LOCTITE COMPANY DE MEXICO, S.A. de C.V.

Loctite Corporation US based specialty chemical company

Dominant market share 85% in 1992 In 1992, 2 main lines of products: sealants

and adhesive products, for manufacturing and repairs

Organized into 4 geographical groups: North America, Europe, Latin America and Asia/Pacific

Loctite’s strengths « Diversity without diversification »

geographic end use markets product usage product diversity All these elements helped Loctite continue to grow

during difficult economic times Rapid growth of the Mexican subsidiary

$3.1 million of sales in 1987, $9 million in 1992 Expected annual growth of 15% in sales and 20% in

profits

Loctite’s Mexican subsidiary 119 employees, functional organization

José MonteiroManaging Director

Larry GoldsmithNational Sales

ManagerIndustrial

Victor MorenoNational Sales

ManagerPermatex

Jorge MorenoSales

AdministrationManager

Alfonso LunaPlant Manager,

Tiaxcala

José Monteiro(Acting)

Operations Manager

Graciela RoldanMarketingManager

Luis RiquelmeController

Original EquipmentManufacturing

(OEM)

Industrial Maintenance,

Repair and Overhaul

(MRO)

Permatex Sales force

The sales force is assigned to territories Prices are set by Jose Monteiro Very specific sales approach

Loctite de México’s difficultiesSpecificities of the Mexican market

Strong decrease in prices in Mexico because of a deflation national turnover decreases

Costs increase four times as fast as the peso’s devaluation relative to the dollar

Increase in competition in Mexico with lower prices than Loctite

Huge increase in the competition for labor

Internal problem: compensation According to José, “one of the most difficult

management areas in Mexico is compensation”“If you want to grow, you must compensate your people appropriately”

José’s problems High compensation levels compared to

competition, yet high turnover wage perception problem

Competition among salespeople in Mexico City territories

A complex compensation system Compensation is dependent on performance

employees are eligible for company profit sharing and semi-annual salary increases

Employees’ superiors decide subjectively the bases for employees’ salary increases

Salespeople and managers have commissions based on individual performance

Different compensation incentive plans for salespeople, sales managers, first-line managers and the general manager

Different compensation plansSalespeople Sales managers

Commission on sales

-Based on sales growth and not gross margin-Paid on bi-monthly basis-No seasonal adjustments-Objective = encourage high value-added sales

-Based on sales growth-Paid on quarterly basis-Lower marginal rates of payment than for salespeople-Could represent 60% to 80% of their salary

Commission on house account

sales

Sales for large OEM accounts, lower commissions to reflect lack of control of salespeople over these sales

New orders Extra commission for first orders from new customers (one to which no sales in the last 6 months)

Achievement of SOP targets

-Standards of performance ratings averaged 75-80% of maximum-Average salesperson SOP bonus = 2/3 of one month salary

-Average sales manager SOP rating = above 90%

Problem = economic slowdown so 75% of the salespeople earned no commission in the first half of 1992

Different compensation plans For First-line managers:

based on performance in SOP areas SOP objectives are weighted

For the General Manager: Bonus depends on achievement of performance

(sales and profit) and financial goals. Can earn up to 40% of his salary.

Stock options if subsidiary’s performance exceeds the plan by a substantial margin

The issue of competition in sales territories

Mexico City area divided into 4 small territories, to which salespeople are assigned

Territories no longer respected Competitors are less expensive so less

customers Competition among salespeople and

between salespeople and distributors, who have no territories

Sales efforts therefore duplicated 3 000 potential clients in Mexico

Constraints of the Mexican market which need to be taken into account

All Mexican companies must distribute 10% of their pretax income to employees based on worked days and earnings

Mexico is not a mature market so you must think on a short-term basis to calculate rewards

Competition for skilled labor is very tough

Key problems and possible solutions For each type of sales activity, objectives are set in

growth of volume set objectives in growth percentage, taking into account the estimated 15% annual growth in sales

Territory problem 3000 potential customers in Mexico assign some

salespeople exclusively to potential customers, to compensate for the lack of growth on existing customers

Assign salespeople to customers, not to territories

Key problems and possible solutions Turnover problem

Create incentive plan which rewards loyalty to the company

Will help develop long-term relationships with customers, which is more individually rewarding for salespeople (OB)

Controllability problem salespeople are not responsible for economic slowdowns or the devaluation of the peso, yet these deeply affect their ability to sell, and therefore their bonuses take economic slowdowns into account when fixing

sales objectives

Key problems and possible solutions