Lincoln electric

Topics: Multinational corporation, Foreign exchange market, Inflation Pages: 32 (11336 words) Published: October 31, 2014
Siegel and Larson: Labor Market Institutions and Global Strategic Adaptation

Labor Market Institutions and Global Strategic Adaptation:
Evidence from Lincoln Electric
Jordan Siegel and Barbara Zepp Larson
Harvard Business School, Boston, MA 02163, and
Although one of the central questions in the global strategy field is how multinational firms successfully navigate multiple and often conflicting institutional environments, we know relatively little about the effect of conflicting labor market institutions on multinational firms’ strategic choice and operating performance. With its decision to invest in manufacturing operations in nearly every one of the world’s largest welding markets, Lincoln Electric offers us a quasiexperiment. We leverage a unique data set covering 1996-2005 that combines data on each host country’s labor market institutions with data on each subsidiary’s strategic choices and historical operating performance. We find that Lincoln Electric performed significantly better in countries with labor laws and regulations supporting manufacturers’ interests and that Lincoln Electric performed significantly better in countries that allowed unconstrained use of incentive-payfor-performance. Furthermore, we find that in countries with labor market institutions unfriendly to manufacturers, the company was still able to enhance its performance significantly by what we term flexible intermediate adaptation.

Key words: global strategy; institutions, labor market; adaptation; complementarity History: This preliminary draft is dated January 25, 2007. Please do note cite, quote, or circulate without the authors’ permission.


1. Introduction
One of the most significant questions in the global strategy field is how multinational firms should navigate their way through multiple and often conflicting host-country institutional environments (Ghoshal and Westney 1992). In spite of the fact that most FDI is still conducted by manufacturing companies whose profitability derives in large part from achieving labor productivity, we still know surprisingly little about whether labor market institutions, defined as formal and informal rules governing the labor market, matter for the operating performance of foreign direct investment, and if so which ones matter and how much they matter. Despite earlier calls for research in this area (Rosenzweig and Singh 1991), there has been little work done on the effect of adaptation to labor market institutions on multinational firms’ strategic choice and performance (see one notable exception by Zaheer, 1995).


Siegel and Larson: Labor Market Institutions and Global Strategic Adaptation

The following questions are still largely understudied. Under what conditions should multinational firms simply avoid institutionally incompatible environments when the institutions affect basic rules of work, and what in fact makes an environment institutionally incompatible? How far should multinational firms go in adapting to different institutional environments? When should a multinational firm hold the line and introduce what at first appears to be an incongruent organizational practice into a host country? Whereas some past studies have examined the likelihood of transfer of organizational practices abroad, remarkably few have examined the effect of strategic adaptation on firm performance. Adaptation is one of the important strategies in international business (Prahalad and Doz, 1987; Bartlett and Ghoshal, 1989; Ghemawat 2003), and yet a recent literature review shows that little is known about the optimal level of adaptation by multinational firms to any local market institutions (Dow 2006). To answer these questions, we leverage a unique quasi-natural experiment. Lincoln Electric is one of the most studied companies of all time in MBA programs, and it operates...

