Globalization

Background: Acme Motor Company and the Automotive Industry in Mexico

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