The Lincoln Electric Welding Company in Shanghai - Term Paper Example

Lincoln Electric Shanghai: A Case Analysis of International Human Resources Management The Lincoln Electric Welding Company in Shanghai was the first manufacturing venture of Lincoln in China. On May 13, 1998 the factory was opened by Anthony A. Massaro, the incumbent Lincoln Electric CEO and chairman. The company was founded as an entirely-owned subsidiary of the joint venture between Lincoln Electric and its distribution associates (Briscoe & Schuler 2004: 430). Lincoln Electric was the joint venture’s largest investor and exclusively liable for the management of the corporation in China. After an exceptionally successful opening, the general manager of Lincoln Electric (Shanghai) Welding Company, Ltd., Jeffrey Kundrach sensed that the right time has come to evaluated the circumstances and start concentration on the management and labour practices of the corporation (Sparrow, Brewster & Harris 2004). The objective of this study is to review and analyse Lincoln Electric’s international human resources (HR) practices as are affected by the decision to establish a subsidiary in China. Early outcomes and future issues or problems will be discussed. International Expansion of Lincoln Electric in Asia Lincoln initiated a new attempt at expanding in Asia in the mid-1990s, after the shutting down of the Japanese company. This followed the 1995 opening of a new management organisation for the company involving new executive positions and complementary personnel to supervise each of the five major strategic locations: Asia, Latin America, Russia-Africa-Middle East, Europe, and North America (Business Week 2003). Michael Gillespie, being a British national and having associated with Lincoln from ESAB, the major competitor of Lincoln in Europe and Asia, was assigned head for the Asian region. Asia was at present a primary target of the company and Gillespie was summoned by Massaro to develop an innovative and competitive approach for the region (Business Week 2003). The plan of Gillespie was to build regional competencies and create a unified manufacturing business and sales with Asia (Briscoe & Schuler 2004: 428): The intention was to stop regarding Asia Pacific as a market to which we could export, to which we could sell our surplus production. So what we tried to do was to bring Lincoln to Asia rather than just sending American or Australian products into Asia, and decided that the right thing to do was to produce within the region for the region, products that were appropriate to the region, rather than simply trying to sell products that were right for the US or Europe. A regional administrative centre was launched in Singapore. The regional office was given the task of managing strategic planning, financial control, and technical support to the production departments. The regional office had a significant level of independence from the head office. The main control comprised monitoring the region’s financial performance (Cooke 2003). Gillespie was assisted by Ray Bender, presently the manufacturing vice-president in the Asian region. Bender was a Lincoln expert and had worked for several years on reorganising the operations of the company in Europe he met Gillespie in 1995 and decided to transfer to Singapore (Briscoe & Schuler 2004). Bender and Gillespie were aware that at least two problems would matter a lot in their approach for Asia: the management of local personnel and the region’s welding practices. Excluding Japan, labour-intensive welding remains the leading method in Asia and the transition to automatic and semiautomatic welding was taking place only gradually and in concentrated regions (Tayeb 2005). Even as Lincoln was participating, through export media, in the more mechanised welding skills and technologies, it was incapable of competing in the traditional welding markets; substantial transportation costs and excessive tariffs, primarily, made exports of substandard goods almost impossible (Tayeb 2005). Moreover, there were loads of regional and national entrants who were highly recognised in Asia, even though, Lincoln thought, without the commitment to quality products and services that Lincoln aspired to provide to the region (Tayeb 2005). Even as the market in itself did not appear attractive, removing mostly low-margin goods, Bender and Gillespie recognise that this was an essential medium for establishing brand recognition, reinforcing the company’s potential in the mechanised technology as new machineries were integrated (Forbes 2003). Bender and Gillespie also knew that managing and motivating workforces would be challenging. Regional administrations may prove to be unsteady, regulation concerning the management of workforces more difficult or perhaps vague, and regional outlooks towards Western companies and practices doubtful, while some may recognise overseas operations and the skills and technologies they carry with them, others may oppose the presence of foreign companies and practices (Gupta & Govindarajan 2001). Furthermore, each country carries