Management Decision

Going Global South of the Border

You are the CEO of a small but growing manufacturing company in Texas. Despite the global economic downturn, you have managed to keep the company's head above water, and your board is pressuring you to take advantage of opportunities outside the United States so the company is well positioned in the global marketplace when recovery takes place. Everyone seems to be turning to China, with its low labor costs and pool of highly skilled workers. Some people call you crazy, but you are looking just a few miles south of the border at Mexico.

They call you crazy because the political uncertainty in Mexico is quite high. Corruption is rampant in Mexican bureaucracy. And drug-related violence makes the thought of sending your workers to Juarez, just south of the border, enough to turn your stomach. You've read reports of workers being accosted at banks on payday, executives being kidnapped, bodies dangling from highway overpasses, and the 2000-plus murders in Juarez over the past year and a half doesn't leave you confident that Mexico is a good place to build your business. China certainly has a growing market in manufacturing, but so does Mexico. And, despite the corruption and violence, it is growing even further, offering great opportunity in a less competitive environment.

Some schools in Mexico are partnering with industry to establish programs in aerospace engineering, microelectronics, bioengineering, radio frequency design, and renewable energies that will produce a larger pool of quality skilled labor. Purchasing power is also quite low in Mexico, as it is in China, making the cost of this skilled labor low. While the reasons not to establish business in Mexico are daunting, going global in China is not all roses, either. It costs a lot in money and tied-up inventory to ship products back to the United States.

What would be expensive and take two weeks could be done cheaply and in a matter of days from a Mexican maquiladora, or factory focused on producing products for export. You would also face the potential for loss of intellectual property and a high rate of piracy in China, and of course quality control problems in China are notorious. If your factory is just south of the border, you have the opportunity for direct control and oversight-if only you can minimize the risk of violence and convince your team that it is still worth going.

Questions

1. What strategy would you take toward Mexico: an avoidance strategy, a control strategy, or a cooperation strategy? Explain your choice using the criteria outlined in the text.

2. What steps would you take to reduce the impact of violence on your business in Mexico?