Questions and Answers to Lincoln Electric

The high levels of productivity common to LOCO employees can be attributed to titivation and Job satisfaction:

• Guaranteed employment: no lay offs since 1948, Instead LOCO rotates through co.
• Equity: employees earn comparable, sometimes higher, wages than other manufacturing companies. In addition, there are short power distances between laborers and managers.

  As a result, employees feel that they are being treated fairly.

• Expectancy: wages based on piecework and an annual bonus gives the average worker the possibility to increase total compensation. According to expectancy theory, employees are motivated by the belief that they can expect to achieve certain desired rewards by working hard to attain them.
• Instrumentality: Rewards are explicitly linked to a measurable performance.

• Positive Valence: employees value the rewards that are offered to them for desirable behaviors. Why did the internationalization thrust fall? There were many factors that contributed to Loco’s failed attempt at internationalization. It Is evident that Willis Ignored a variety of cultural and macroeconomic effects related to his plan. Specific to human behavior, LOCO neglected the transferability of the Incentive system to there countries and the utilization of management controls to monitor It.

• External: It was unreasonable to expect, considering the extensive experience with the US labor markets and the period of time required to customize the Incentive system to fit a very specific culture, that It could be Instantaneously transferred to a different business environment. It is clear that the rewards offered through the incentive plan did not have the same valance for the international labor forces as it did in the US. Many European mangers were opposed to piecework and some valued vacation time higher than extra income. The Incentive plan was not as motivating to employees won same way that the US employees did 010 not value ten rewards.
• Internal: Aside from ignoring many external aspects of the expansion, LOCO was also unrealistic in its internal initiatives as well. Management was not properly trained and/or experienced with the markets they were entering, thus, not able to adjust the incentive program to suit the priorities of employees.

  Additionally, no structure was in place to properly administer the new operations because the internal focus of the rim remained on Cleveland. As a result, there were low levels of supervision and evaluation of international managers. Essentially, LOCO parachuted into unfamiliar markets, ignored almost all of the relevant cultural issues, severely mistimed the acquisitions market, and then, due to an unprepared organizational structure – isolated the operations from the rest of the firm. What should Gillespie do in Indonesia? It is imperative that Gillespie not repeat the mistakes of Loco’s past by over-extending the firm in an uncertain business environment with high barriers to exit. At this point, it makes the most sense to entreat Asian markets through a Joint venture with both Tiara and SSH. LOCO must capture the advantage both partnerships; Tiara would be a valuable partner because it is an Indonesian firm with invaluable connections/customers.

  It would also be beneficial to partner with SSH because, as a foreign subsidiary, they have faced many of the same challenges common to LOCO. Through the ventures, LOCO will be able to draw on local expertise to better understand the labor market, develop relationships with government and other local businesses and eliminate some of the labor issues that often occur when producing in developing countries. This strategy would serve as a first step from which LOCO can reassess its expansion when it is more confident with the market. They would have the opportunity to scale back the venture if it proves unsuccessful or buy out the remainder of the venture if they want to increase exposure.

• Compensation: Lincoln Electrics incentive system, in its current form will not be effective in Indonesia.

  However, the best incentive system is currently indeterminate because Loco’s knowledge of this particular labor force is very preliminary. It would be best to draw on their partner’s experience and adopt their incentive policies, at east for the meantime.