NAFTA and ACME Motors
Prior to the North American Free Trade Agreement (NAFTA),
the Mexican automotive industry was only partially integrated with the North
American automotive industry Many automotive Maquiladoras (Mexican industrial
plants that assemble imported components into products for export) were owned
by US assemblers and parts producers However, due to Mexico’s Automotive
Decree, US auto manufacturers in Mexico were obligated to export
significantly more than they imported So, most of the production was exported
to the US and Canada In addition to this imbalance of trade, US automakers
in Mexico were required to purchase a large percentage of the raw materials for
manufacturing the vehicles from Mexican-owned suppliers, which, in many
instances, did not meet globally competitive outsourcing standards in terms of
quality or price Consequently, US auto plants in Mexico operated at less than
maximum efficiency and produced substandard vehicles that constrained their
export of cars to the United States
Because of these production and export issues, US
automakers supported NAFTA because it promised to open up Mexico’s highly
protected automotive market and allow them to consolidate production across
borders rather than country by country This restructuring permitted the auto
companies to enhance their competitiveness by gearing production to meet the
needs of North America and not specific country markets In other words, NAFTA
enabled the corporations to select production sites and scale based on business
factors rather than the need to locate behind tariff or other trade barriers
The passage of the Free Trade Agreement required firms all over
the world to shift the way they operated to remain competitive in a new, global
environment Acme Automaker, one of the major US producers of automobiles in
Mexico, realized that it would have to become a much leaner, flexible
organization As a result, Acme adopted its Vision for the New Millennium – to
become a global firm and the world’s lowest-cost volume producer of the
highest-quality vehicles From this vision, a total cost management strategy
was developed:
? Offer
more and better vehicles
? Increase
its global market share
? Become
the world’s largest vehicle maker
? Increase
profits substantially
? Develop
a reputation as a note-worthy corporate citizen through the TCM strategy
By 2002, engineering personnel had been reduced by 30 percent,
and significant dollars were cut from vehicle material and labor costs The
company now uses one process to develop cars rather than having each
engineering center operate under a different process In November 2000, Acme in
Mexico constructed $5 billion facility in Nuevo Laredo, Tamaulipas to
manufacture a new line of engines This plant produces 435,000 Autoturbo
engines and 430,000 V-8 Quattro engines per year The Quattro engine is
considered one of the lightest engines in weight and received high performance
ratings for its efficient Power Train System During 2002, the use of efficient
manufacturing practices drove the facility to reduce 30 percent on total cost
net inventory and a 60 percent reduction on freight cost per unit
Is Globalization Good or Bad?
As background for your new job at Acme Automotive, you have
been researching issues of globalization – the positives of people empowerment,
improving quality of life, new product availability, issues of country
sovereignty, spread of materialism, and environmental problems You are
particularly interested in the opposing views of the globalization debate as
you want to consider both the vision of Acme Automotive and the letter you
received from Mr Santiago Determine exactly what the issues are with respect
to globalization and multinational corporation management
These reflections would have been simply for your own notes
were it not for your cousin, who is interested in working with you in the
future He would like to have you work as a consultant with him in the future
for a successful launch of his firm into the international market He is very
interested in what you are doing now, as you can tell from an online chat you
were able to coordinate with him today You want to respond to his questions,
and you find that many of them relate to notes you have already made
Make sure you utilize links to sites for economic theories,
data, and analyses relevant to the decisions you will be making
Post discussion to your cousin today, answering the
following questions he sent you in his most recent chat post
1 What is
globalization?
2 What does
Mexico have to gain and lose from Acme Autos operating in Mexico (include
issues of international sovereignty, employment, and GDP)?
3 What does
the US have to gain and lose from Acme operating in Mexico (include issues of
international sovereignty, employment, and GDP)?
4 How does
the macroeconomic stability of the host country affect a multinational
corporation?
5 Is it
economically efficient for the US to move low-skilled jobs to Mexico? Explain
your answer
6 What role
do cross-cultural communication, cooperative decision-making, and collaborative
problem-solving play in multinational corporation management?