Ekonomi

Case Study: Organizational culture and incentives at Lincoln Electric.
What is the source of Lincoln’s long-standing competitive advantage in the United States market for arc welding equipment?

Lincoln’s Electric long-standing competitive advantage in the United State market achieved by a high productivity rate per worker. This company success had been on extremely high level of employee productivity.

Lincoln’s Electric apply incentive scheme based on piecework. The workers receive no based salary but depend on the number of pieces they produce. The piecework rates at the company enable an employee working at a normal pace to earn an income equivalent to the average rage for manufacturing worker in the area where the factory is based.

A company faces a quality aspect when it comes to incentive scheme based on piecework. But at Lincoln Electric’s the worker must repair or paid back any piecework that have defect. It means the workers must be responsible for their outputs.

The work culture in Lincoln Electric’s is one of the attributor. The company had a strong respect for the ability of the individual. Practicing open-door policy, the communication barriers between ‘workers’ and ‘managers’ were eliminated. All workers are treated equally despite of their position.

Since 1934, production workers have been awarded a semiannual bonus based on merit ratings. These rating are based on;
1. Objective criteria; example: employee’s level and quality of output.
2. Subjective criteria; example: employee’s attitude toward cooperation and his or her dependability.

This semiannual bonus motivates workers to perform better and work harder, resulting boost in productivity. Despite high employee compensation, the worker so productive than Lincoln has a lower cost than its competitors.

Why did Lincoln enter foreign markets through acquisitions and Greenfield ventures, rather than through exporting?

The Lincoln Electric’s did consider expanding into international market by exporting, but was told by foreign distributor that American equipment would not sell well in Europe. So instead the company decides to set up wholly owned subsidiaries and acquisitions to make the equipment locally.

Through acquisition, it was a quick way to execute. The company can rapidly built its presence in this targeted foreign market. Lincoln acquired seven arc welding manufacturers in Europe and one in Mexico. This move is the quickest way to make the equipment locally and introduce their product to the local market. Acquisition may be less risky because acquisition provides a set of assets that are producing a known revenue and profit stream. It also acquire valuable information such as manager’s knowledge about the local market environment.

Greenfield ventures gives the company a much greater ability to built the kind of subsidiary company that it wants. The backbone of Lincoln Electric’s success lies in its strong organization culture and a unique set of incentives. Thus, by applying Greenfield ventures can be much easier for Lincoln to build that organization. It is to change the culture of an acquired unit

Why did Lincoln’s foreign ventures fail to deliver the gains forecast?

The Lincoln may have overlooked the organizations cultural differences when the company decided to acquire the seven arc welding manufacturers in Europe and one in Mexico.

When the company acquires these arc welding manufacturers, Lincoln left local managers in place, believing that they knew local conditions better. But there have been told to imply Lincoln’s strong organizational culture and introduce its incentive system in acquired companies. Local managers had little working knowledge about Lincoln’s organizational culture and were unable or unwilling to impose that culture on their unit, which had their own long-established organizational culture.

The incentive system or work pieces were a problem to imply to it’s newly acquiring companies. The piecework was viewed as an exploitive compensation system that forces employees to work harder in other countries.

The strong organizational culture and the incentive system were the main reason why Lincoln Electric’s stand up upon other competitors. If these two elements cannot be imply or used in their newly acquire companies, this must be the reason why Lincoln’s foreign ventures fail to deliver the gain forecasted.

In retrospect, what might Lincoln have done differently to avoid the financial crisis it found itself in?

Before investing to a foreign country, Lincoln must first in vestige the foreign countries law relating to worker and working conditions. Also the company must know the foreign culture; it might be organizational culture or life culture itself.

Then decide what entry made is the most suitable for the company. When it comes to Lincoln Electrical, where strong organizational culture and incentive system were the backbone of it success, the most possible entry mode is through Greenfield.

Greenfield ventures give a much greater ability to build the kind of subsidiary company that it wants. Lincoln can introduce it organizational culture and incentive systems without a clash with another culture or system. While this strategy takes more time to execute, it yields greater long-run returns than the acquisition strategy.
What lessons can be gleaned from the Mexican venture?

International managers should understand better about the foreign culture that the company wants to invest in. Before foreign instruments are made, the company must understand fully about its culture and laws.

The local managers should be train or paid a visit to the successful factories in the America. They should be taught about the culture and the incentive system. Then the managers can imply these to the factories in their own country.

The culture can change slowly if truly it is a good culture. Worker can accept it if it more beneficial to them. The incentives systems are proven to make the worker more productive and make the worker earn more.

References
McDonald, F., & Burton, F. (2002). International Business (1st Ed.). London: Thomson.
Electric, T. L. (2008, October 1). Lincoln Electric Company. Retrieved October 1, 2008, from Lincoln Electric Company Web Site: http://www.lincolnelectric .com/