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Lincoln Electric in China Case Study

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Updated: Jul 6th, 2020

Background

The company, Lincoln Electric was John Lincoln’s idea which he implemented in 1895. He was joined by his younger brother, James Lincoln in 1907. The siblings planned and made tiny electric motors at the main site in Cleveland, Ohio. They later expanded the range of their products to include electric automobiles, arc welding equipment and battery chargers.

Despite a greater demand for all of the company’s products, the brothers gave greater attention to arc welding devices because they could manufacture quality equipments cheaply. In fact, the duos were the first in the world to manufacture a mobile single operated and movable arc welding equipment.

By 1941, the two brothers realized that James Lincoln, though less technically experienced was a better manager between them. He was therefore mandated with the management of the company. He became the de facto leader of the firm.

His management philosophy was based on independence and need for competition as the driving principle in the management of the company. Through his philosophy, he came up with a piece work system which recognized worker’s industriousness, efficiency and self motivation during calculation of worker’s pay.

Moreover, James Lincoln believed in equality among workers of all calibers; from junior employees to managers. Their firm never had separate private dining canteens for managers. Employee Advisory Board (EAB) composed of delegates chosen by workers in each department was also his idea.

Employees in the firm were entitled to a lot of benefits apart from their salaries, one of which included bonuses calculated on merit. The bonus system was a strategy by the company to ensure that employees shared in the profits made by the company. He believed that by sharing profits of the company with employees, they would put first the best interest of the company in their activities within the organization.

After the death of James Lincoln in 1965, William Irrgang, the first president outside the Lincoln family, followed the foot steps of his predecessor. He was to rise to position of CEO and chairman by 1972. Other CEOs who came after Irrgang were George Willis, Donald Hasting and Anthony Massaro, all of whom were promoted from other management positions they were holding within the firm.

The company had a tradition of promoting its employees to ensure that senior positions were only held by people who had worked long enough with the company.

Vacancies were advertized internally and outsiders were only considered when no one within the organization could fill the vacant position. Dismissal was entirely on non performance or when a worker committed serious offences. A part from employees employed on permanent basis, the company also hired support workers at the site of production and paid them according to hours.

The piece work pay system makes workers not only to pay attention on quantity but also on quality of their work because quality was a parameter for evaluating workers yearly bonuses. Piece work pay system also made it possible to trace an arc welding device to the employee who manufactured it. This further ensured that employees paid attention on quality.

The table below also shows other parameters used in calculating yearly bonus;

PARAMETER DEPARTMENT EVALUATION
Out put production Amount of work per employee
Quality Quality assurance Tracing defective equipment up to the employee who produced it.
Dependability Head department Number of late arrivals, absenteeism on overtime etc
Ideas and cooperation Head department Level of contribution in new programs, cooperation during implementation of new procedures and attitude towards seniors and colleagues.

The firm also had a program called Guaranteed Employment Policy (GEP) whose aim was to guarantee not less than 30 hours of work for long serving employees in times of low production. To qualify for GEP on their part, employees had to accept any assignments, be available on short notice and be willing to work over time when required. During periods of low production, managers creatively implemented the GEP to suit circumstances when the 30 hours target was hard to reach. For example during the 1980 recession, the firm had to transfer workers from the manufacturing department to sales department.

Expansion program

Lincoln electric ran two factories in the US established in 1986, one in Canada, Australia, France in 1925, 1938 and 1955 respectively.

Challenges to expansion

The firm’s expansion mission faced a lot of challenges ranging from unfamiliar employment policies in recipient countries, ignorance on how to motivate foreign employees, foreign organizational cultures, regional differences and suspicion in some countries over companies with an origin from the West. The global recession in Europe of 1970 was also a major challenge to activities of the firm.

Solutions to challenges

Two gentlemen were sourced from outside i.e. Anthony Massaro and Jay Elliot to take the positions of Director of International Operations and Chief Financial Officer respectively. The two started restructuring the firm internationally in Japan, Brazil, Germany and Venezuela. In fact by the end of radical surgery, factories in the mentioned countries were closed. They also observed that incentive program in the mother factory could not be implemented successfully in factories outside US.

Lincoln electric in china

By late 1980, Lincoln Electric had an office to stand for the firm in Tianjin, China and mainly employed locals as welding engineers after training in Cleveland which lasted for 32 weeks. Though trainees were supposed to boost Lincoln Electric’s sales in China, they never managed to make any direct sales. Nevertheless, Lincoln Electric’s products began to receive positive standing from buyers in China because of their high quality. A second office was therefore established in Shanghai in 1996.

Challenges in entering china

The method of entry in China was not easy. The initial plan to enter China was to come through an already existing state owned company operating in manufacturing industry. The reasoning behind this was that a local firm could help in distribution within the country. However, this mode of entry was ignored after it could not address the questions of intellectual property, commitment to progressive marketing and out of date manufacturing processes in China.

The firm settled on collaboration with Chinese distributors. It therefore heavily invested in Lincoln Electric (Shanghai) Welding Company.

By 1998, Lincoln Electric (Shanghai) Welding Company had been established as the first manufacturing factory in China under the leadership of Kundrach. He even started implementing the labor practices so that they could be inline with those in Cleveland (mother factory).

The success of Lincoln Electric can be said to be based on competent management and willingness of the firm to share ownership and profits with workers. A long history of success also made the management to have confidence in the expansion program, this self confidence boosted their morale and made them overcome challenges which came their way.

Works Cited

Briscoe Dennis, R. Schuler & L. Claus. International Resource Management, Oxford: Rutledge Press, 2008. Print.

Koller, Frank. Spark: How Old Fashioned Values Drive A Twenty First Century Corporation: Lessons From Lincoln Electric Guaranteed Employed Program, Texas: San Antonio publishers, 2010. Print.

Merkle, Judith. Management and Ideology, California: University of California Press. 2002. Print.

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IvyPanda. 2020. "Lincoln Electric in China Case Study." July 6, 2020. https://ivypanda.com/essays/lincoln-electric-in-china-case-study-essay/.

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IvyPanda. (2020) 'Lincoln Electric in China Case Study'. 6 July.

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