Read the Chapter 2 opening case on Lincoln Electric and write a two- to three-page paper. In your paper:
•Present an overview of the key elements of the case.
•Explain why Lincoln Electric is successful in the United States and the role of its HRM practices in this success.
•Describe the potential problems associated with introducing Lincoln Electric’s HRM practices, including its reward system, into its China operations.
•Discuss whether or not Lincoln Electric should introduce its U.S. HRM practices in China and justify your decision.
Submit your two- to three-page paper (not including title and reference pages). Your paper must be formatted according to APA style as outlined in the approved APA style guide, and you must cite at least three scholarly sources in addition to the textbook.
Lincoln Electric Ventures Abroad
The 110-year-old Ohio-based Lincoln Electric Company has long been a favorite case used by business schools to show how human resource management can contribute to sustainable business performance. The largest manufacturer of welding equipment in the world, Lincoln motivates its American employees through a distinctive compensation system and a culture of cooperation between management and labor, based on one of the founders’ fervent beliefs in self-reliance, the necessity of competition for human progress, and egalitarian treatment of managers and employees. Introduced by family management in the 1930s, the incentive system is based on piece rates and an annual bonus linked to profits that can amount to over half of employees’ income. To determine the bonus, production employees are appraised on four criteria: output, quality, dependability, and ideas/cooperation.
Abroad, Lincoln Electric invested successfully in Canada (1925), Australia (1938), and France (1955), but until the late 1980s the firm still focused mostly on its domestic market. The company had enjoyed unrivaled and much-acclaimed growth and prosperity, driving its domestic competitors (including GE) out of the business. Led by a management team that had never worked outside the United States, the firm then decided on a bold strategy for internationalization, spending the equivalent of over half its sales on building greenfield plants in Japan and Latin America, and on 19 acquisitions in various European countries and Mexico.1 Tremendous opportunities were envisaged to leverage Lincoln’s manufacturing expertise and HRM system internationally, implementing its motivational and incentive system, which already worked well in France and other foreign operations. Combining the most productive and low-cost manufacturing operation with high quality, Lincoln seemed destined to dominate the global market.
The rapid international expansion turned out to be a disaster. Lacking managers with international experience, the firm was forced to rely on acquired managers who were not familiar with Lincoln’s culture and who wanted to maintain their own autonomy. The only new country where its incentive system and culture took gradual hold was Mexico. In most of Europe and Japan, where piece-rate payments are viewed with deep suspicion, Lincoln’s approach was rejected. In Germany, with its 35-hour workweek, employees would not agree to work nearly 50 hours when necessary, as they did in the US. The tight link between sales and manufacturing— another pillar of Lincoln’s success—disintegrated, and inventory ballooned while sales stagnated in the recession of the early 1990s. To fix the problem, senior managers with strong international track records were recruited from outside the company. A new team then sold off or restructured most of its international acquisitions. Lincoln’s failure was the consequence of poor transfer of HRM practices abroad, in spite of the phenomenal success of its approach at home. When Lincoln again expanded its international operations in the late 1990s, it kept the expensive lessons from its previous internationalization attempt in mind. The company relied more on joint ventures and alliances and, if necessary, adapted its management approach to fit local conditions. It also gradually built a cadre of managers with international experience who were transferred to the foreign units. In 2008, the company again enjoyed record sales and profits, with 40 percent of sales stemming from its expanding foreign operations. However, in spite of the significant progress made, Lincoln still experienced challenges in managing people in its overseas units. For instance, in China it continued to struggle to find, develop, and retain talented local professionals and managers.
