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Lincoln Electric

Presented by Hong Kong Baptist University International Business - Lincoln Electric

Hoi Wing Ng

on 23 November 2012

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Transcript of Lincoln Electric

What’s about their incentive management? With expansion and update of domestic research and development,
- Acquisition of Electronic Welding Systems (EWS)
in Italy
- A planned joint venture in China and a
manufacturing joint venture in Jakarta,
Indonesia in 1996.

Completed controlling interests in three welding businesses in China

Produce book Spark.
- Provides excellent value to customers, shareholders
and employees throughout the years. Update of Lincoln Electric Lincoln might have done differently on… Question

Why did Lincoln’s foreign ventures fail to deliver the gains forecasted? At Lincoln Electric, a Leading Maker of Welding Machines, Jobs Are Guaranteed, published by ABC News, July17,2010

No laid off even the worst of times
Lincoln employees make about 20 percent more than their peers, including an annual bonus which averages about $17,600.
CEO budgets his family on a 32 hour-a-week paycheck Situation of Economic Downtown Trusting relationship between management and workers

Strong sense of loyalty

Doing good in leveraging monetary system Competitiveness Pushing at a greater extent, emphasize on


when recruiting Now,
Sales of $2.7 billion, the highest in Lincoln’s history

Internal Competition WorldSkills London 2011, young people from 51 countries and regions participate in a variety of trade and service skill

Lincoln senior management continues to convey the Company’s unique legacy and culture to new audiences Know more about other countries’ culture and policy

Fine-tune company’s culture and structure in different countries
E.g. gradually incentive system and progressively implement piecework system in Mexico
E.g. longer trial period
E.g. only apply to experienced workers as a trial Suggestions on Culture and Policy Industry leading welding & cutting solutions. Excellence since 1895. Organizational Culture and Incentives at
Lincoln Electric Workload is too heavy
- Germany: 35 hours
- Lincoln employees:43-58 hours

Many European countries post different value as Lincoln ‘s employees PEST-Social Piecework = exploitative compensation system
-Force employees to work more harder

Germany -> piecework is illegal! PEST-Political Lincoln has a strong organizational culture and an unique set of incentives

E.g. Piecework scheme

By applying Greenfield ventures can be much easier for Lincoln to build that organization it wants to be.

It aims to change the culture of an acquired unit In this case…… Therefore, Lincoln acquired 7 manufactures in Europe and Mexico

It is the quickest way to introduce their products to the local market

It can also acquire invaluable information

E.g. manager’s knowledge about the local market environment In this case…… 1970
-Enter new era
-Produce domestic wire consumables products

-Installed the largest wind turbine in Ohio and one of the largest in North America 1985
-It was founded by John C. Lincoln  with a capital investment of $200
-Product: Electric motor

-Expanded the product line
-Introduced the first variable voltage, single operator, portable
welding machine in the world.

-World War II brought a large expansion of Lincoln Electric's Business
-To support the wartime welding product demand. Development An American multinational and a leading global manufacturer of arc welding equipment

Was  founded in 1985

Has 44 manufacturing locations

Network of distributors and sales offices cover more than 160 countries

Has high levels of employee productivity

Lincoln Electric's business model studied by many business school like Harvest University Introduction of Lincoln Electric Presented by Group 4

11012722 Cheng Tsz Yiu
10015094 Leung Shuk Yee
10011331 Ng Hoi Wing
11014512 Poon Wing In
11012447 Wong Man Sze
11011580 Wong Lok Hang Can you share, from your past experience, something about your previous or present jobs that have similar organization incentive system? Discussion Create new channels among branches offices

Formal channels for ideas and strategies sharing

Informal channels for opinions and suggestions from employees Suggestions on Communication Recruit foreign talents to US headquarter
Recruit more degree holders on international or related business
- Strive for the balance between experience-based managers and knowledge-based managers
Provide training to those employees after acquisition Suggestions on Human Resources Our manager didn’t know how to run foreign operations; nor did they understand foreign cultures. Consequently, we had to rely upon people in our foreign companies, people we didn’t know and people who did not know us.’ CEO’s quote Legal and cultural roadblocks
- Fail to introduce Lincoln’s incentive systems in
acquired companies PEST-technical Wrong Strategy
- Left local manager in the place
- Believe they have better local condition knowledge

Local managers know little about Lincoln’s culture Not willing to apply those culture in their unit PEST-technical

Slower to establish
- Start from zero

Too risky
- no one will share your risk once you fail Disadvantage of greenfield plan Greenfield

PEST Reasons of failure It means takeover

A very quick way to execute

Less risky than other means

The company can rapidly build its presence in this targeted foreign market The benefits of acquisition Many firms begin their foreign business as an exporter

However, Lincoln didn’t do so instead they used acquisition and Greenfield investment

WHY? Because it was told by foreign distributors that America equipment will not sell good in Europe.

So instead the company decides to set up wholly owned subsidiaries and acquisitions to make the equipment locally. But why Lincoln did not use this method ? The commercial activity of selling and shipping goods to a foreign country

Normally firms usually start up their foreign business by exporting

As it runs stably

Starts to use other strategies

Less risky than other methods What does exporting mean ? Long working hours (43-58 hours per week)
High level of productivity
Flattened hierarchical structure
Lower cost structure Competitive Advantage Employee’s salary
-No base salary
-Pay according to no. of pieces produced
-Bonus (from year profit) Incentive Management Scheme Heightened sense of ownership
- Company (as a whole) does well, everyone is compensated

Increased personal performance
-Quiet competition within work group Incentive Management Scheme Treat employees equally
- Eat in same restaurant
- No reserved parking places
- Same size office

Share gains
- Consumers: Lower prices
- Employees: Higher pay
- Shareholders: Higher dividends Strong Organization Culture 1. Strong organization culture

2. Incentive Management Scheme Competitive Advantage 4 In retrospect, what might Lincoln have done differently to avoid the financial crisis it found itself in? Question Lack of experience
- No experience of running a company outside US
- Just listen to what others told them PEST-Technical Parent company starts a whole new and wholly owned operation in foreign country

Gives a company greater ability to build the kind of subsidiary company that it wants.

Ability to engage in global strategic coordination

Ability to realize location and experience economies The benefits of Greenfield investment Bonus: Merit rating
- Bonus pool -> distribute
- Employee’s level, quality of output
- Employee’s attitude, dependability

Work hard

Boost productivity Incentive Management Scheme Open-door policy
-Remove communication barriers

Advisory board
-Representatives and executives meet twice a month Strong Organization Culture Founder James Lincoln:
Strong respect for a person’s ability
Motivation -> extraordinary performance
Reward for efforts Strong Organization Culture Question of Development
What is the source of Lincoln's long-standing competitive advantage in the U.S. market for arc welding equipment? Question Question

Why did Lincoln enter foreign markers through acquisition and Greenfield ventures, rather than through exporting? Political Economic Social Technical Human Resources Culture and Policy Communication Thank You Q&A Discussion

If you were the manager of Lincoln Electric, What other strategies or ideas you will apply to this company? 2 3 1 Thank You :)
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