Lincoln Electric Case
In which countries is the economic system or the cultural values too different that the Lincoln system can never work?
Before I would like to briefly tell the story, while describing the strategy pursued by Lincoln Electric, where when making its expansion encountered some problems due to cultural differences, economic, and legal to who found the time to enter those countries.Lincoln Electric was founded by John C. Lincoln in 1985 in Cleveland (USA). Its main activity was and is to manufacture electric motors and generators for other companies. If Lincoln is to highlight the philosophy held since its inception, because the human motivation of its staff were based.
Lincoln had boundless faith in the individual, and gave an equality among all its members. They could develop their full potential through a system of incentives. This incentive system has had much impact, and in some countries has had consequences. This peculiar system of incentives, or piece work, it was the following: the worker did not have a fixed salary, and that grew on the basis of the work. Lincoln also proposed a points system, which entailed to receive a bonus. So the combination between piecework and annual premiums identify the best employees.
This philosophy had to be changed in certain countries, because it conflicted with the culture and laws of these countries. Lincoln Electric initiated an internationalization, and his philosophy had to be changed in the countries that decided to set up its infrastructure.
INTERNATIONAL MANAGEMENT, CASE I: LINCOLN ELECTRIC
In 1925 opened its first plant in Canada, and was when he began to experience problems when implementing its work culture and Canadian laws were different from the U.S.. Canadian law was mandatory marking the enjoyment of the holiday, and some minimum guarantees to employees.
In 1938 was introduced in Australia, where there was a strong union, but workers did not participate. In addition to the above Australia met with strong tariffs. In 1955, Lincoln Electric decided to open a new infrastructure in Western Europe, and the chosen country was France. It is there that I first had to be changed the philosophy of Lincoln, varying the U.S. model (vacations, sick leave were mandated by law or industry standards).
In addition to these cases also occurred in Venezuela, Brazil, Germany, Japan, and Indonesia where in this case demanded a minimum wage. In the case of Brazil, any bonus paid for two consecutive years became a legal right in Germany was illegal piecework.
How is Massaro’s recent overseas initiative different from Lincoln’s earlier failed approach?
Before develop this question, I would like meeting up sum up the situation in which the company was immediately before the entrance of Massaro in Lincoln. William died in 1986 which was followed Irrgang Wills had the opportunity to expand the business. Due to the slowdown in the U.S. market believed to find the solution in a growth abroad, and to establish new plants in various regional blocs would produce a reduction in tariffs. This led to begin a rise in long-term debt.
Since the establishment of new branches, how to manage these was with
managers without international experience, so that kept local specialists to use their experience in the field. To help these, Lincoln executives from U.S. command who knew the Cleveland system.
Many managers and employees in Europe are philosophically opposed to piecework. This together with the financial problems that faced, as were those that had subsidiaries in Europe and Japan in 1991. By 1992, all newly acquired plants were in the red. It was believed that the modified system of incentives would help to most foreign companies to achieve similar growth to that of Cleveland. The status of these plants were dragged to the U.S., which led for the first time Lincoln lost money.
It is at this point that Lincoln Electric began to take action. In 1992, I think the international strategic liaison team to discuss the operations abroad, which led to look for executives with international experience. In 1993 contract and Jay Elliott Tony Massaro.
This is where these two people identified errors in which Lincoln had made, such as the following:
– Lincoln’s philosophy was focused on the quality of manufacturing facilities and
acquisition of new markets, markets with weak sales.
– It had been a fragmented production costs while maintaining high rather than concentrating the manufacture of each product in a factory to take advantage of the elimination of tariffs.
– Lincoln had suffered from overcapacity and its subsidiaries compete with each
The managers had realized that instead of increasing production (classic in Cleveland) had to reduce costs. In Venezuela and Brazil Massaro found different problems. Lincoln’s culture was so focused on individualism did not help business to its subsidiaries and in this way failed or came to success. And this Massaro affirm that part of the problem was that it was to do things like Lincoln everywhere, instead of adapting to local conditions.