with it particular cultural attributes that may hamper or, obviously, advance established Lincoln management traditions (Gupta & Govindarajan 2001). Lincoln Electric in China Lincoln had founded a delegate headquarters in northeast China in the 1980s hiring chiefly native welding engineers who were dispatched for an eight-month technical preparation course in Cleveland and went back to China to assist in the marketing of Lincoln products (Simon 1996). Direct sales attempts were absent, though, as sales were only through the local distributors of Lincoln. Even though sales for both traditional and mechanised technologies were weak, Lincoln was turning out to be better recognised in China and customers linked Lincoln Electric with premium quality (Simon 1996). A second delegate headquarters was established in Shanghai in 1996 (Hall 2001). At first Gillespie thought the paramount method of entry for a new business would be with a regional associate, perhaps a state-owned manufacturing company. Quite a few conferences were held to talk about a potential joint venture with delegates of the biggest Chinese manufacturers of welding technologies and electrodes (Briscoe & Schuler 2004). The idea was that a regional firm may provide the crucial distribution medium into the area, where client communication apparently called for a local touch. Eventually, Lincoln opted against a joint venture with a producer, troubled with their obsolete manufacturing practices and that Lincoln might be unable to sufficiently safeguard its intellectual property (Briscoe & Schuler 2004). In addition, there were worries about the ability of Chinese businesses to support the firm in competitively selling products in various sections of China. Bender and Gillespie had also completed their assignment to discover that “there were a lot of horror stories of local joint venture partners, so we stepped back and took a breather for a while,” (Forbes 2003: 54) as stated by Bender. Rather than a manufacturing associate, Lincoln opted to simply aim for the cooperation of its distributors. Hence, the venture in the Lincoln Electric Welding Company in Shanghai was agreed upon, with a ’68 per cent stake by Lincoln and 8 per cent by each of four of Lincoln’s distributors in Asia’ (Briscoe & Schuler 2004: 430). In order to acquire permission to set up the entirely foreign-owned company, Lincoln had to consent to an export quota of 30 percent. The decision to establish a sophisticated manufacturing plant in Shanghai had several sound rationales (Briscoe & Schuler 2004: 430), but these are outside the scope of this paper. The International HR Management of Lincoln Electric Julius Wu was assigned China’s country manager and Shanghai operation’s general manager in 1997. Wu was initially from Taiwan and knowledgeable in Taiwan’s and mainland China’s electric motor industry. Wu was initially dispatched for a eight-week preparation course in Cleveland, and afterwards went back to Shanghai to set off the operations of the firm via the delegate headquarters in Shanghai. Wu met Dr. Li Yan immediately after he reached Shanghai (Albrecht 2001). Dr. Li was a lecturer at the Harbin University’s Institute of Metal Research and a prominent specialist in the industry of Chinese welding, as one manager of Lincoln related an experience with a customer representative (Briscoe & Schuler 2004: 431): The young welding engineer at our client’s test shop, when he found out who Li was, almost kneeled. Harbin is No.1 for metal research and his qualifications and the way they’re written on his business card mean a lot. Furthermore, Li had spent quite a few years as a post-doctorate in the United Kingdom, was proficient in English, and an expert of novel welding technologies. A supporter of better cross-cultural awareness, Dr. Li was viewed as an ideal link between the foreign management practices and technologies of Lincoln and business attitudes and customs of China (Albrecht 2001). Unsurprisingly, Wu recommended Li the plant manager position which the latter accepted, having been keenly looking for a job with a foreign company (Albrecht 2001). In 1997, Dr. Li went to Cleveland to attend a six-week training prior to working on the Shanghai plant’s start-up. Li made decisions on all selection and recruitments for the new company. The initial three appointments, technicians and managers, were all accomplished through the contacts of Li in the welding industry (Briscoe & Schuler 2004). Due to the fact that technicians and managers have a tendency to already recognise the brand name of Lincoln they were fairly easy to employ. More challenging would be the experienced operators, who were not familiar with the brand name of Lincoln and were fairly in short supply. In order to attract skilled operators Li had to initiate a number of meetings at people’s homes to talk to them about the company (Briscoe & Schuler 2004). Before long, word of mouth contributed largely to the news diffusion of job vacancies and openings at Lincoln and positions were slowly occupied. Almost the entire workforce had worked in the welding