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P
rofessor Kenneth A. Merchant wrote this teaching note as an aid to instructors using the Loctite de Mexico, S.A. de C.V. case.
Marshall School of Business
University of Southern California
Loctite de Mexico, S.A. de C.V.
Teaching Note
Purpose of Case
The Loctite case can be used for any of several purposes. The case was included in Chapter 2
because it has several key elements of a results control system. As such, it also can be taught
with Chapter 9 because it describes the reward systems used in Loctites Mexican subsidiary,
Suggested Assignment Questions
The assignment questions should be tailored to the purpose(s) for which the case is being used.
Here is a set of questions which encompasses all three purposes:
1. What unique aspects of the Mexican environment does Jose Monteiro have to consider in
designing and using his management control system?
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructors Manual
98
Case Analysis
Unique Aspects of the Mexican Environment
Managers at the Loctite Company are aware that the systems the corporation uses in the United
States will not necessarily apply equally well to all its foreign subsidiaries. Thus they allow the
managers of their foreign subsidiaries considerable autonomy in developing their own systems.
These are among the specific characteristics of the Mexican environment with which Jose
Monteiro must be concerned in designing and using his control system:
1. Highly competitive environment. Loctite de Mexico is a high-cost provider. It must face the
risk of changing tariffs that, most recently, have been lowered to allow more foreign
2. Shortage of skilled labor, particularly employees who are bilingual. This is common in
3. Culture. On average, Mexico and the United States are significantly different on three of the
four cultural dimensions described in Chapter 16 of the textbook:
Cultural Dimension Mexico US
Individualism 30 91
Are these data representative of the employees who work for Loctite? If so, the relatively
high masculinity scores suggest that achievement and material success are important in both
Mexico and the United States, so incentives are likely to be effective. The individualism
scores suggest, however, that Americans like individual performance assessments and
incentives, while Mexicans are more oriented toward group harmony than individual self-
interests. Will individual incentives work well in a group-oriented culture? The high
5. Immature operation. Loctites Mexican subsidiary was relatively small, so Jose Monteiro
did not have all the management and functional specialists, which might be available to
managers of a larger subsidiary. And because the Mexican production processes were
relatively new, he did not have accurate production standards.
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructors Manual
Evaluation of Compensation System
Loctite de Mexicos compensation system for salespeople has three elements. The profit sharing
plan was mandated by law. As is true with all such plans, it is difficult to convince employees
that this plan provided much, if any, incentive. Employees who perform spectacularly well do
not earn any more from this plan than the worst laggards.
The salary increase system is not unusual. Evaluations were subjective. The primary challenge
was to provide a competitive package.
The sales commission plan was based on sales growth, not the absolute level of sales. This is
appropriate in an expanding economy, but it might have to be changed in recessionary times.
The commission chart rewards very high performance with a higher commission percentage.
Thus the potential for a good salesperson was quite high. But if a salesperson had a particularly
good year, might there not be an incentive to leave? The high performance creates a high
standard for the following year. Salespeople will be tempted either to find a territory that had
not had such good year or to leave the company. Is that what caused the top salesperson in each
of the past 2 years to leave the company?
The leverage in the commission plans is high. The case says that in 1992, in a period when 75%
of the salespeople were earning no commission because of the difficult economic times, one
No adjustments were made to offset bad or good luck. Is Jose doing this because he wants to
simplify his life, or does he intuitively understand the high uncertainty avoidance among the
Mexican people?
Special payments were made for house account sales, new customer orders, achievement of
SOP targets, and top performance. The SOP targets are more numerous than most experts would
recommend, and do all of these relate to the important goal of sales growth? But the other
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructors Manual
100
Some may suggest measuring customer satisfaction or implementing some form of action
Competition among Mexico City Salespeople
The competition problem is caused by a lack of discipline in the system. If Jose Monteiro wants
to fix this problem, and it appears that he does, he seems to have two options. One option, which
is given in the last quote in the case, is to combine the Mexico City territories into one and to
implement a group goal and reward. Given the low individualism score in Mexico, perhaps this
is a good solution.
Another option is for Jose to give his salespeople direct orders:
