the new practices. The adjustment period for the employees is going to be a challenging time and management cannot be sure how long it will take to adjust. A recommendation Lincoln Electric can consider is to follow suit in the amount of time Dr. Li spent on interviews choosing the right candidate for the job. Likewise, effort should be put into finding as many qualified natives and English speakers as possible. This would aid in HR-related issues and communication between staff and managers. For Lincoln Electric, positive conversation and word of mouth are important to establish rapport and trust within the country. Lincoln Electric is a foreign business owned by a foreigner, traditional citizens are hesitant to work for foreign businesses because the government is heavily entangled and many fear negative retaliation from the government.

Bibliography

1. Bjorkman, I., Galunic, C. (2004): 'Lincoln Electric in China', Briscoe and Schuler International HRM.
2. Devlin, Kat. “5 Charts on Global Views of China.” Pew Research Center, Pew Research Center, 19 Oct. 2018, www.pewresearch.org/fact-tank/2018/10/19/5-charts-on-global-views-of-china/.
3. Kittaneh, Firas. “6 Tips for Doing Business in China.” Entrepreneur, 13 July 2017, www.entrepreneur.com/article/297009.
4. Kittaneh, Firas. “6 Tips for Doing Business in China.” Entrepreneur, 13 July 2017, www.entrepreneur.com/article/297009.
5. “Lincoln Electric Completes Acquisition of Air Liquide Welding.” LINCOLN ELECTRIC, ir.lincolnelectric.com/news-releases/news-release-details/lincoln-electric-completes-acquisition-air-liquide-welding.