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 U.S. assemblers and parts producers. However, due to Mexico's Automotive Decree, U.S. auto manufacturers in Mexico were obligated to export significantly more than they imported. So, most of the production was exported to the U.S. and Canada. In addition to this imbalance of trade, U.S. 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, U.S. 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, U.S. 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 U.S. 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 U.S 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 U.S. 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?