industry and would thus be knowledgeable of industry practices in HR management and operations (Business Week 2003). Ultimately, almost all of the employees resided in old Shanghai’s communities, and were transported to the plan every morning by company van (Briscoe & Schuler 2004). Every employee had to undergo probation for three months; some employees afterwards resigned from the company while others were laid off. In a number of these instances it seemed the newly employed lacked awareness of the expectations of the company (Gupta & Govindarajan 2001). Hence Dr. Li started using up more time evaluating and working with applicants (Briscoe & Schuler 2004: 432): I spend one or two days interviewing and working with each of them. I assign some work on the floor to let him have a real feeling for how this operation is functioning. And I try to get a real understanding of how the person is working. I don’t want to hire persons and then see them leave. In this case there was no structure of dependable employment. Compensation levels in Lincoln were equivalent with other foreign firms in Pudong, perhaps somewhat above. The entire workforce, excluding the managers, was normally compensated (Briscoe & Schuler 2004). While Lincoln had moved its old and worn equipment to the new factory in Indonesia, in China it purchased new machineries, transferred simultaneously to the plants in Shanghai and Cleveland; the proposal was that experience of each operation may benefit the other (Weidenbaum 1999). In effect, it surfaced that there were lesser difficulties with China’s new production lines than were encountered in the factory at Cleveland, Dr. Li having collaborated widely with operators and suppliers on the set up of the equipment. In addition, there were wide-ranging communications between Shanghai and Cleveland (Weidenbaum 1999). As Julius Wu took care of strategic matters, Dr. Li was managing most of the technical activities. Being accountable for the facility and also being the only tech-savvy person completely proficient in English, Li interpreted all lessons into Chinese. All operators had handbooks with written directives for their job. Hence, as soon as Anthony Massaro formally launched the factory in 1998, the operation was on the right track for a booming beginning (Hall 2001). The last management team members were inaugurated in 1998. Peter Grant in November 1998 was appointed as marketing and sales manager. Grant had worked for four years in China and had collaborated with one of the competitors of Lincoln. His sales people were knowledgeable and experienced welding engineers (Forbes 2003). The finance manager of the region, Jason Foo, originally managed the accounting and finance tasks from his office in Singapore. The finance and control manager position was given to a Chinese accounting professional who previously worked for foreign investment firms in Shanghai (Albrecht 2001). Lincoln Electric Shanghai by 1999 hired forty workers in production, ten service employees, ten lab technicians and engineers, and ten administrative personnel. The sales employees were connected with the delegate headquarters in Shanghai and with the other headquarters in Shenyang, Tianjin, and Xian. By all explanations, the initial year of Lincoln Electric Shanghai was a remarkable achievement and the company was witnessing ‘very large growth,’ (Briscoe & Schuler 2004: 433) in spite of the failure in other regions of Asia and the recession in the economy of Asia in general. Executives of Lincoln were already exploring the prospect of enlarging their operations into a growing selection of Lincoln products (Briscoe & Schuler 2004). Even though the prospect seemed promising, several crucial concerns were emerging. Primarily, there were issues that quality of the product would be sustained as the operation expanded and quality was stressed as a major leverage of the Lincoln brand. Ray Bender revealed that ( Briscoe & Schuler 2004: 433): We took all kinds of steps to hammer in quality, to discuss quality, make sure that what we make is what the market wants... We go overboard as far as our quality assurance department is concerned. We invested a lot of money in the [quality assurance] equipment, and we bring auditors in from the United States on a regular basis so that we don’t get lulled into thinking that everything is good. So they come in and audit the system. The organisation also started to report quality or production outcome so that the workforce would be informed or updated of how the production process was going. But possibly the most challenging concern for the organisation was if and when to launch the unique Lincoln reward system. Lincoln supporters remained committed to the Lincoln tradition and believed firmly in the value of piecework and bonuses (Budhwar 2001). Even though Lincoln had not tried to launch the reward system in China, the matter was being critically examined. Concerning bonuses, Bender thought this was an essential means of presenting significant employee feedback at the same time as this feedback related to something concrete. This