The solutions provided by Massaro and Elliot for the restructuring and achieve profitability in this way should follow two stages:
– Some affiliates will not be able to save so they decided to close
– Rationalize the product line and improve sales force. It was an elimination of jobs.
Massaro did not follow Lincoln’s historical practice of imposing a solution from the top. However I think a European team management. Massaro carried out various measures to improve the situation of the plants in Europe (replaced several managers, business sumistro the long term, exports from the U.S.). These movements increase the volume and reduction in tariff costs.
With these measures in the foreign subsidiaries were recovered. In 1994 he received a benefit and increased until 1995 and 1996. Mexico plant also followed the trend similar to that of Canada.
Having built the plant, what kind of management system and compensation policies should Gillespie put in place?
Gillespie recognized that he could invite one, or both companies to become joint venture partners. Or he could set up a wholly owned manufacturing company and continue to employ them as distributors, although such a move might reduce their commitment to Lincoln. The decision was a difficult one since Gillespie already found it challenging to modulate relationships between two distributors and keep their competition energizing rather than destructive.
Gillespie felt that another option was to make the annual bonus merit-based and link it directly to factory performance, an approach that would require workers to put part of their compensation at risk. He envisioned a scheme based on the Cleveland model, but simplified for the less-educated Indonesian workforce. His thought was to offer a meritbased bonus that could reach 30% of the worker’s base pay in good years, but which could disappear if the plant were not profitable. “My experience with Indonesian workers is that they are more effectively managed with traditional management methods,” he said.
Gillespie realized that ethical and public relations considerations added another wrinkle to these calculations. A number of western multinationals had come under fire for paying employees in developing countries prevailing wages that seemed low to observers in their home countries.
Using the Globe and Hoffestde tools- analyze the difference from expanding operations from the US to these countries.
The Five Dimensions of Culture Armed with a large database of cultural statistics, Hofstede analyzed the results and found clear patterns of similarity and difference amid the responses along these five dimensions. Interestingly, his research was done on employees of IBM only, which allowed him to attribute the patterns to national differences in culture, largely eliminating the problem of differences in company culture.
The five dimensions are:
1. Power/Distance (PD)
2. Individualism (IDV)
3. Masculinity (MAS)
4. Uncertainty/Avoidance Index (UAI)
5. Long Term Orientation (LTO)
(PD) (IDV) (MAS) (UAI) (LTO)
Flatter organizations. Supervisors and employees are considered almost as
Involve as many people as possible in decision making. High valuation on people’s time and their need for freedom. An enjoyment of challenges, and an expectation of rewards for hard work.
Respect for privacy. Men are masculine and women are feminine. There is a well defined distinction between men’s work and women’s work.
Be aware that people may expect male and female roles to be distinct.
Advise men to avoid discussing emotions or making emotionallybased decisions or arguments.
Informal business attitude. More concern with long term strategy than what is happening on a daily basis.
Accepting of change and risk Promotion of equality. High creativity, individualism. Treat others as you would like to be treated.
Self-actualization is sought.
(PD) (IDV) (MAS) (UAI) (LTO)
Supervisors and employees are considered almost as equals.
High valuation on people’s time and their need for freedom.
An enjoyment of challenges, and an expectation of rewards for hard work. Respect for privacy.
Men are masculine and women are feminine. There is a well defined distinction between men’s work and women’s work.
Very formal business conduct with lots of rules and policies.
Sense of nervousness spurns high levels of emotion and expression.
Differences are avoided. Parents and men have more authority than young people and women.
Strong work ethic. High value placed on education and training.
(PD) (IDV) (MAS) (UAI) (LTO)
Large gaps in compensation, authority, and respect Emphasis on building skills and becoming masters of something. Work for intrinsic rewards. Harmony more important than honesty.
Men are masculine and women are feminine.
There is a well defined distinction between men’s work and women’s work. Very formal business conduct with lots of rules and policies. Need and expect structure.
Sense of nervousness spurns high levels ofemotion and expression.
Family is the basis of society. Parents and men have more authority than
young people and women.
High value placed on education and training.
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