Question

Why Auto Makers Are Building New Factories in Mexico, Not the U.S.

Mexico has accelerated past the U.S. South in the global competition for auto investment. Mexico’s low wages and improved logistics were part of the draw. Also, many companies, such as Audi, are attracted by Mexico’s unrivaled trade relationships. Mexico has more than 40 different free-trade agreements. The pacts give exporters from Mexico duty-free access to markets that contain 60% of the world’s economic output.

The United States is negotiating to expand its own array of free-trade agreements, but progress has been slow amid congressional opposition to giving the White House special trade authority known as “fast track.” Foes worry that the trade agreements could drive jobs to low-wage countries.

Mexico’s trade pacts give it allure in the global car market, threatening the industrial renewal of the U.S. South. The wave of investment has turned Mexico into the world’s seventh-largest producer of cars and the fourth-largest exporter. Mexico currently produces 3.2 million cars annually. That would still be far below U.S. annual production of 11.4 million. But it has been more than six years since an auto maker picked the U.S. South for a “greenfield” plant, meaning one where the company didn’t already have facilities. Such projects have all gone to Mexico lately.

Six Southern states commissioned a study of how to compete with Mexico. The report by the Center for Automotive Research suggested tightening the density of parts suppliers and training workforces for higher-value production jobs.

Questions

1. Explain the reasons behind Audi’s decision to build its Q5 SUV in Mexico rather than in the United States.

2. Describe how Audi’s strategy to train supervisory staff from the Mexican plant in Germany will have a positive impact on the operations at the new facility.

3. Audi took the unusual step of preparing a source list for every part of the Q5 model that local suppliers must use. What is the advantage of this management decision? Is there a disadvantage?

just want 3 sentence for each

Answer 1

(1): The main reasons behind Audi’s decision to build its Q5 SUV in Mexico rather than in the United States are several. Firstly low wages and improved logistics in Mexico provided Audi with cost as well as operational benefits. Secondly Mexico’s trade relationships and duty-free access to markets gave Audi the leverage to export the Q5 SUV’s manufactured in Mexico in a competitive manner to other countries across the globe.

(2): Audi’s strategy to train supervisory staff from the Mexican plant in Germany will have a positive impact on the operations at the new facility. The supervisory staff will be able to better learn and then properly apply the company’s systems and processes. The staff will also be able to have a proper focus on quality and efficiency.

(3): The advantage is that it will enable Audi to develop a proper and systematic process               to evaluate its different parts as most of the parts are priced in dollars and hence doing so will save the operations in Mexico from exchange rate fluctuations. Secondly it will lead to development of an efficient supply chain cycle, especially with regards to the procurement aspect. In terms of disadvantages the source list will reduce flexibility while making procurement decisions.