Acme is a Delaware Corp. with Headquarters in New Martinsville, WV. Acme has two production facilities located in West Virginia, Logan County (Southern WV) and Hardy County (Eastern Panhandle) •Acme has a good environmental record, with an exception in 2008 of a chemical spill, 3 workers hurt, remediation costs, and reputation damage.

Acme Mexican market

• Since NAFTA (1994) sales to Mexico have increased significantly due to lower tariffs
• Acme expects the market to grow over the next decade.
• Acme is considering a plant to serve this specific market

Plant Location: Acme is considering two locations: El Paso or Juarez

• El Paso
  • Savings in Transportation cost
  • Unemployment is high in El Paso
  • The local Chamber of Commerce is eager to attract Acme
  • Same Federal regulation as WV plants
  • Violence spills over from Juarez
• Juarez
  • Cheaper labor
  • Lower Productivity
  • Unfamiliar with the Mexican environmental laws(suspects less Stringent)
  • Violence and worker safety

Publicity

• A local Newspaper ran an article about a possible Mexican Plant
  • Labor Protest
  • Environmental Protest 

Decision: ACME should locate the Plant in El Paso.

Regulation: AMCE is already operating under U.S. Federal regulation and would continue doing so, although environmental regulations may be more relaxed in Mexico, the country does have four major federal-level environmental laws (listed Below) the company would need to get familiar with and this does not mention the state and local level laws that might apply.

• General Law of Ecological Balance and Environmental Protection (LGEEPA)
• National Waters Law (Ley de Aguas Nacionales)
• Law of Sustainable Forest Development (Ley de Desarrollo Forestal Sustentable)
• Federal Law for the Prevention and Control of Environmental Pollution (Ley Federal de Prevención y Control de la Contaminación Ambiental) 

Even with slightly regulations the company will deal with a whole additional set of administrative guidelines that will have additional costs undermining the lower cost of labor. Furthermore, the protests that environmental groups have will be problematic and may damage the company's brand. This could result in additional costs with a PR campaign or lower revenue in home markets. Can't predict the duration or severity but these are points to be considered.

Taxes and labor costs

Taxes: Texas rank 13 overall, for business tax climate, and has no state income tax,  7 spots lower than WV. With the Chamber desiring for the company to locate in El-Paso the company could explore through the chamber deals with state and local authorizes on tax breaks for a few years during initial setup. The Mexican Corporate tax rate is 30 percent with no state or local taxes, with additional administrative burden of filing with the Mexican Federal Government agencies and additional reporting requirements. Mexico is an extraordinarily bureaucratic country, and this additional work will result in additional costs.

Wages: labor in El-Paso (U.S.) will be higher than in Mexico, however high unemployed will keep wages lower than in other areas within the U.S. While Mexico labor is cheaper is it also generally less productive and Mexican law requires holiday pay, Christmas Bonus Pay and severance pay. These pay entitlements, less productivity and additional administrative requirements compound with previously mentioned admin costs and negate at least some cost savings in labor. The current Mexican Administration has supported unionization and increased minimum wage at a higher rate than previous administrations and its tax policy is geared towards getting means to lower classes and not supportive of businesses, so we can anticipate the cost of labor in Mexico might increase at a higher rate than the U.S.

Security: Juarez is noted for high numbers of murders and violence within the city, and Mexico as a whole is seeing a high rate of violent crime. Although, most crime is "bad guy on other bad guys" there have been several incidents where several bystanders have been caught up in the violence. The Mexican Government does not have the best track record of preventing the violence and local officials have often been caught in corruption with the cartels. Securing the facilities and workers again would result in additional costs and be higher than the security cost of the EL-Paso location.

Legal: If the firm is located in Juarez, the Territorial principle, says, anything that happens within the nation's borders is subject to that nation's laws. As noted in the regulations and taxes sections this requires the firm to be competent in a second set of national laws. increasing administrative costs. Also, the firm now has increased legal liability with two national federal jurisdictions. With the current Mexican Administration being pro-labor and the Act of State doctrine, the firm is also exposed to an adverse decision of the Mexican federal government reducing the benefit of cheaper labor. Selecting El-Paso avoids the increased complexity and problems noted above.

Other items: The company can avoid protests from both the environmentalist and Labor by picking El-Paso, thus minimalizing the bad press/possible distribution to the plant. Environmental groups have successfully delayed the Mountain Valley pipeline for over 5 years with lawsuits. It finally took an act of Congress to get the last part through. Moreover, With the new USMCA, there will be no tariffs on the items being moved into Mexico reducing the benefit to locate in Juarez.

 

I have made case for El-Paso however a lot of companies do locate in Juarez.  Do you agree with me, or have I missed the mark?

What do you think firms do to account of the problems outlined above?

What are the advantages to locating in Juarez?

Answer rating: 100% (QA)

Your analysis provides a comprehensive view of the factors influencing the decision between El Paso and Juarez for Acme Corporations new plant Your po... View the full answer