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Course: Global Strategy and Management
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LINCOLN ELECTRIC IN MEXICO
Employees in countries outside of North America may have different needs than those of employees within North America. U S. manufacturer Lincoln Electric is well known for its effective motivation-and-reward system based on piecework. With piecework, a worker is paid a fixed rate for each unit produced or action performed. Piecework can be very effective for manufacturing and is widely used in China and in high-production operations in East Asia. It is normally combined with a (low) base salary, similar to a salesperson’s low base pay and commissions. In many of the world’s more developed economies, piecework is staunchly resisted by workers and their unions. Yet Lincoln Electric has maintained a very disciplined and effective piecework system since its founding in the nineteenth century -a system that has been cop- led, at least in part, by many firms worldwide.
Lincoln Electric was founded in 1895 to make electric motors. The firm today is known as the world’s leading manufacturer of welding equipment. Lincoln Electric has a long history of human resources innovation. The firm introduced its piecework system nearly a century ago, in which employees are paid largely for the number of welding devices and other units they can produce—a system that has worked well and continues through today. However, at the same time, the firm also introduced employee advisory committees. Each department in the firm created groups of employees to advise the firm, and these employees meet every two weeks. The creation of such labor groups was a radical innovation at the time. The firm later introduced other radical innovations, such as life insurance for employees, stock ownership plans for employees, annual bonuses based on output for the year, and a strong no-layoff commitment.
All of these human resources innovations continue today. However, today additional incentives are included for minimizing defects and teamwork, but Lincoln Electric employees are largely on their own in figuring out how to produce as much as possible. For example, Lincoln Electric allows individual employees leeway in organizing their workspaces and scheduling their work hours, and the annual bonus for each employee can average over $24,000 per year.
Although Lincoln Electric has been very successful in the United States, it has had trouble implementing this system overseas. As the former CEO, Don Hastings, observed a few years ago in the Harvard Business Review:
“[Lincoln’s] incentive system is transferable to some countries—especially in countries settled by immigrants, where hard work and upward mobility are ingrained parts of the culture. But in many other places, it won’t easily take root. It is especially difficult to install it in a factory that has different work practices and traditions. For example, even though German factory workers are highly skilled, and in general, solid workers, they do not work nearly as hard or as long as the people in our Cleveland factory. In Germany, the average workweek is 35 hours. In contrast, the average factory workweek in Lincoln’s U.S. plants is between 43 and 58 hours, and the company can ask people to work longer hours on short notice -a flexibility that is essential for the system to work. The lack of flexibility was one reason why our [motivation and reward system] approach would not work in Europe.”
The Lincoln Electric employee system worked very well with the culture of the U.S. But in Mexico the cultural factors, such as lower individualism and less commitment to production, did not fit well with Lincoln Electric’s piece-rate pay system. In addition, the plant in Mexico was unionized and there was a predisposition against workers earning different amounts.
To successfully implement the system in Mexico, Lincoln Electric decided to introduce it gradually. Lincoln Electric allowed a few select workers to opt into the system, and as they began to do well, other workers requested to be allowed into the piecework system. Although cultural values were important in suggesting what motivation system would work, Lincoln Electric was able to overcome any possible hindrances. It effectively used a system of social learning to gradually influence all the workers to understand how the system benefited them. And benefit them it did. After about two years, all 175 workers in the plant had opted into the incentive system. Workers make more money than before and Lincoln Electric has its productive system in place. Culture is important in determining what companies can do, but sometimes it is possible to get something done in spite of local culture and traditions, though a system may have to be implemented carefully, as Lincoln Electric did in Mexico.
1. Would the result of Lincoln Electric`s efforts been different if it had tried to introduce its system in a poor domain, such as the Sudan, rather than in a relatively wealthy nation, such as Mexico?
2. Why do you think more firms have not tried to copy a system like Lincoln Electric`s?
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