References: Bartlett, C.A., S. Ghoshal. 1989. Managing Across Borders: The Transnational Solution. Harvard
Business School Press, Boston.
Bemmels, B. 1987. How Unions Affect Productivity in Manufacturing Plants. Indust. Labor Relations
Boal, W.M. 1990. Unionism and Productivity in West Virginia Coal Mining. Indust. Labor Relations Rev.
Bognanno, M.F., M.P. Keene, D. Yang. 2005. The Influence of Wages and Industrial Relations
Environments on the Production Location Decisions of U.S
Botero, J., S. Djankov, R. La Porta, F. Lopez-de-Silanes, A. Shleifer. 2004. The Regulation of Labor.
Chilton, K.W. 1993a. The Double-Edged Sword of Administrative Heritage: The Case of Lincoln
Chilton, K.W. 1993b. Lincoln Electric’s Incentive System: Can It Be Transferred Overseas?
Compensation Benefits Rev
Clark, K.B. 1984. Unionization and Firm Performance: The Impact on Profits, Growth, and Productivity.
Cushman, D.O. 1987. The Effect of Real Wages and Labor Productivity on Foreign Direct Investment.
Dawson, V.P. 1999. Lincoln Electric: A History. Lincoln Electric Company, Cleveland.
Desai, M.A., A. Dyck, L. Zingales. 2005. Theft and Taxes. Unpublished working paper. Harvard
Business School, Boston.
DiMaggio, P.J., W.W. Powell. 1983. The Iron Cage Revisited: Institutional Isomorphism and Collective
Rationality in Organizational Fields
Doucouliagos, C. 1995. Worker Participation and Productivity in Labor-Managed and Participatory
Capitalist Firms: A Meta-Analysis
Dow, D. 2006. Adaptation and Performance in Foreign Markets: Evidence of Systematic UnderAdaptation. J. Internat. Bus. Stud. 37 212-226.
Frank, D.H. 2006. How Much Do Labor Market Institutions Constrain Firm Behavior? Evidence from
the Fall of the Berlin Wall
Ghemawat, P. 2003. Semiglobalization and International Business Strategy. J. Internat. Bus. Stud. 34
Gamble, J. 2003. Transferring Human Resource Practices from the United Kingdom to China: The Limits
and Potential for Convergence
Ghoshal, S., D.E. Westney. 1992. Organization Theory and the Multinational Corporation. Macmillan,
Hastings, D.F. 1999. Lincoln Electric’s Harsh Lessons from International Expansion. Harvard Bus. Rev.
Henisz, W.J. 2000. The Institutional Environment for Multinational Investment. J. Law, Econom. Organ.
Kaufmann, D., A. Kraay, M. Mastruzzi. 2003. Governance Matters III: Governance Indicators for 19962002. Unpublished paper. World Bank Policy Research Department Working Paper, Washington,
Kostova, T.. 1999. Transnational Transfer of Strategic Organizational Practices: A Contextual
Locke, R.M. 1992. The Demise of the National Union in Italy: Lessons for Comparative Industrial
Relations Theory
Maciariello, J.A. 2000. Lasting Value: Lessons from a Century of Agility at Lincoln Electric. John Wiley
& Sons, New York.
Mefford, R.N. 1986. The Effect of Unions on Productivity in a Multinational Manufacturing Firm. Indust.
Milgrom, P.R., J. Roberts. 1992. Economics, Organization, and Management. Prentice-Hall, Englewood
Cliffs, NJ.
Milgrom, P.R., J. Roberts. 1995. Complementarities and Fit: Strategy, Structure, and Organizational
Change in Manufacturing
Myloni, B., A.-W.K. Harzing, H. Mirza. 2004. Host Country Specific Factors and the Transfer of Human
Resource Management Practices in Multinational Companies
Ouchi, W.G. 1979. A Conceptual Framework for the Design of Organizational Control Mechanisms.
Prahalad, C.K., Y.L. Doz. 1987. The Multinational Mission: Balancing Local Demands and Global
Rivkin, J.W. 2000. Imitation of Complex Strategies. Management Sci. 46 824-844.
Rosenzweig, P.M., N. Nohria. 1994. Influences on Human Resource Management Practices in
Multinational Corporations
Rosenzweig, P.M., J.V. Singh. 1991. Organizational Environments and the Multinational Enterprise.
Szulanski, G., R.J. Jensen. 2006. Presumptive Adaptation and the Effectiveness of Knowledge Transfer.
Zaheer, S. 1995. Overcoming the Liability of Foreignness. Acad. Management J. 38 341-363.
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Essay about Lincoln Electric
  • Lincoln Electric Essay
  • Essay about lincoln electric case study
  • Essay on lincoln electric case 12
  • Lincoln Electric Company Essay
  • The Lincoln Electric Company Essay
  • Lincoln Electric Case Essay
  • Lincoln Electric: Case Study Essay

Become a StudyMode Member

Sign Up - It's Free