The problem foe Lincoln Electric is that they are having less than expected revenues from their overseas venture. Their management system worked so well in their original facility in Ohio. They had such high confidence in the way they made their products there that they thought that if they do what they did in another country, they will reap the same benefits. When they applied the same management principles in other countries, they had net losses that are so high, that they are enough to offset the yearly bonuses of the employees in the Ohio plant. The company decided to borrow money in order to not lose the trust of the American employees.
One has to wonder at first about the reason Lincoln Electric would want to set up camp in another location in the first place when they are having lots of profits already. According to chapter 4 of our textbook which is about doing business overseas, the reasons companies are (1) to outsource their products or services in order to make its operations cost cheaper and (2) to develop markets for finished goods or services. Most likely, the latter reason is why Lincoln Electric sought new business ventures in other locations. When companies are making profits, they usually expand their business in order to make more profits. One reason for this is that the high population and economic growth in developing nations, like China, Brazil and Russia, have increase in demand for buildings, making the market in such countries very attractive for their welding products.
It seems like a very good way to run a company. Lincoln Electric has a decentralized approach to management, meaning that most of their operational decisions are carried out at the division level. They have a performance-based compensation, which reward employees for meeting specific goals. Because of this, employees are motivated to carry out their tasks in order to meet management goals. They also carry out egalitarian benefits to employees, with management having trust to the performance of its employees. The company also makes customer service and quality a priority through training of their sales representatives to help meet customer needs.
When Lincoln Electric makes new business ventures outside the US, their management system failed. European labor culture, as the case says, became hostile to the piece-work and bonus control system. In order to analyze this, one may look at the difference in the US and European labor culture. What if someone thought of the idea that the difference in the labor cultures in two regions is accredited to their economics?
Edward Prescott, senior monetary adviser to the Minneapolis Fed, points out that Americans work in longer hours than the French, Germans and Italians, and work almost just as much as the Japanese and the British. He deduced that countries with longer working hours on average have a higher tax rates that are somewhere near 60 percent, while those that generate longer working hours have tax rates of around 40 percent. The implication is that people in countries with higher tax rates are getting less of what they are working for if ever they extend their working hours. Those people in countries with less tax rates get more from their salaries, and so are willing more to do the extra hours. (http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=3346 )
As a result, when people in European countries are given a piece-work reward system, it may not be a good motivation for them because they do not get as much as the US workers. So instead of using their time in making more products, they will want more to use that time in leisure activities. It is just one way to look at this case. However, it has to be pointed out that when the company does its operations in another country, they are facing a different situation. One can recall here Fielder’s Contingency theory, discussed in...
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