Sep 25, 2017 term paper 2

IN THE EARLY 1990S, LINCOLN ELECTRIC DECIDED TO EXPAND ITS OPERATIONS INTERNATIONALLY AND BECOME…

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In the early 1990s, Lincoln Electric decided to expand its operations internationally and become a bigger player in the emerging global economy.28 It first set its sights on Germany, buying a small German arc-welding equipment manufacturer called Messer Griesheim. None of the American executives involved in the acquisition decision had any international experience, but they believed that because they had been so successful in the United States, success would likewise follow elsewhere. John Gonzales, vice president of engineering, was assigned to be managing director of the new acquisition. Like the other executives, Gonzales also lacked international experience and, in addition, decided to run the venture from Lincoln Electric’s home office in Cleveland, Ohio. One of his first decisions was to retain the local German managers, since they best understood local customs and work practices. It was assumed that the Lincoln Electric compensation system would be adapted to fit local conditions, leading to increased productivity through heightened individual motivation. As Lincoln Electric’s CEO observed several years later, “Our managers didn’t know how to run foreign operations, nor did they understand foreign cultures. Consequently, we had to rely on the people in our foreign companies—people we didn’t know and who didn’t us.”29 Once the purchase had been completed, it quickly became apparent that the local German managers were either unable or unwilling to introduce Lincoln Electric’s individualistic incentive plan among workers, who were used to a somewhat more collectivistic work culture. Finally, out of exasperation, U.S. headquarters ordered it done. The response of the employees was quick and decisive. Employee grievances and even lawsuits arose challenging the newly imposed system, which was seen by many as being exploitative and even inhumane. Workers were being asked to work ever harder with little consideration to the quality of living. Many workers rejected the piece-rate concept on principle, while others preferred extra leisure time over higher wages and were not prepared to work as hard as their U.S. counterparts. After a visit to the German facility to see firsthand what was happening, Lincoln Electric’s president observed, “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 factory workweek is thirty-five hours. In contrast, the average workweek in Lincoln’s U.S. plants is between forty three and fifty-eight hours, and the company can ask people to work longer hours on short notice—a flexibility that is essential for our system to work. The lack of such flexibility was one of the reasons why our approach would not work in Europe.”30 At the same time, a major recession was hitting Europe and sales declined sharply. Between the “poor work attitude” of the German workers and the decline in sales, Lincoln Electric had to make a decision that would satisfy the shareholders and employees back home who were subsidizing the German venture. In 1993, it closed the Messer factory and decided to export U.S.-made products to Germany instead. Looking back over their German misadventure, Lincoln Electric executives drew what for them was a surprising conclusion: “We had long boasted that our unique culture and incentive system—along with the dedicated, skilled workforce that the company had built over the decades—were the main sources of Lincoln’s competitive advantage. We had assumed that the incentive system and culture could be transferred abroad and that the workforce could be quickly replicated.”31 Lincoln Electric’s disappointment in Germany was soon replaced with optimism following its experience with a Mexican subsidiary that occurred about the same time. The company had purchased a unionized manufacturing plant in Mexico City. Despite the fact the piece-rate systems are generally rejected by Mexican workers (like their German counterparts), Lincoln introduced the system gradually and only following discussions with workers in the plant. Initially, when employees expressed reservations about the Lincoln plan, executives asked for two Mexican volunteers to test-drive the system. They were guaranteed that they would not lose money under the system during the trial period, but could keep any additional income they earned. Two employees reluctantly agreed to try the system. Soon, as the two workers began making more than their colleagues did, other employees asked to join the plan. Over the next two years, everyone in the plant gradually asked to join. Today, the Mexican facility continues to prosper under the Lincoln incentive system. Comparing the two experiences, Lincoln Electric concluded that moving across borders must be done slowly and only after a thorough understanding of local cultures. Moreover, it learned that transplanting ideas—whether they relate to incentive systems, management practices, or anything else—can succeed only after a thorough dialogue with the workers who are directly involved.

QUESTIONS FOR DISCUSSION

1. First, using the materials from this chapter and Chapter 8, complete the cultural profiles for the United States, Germany, and Mexico in the space below. What are the principal differences across the three countries? What are the principal similarities?

2. Based on your assessment, is the Lincoln Electric incentive system as applied in Cleveland, Ohio, compatible with the general culture of the United States?

3. Would you like to work at Lincoln Electric–USA? Why or why not?

4. From what you have discovered, what motivates employees in Germany? What makes a good leader in Germany?

5. Based on your answer to question 4, why did Lincoln Electric encounter so much difficulty transferring its incentive program to Germany? What, if anything, could the U.S. executives have done better to make this approach succeed?

6. From what you have learned, what motivates employees in Mexico? What makes a good leader in Mexico?

7. Why do you think the Mexican venture succeeded while the German venture failed?

8. In view of the rush toward globalization, do you believe that more countries in the future will adopt incentive systems similar to Lincoln Electric’s as a means of increasing job performance? If not, how can companies from cultures that do not support Lincoln-like systems compete and survive as the global economy becomes less and less forgiving?


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