was being taken into account throughout the facility (Sparrow et al. 2004). But bonuses alone were not regarded adequate motivators, definitely not as potent as the piecework value, as Bender elaborated (Briscoe & Schuler 2004: 434): There is a definite advantage in sitting down twice a year will all your employees and telling them what their strengths are, where they could do better, what we have to do in order to get our overall goal. If nothing else you need to do that, it’s a way of forcing you to sit down and talk to your people to really be frank with them on how they’re doing. You can measure piecerate work efficiency so you can discuss their output. A quality system with the number of rejects is also very quantitative so you can sit down and discuss his quality very easily. His attendance can also be discussed. But I think, if you’re looking to get another 20 percent out of your equipment, the best way to do that is on piecework. Piecework is the day-to-day driver. Twice a year there is a sudden realisation that the bonus will come up, so maybe there is a lot of activity for two weeks or a month before they are merit rated. But during the other months things are normal. So for me if you’re looking of what’s going to stimulate a factory it’s going to be piecework more than just a bonus system. Employees in the production department were proving to be a reliable and good-natured until now. Grant proposed the demarcation lines between employees and management were not essentially as wide in China as in his homeland, Australia (Briscoe & Schuler 2004: 434): I don’t see any of that here, I really don’t. It depends on you approach and so on, but you can walk down that line and there’s nothing wrong with putting a hand on someone’s back and saying, “How are you doing?” or whatever and try and carry on a conversation or even if you can’t speak the language, acknowledge them. Mutual trust is required in any piecework system (Briscoe & Schuler 2004). However, there were cultural barriers to take into account. Primarily, the absence of a common language between managers and employees could hamper productive communication. Moreover, having the employees endure more of the negative hazards for inferior company performance may not be tolerable in a nation where individuals were commonly not used to such compensation systems (Dowling, Welch & Schuler 1999). Extended frustration of people’s salaries may even pose charges of unfair practices and perhaps open up government intervention. The conventional Lincoln system would need the skill of the employees to make suggestions and articulate their needs for enhancements in process, which is somehow difficult in the highly structured Chinese society where managers were looked upon to initiate programmes and make a decision on most organisational issues (Dowling et al. 1999). Nonetheless, Grant and others were putting much effort to motivate the local workforce to become more involved and dynamic (Briscoe & Schuler 2004: 435): I push my people to debate with me, to argue with me at the right time and I welcome them to come in and tell me where they think I am wrong with either a decision or something I’ve said or what I am planning to do. I push them to do that. Nevertheless, some did not view the cultural barriers convincing; definitely, they thought numerous employees would be more than eager to have their compensation plan clear, open and rewarding of diligent work; the aggressiveness contained something Chinese employees were expected to confront (Briscoe & Schuler 2004). Moreover, even though customarily there have been extremely small differences in earnings in Chinese companies, an increasing number of both local and foreign Chinese organisations had just launched performance-based remuneration systems. Several of the managers at Lincoln claimed that the primary concern was execution and timing, as emphasised by Bender (Briscoe & Schuler 2004: 435): It’s my impression that piecework is a concept that probably could be accepted here, but one of the things that we have to be concerned about is that if it’s not done fairly it could end up being a problem. So we have to do a lot of homework to make sure that we’re going to keep the person busy in piecework, that the price structure that we set is fair, and that it’s going to sustain itself. One of the worst things you could do is set a piecework price and then realise that you made a mistake and then go back and change it. People don’t understand why you cut their price when they were making a lot of money. When Lincoln Electric in China went through its second year it was obvious that how to maintain progress and increase productivity at the same time as sustaining an empowered and dedicated personnel would have to be strongly considered (Briscoe & Schuler 2004). Conclusion Since a particular strategy is important in all Asian cultures, managers of Lincoln Electric have exerted much effort in building relationships with significant people inside a variety of Chinese ventures and governmental units. 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