Chapter 8 opens with a list of key success factors companies use in making location decisions, and Table 8.1 ranks the global competitiveness of 133 countries. China comes out #29 and Mexico #60. Back-to-back headlines in The Wall Street Journal (Dec.16 and 17, 2010) deal with two very different location strategies. The 1st involves US firms opening outlets in China.
We may be losing manufacturing jobs to China by the hundreds of thousands, and outsourcing engineering jobs to India and call center jobs to the Philippines by the 10,000s. But US companies are making very successful inroads in China in one field—fast food! McDonald’s is opening 200 new stores in China next year, adding to the 1,100 locations it already has. (KFC, by the way, leads with 3,200 outlets, including many in lesser-developed cities where there is less competition). California Pizza Kitchen plans to expand, while Starbucks is tripling its stores to 1,500 in the next 5 years. Half of the new McDonald’s will have drive-thrus and 550 will include delivery service. Currently, the firm just does not have the supply chain to allow it to expand beyond the 150 cities it is already in.
On a less favorable location note, the Journal headline declares,”Companies Shun Violent Mexico”. Electrolux just announced it had chosen Memphis over locations in Mexico for a $190 million 
appliance factory sporting 1,200 jobs. The decision involved factors such as proximity to suppliers,but Mexico’s deteriorating security and spiraling drug-related violence played more than a minor role. “We won’t put a factory in Mexico until some of this violence gets addressed”, says the CEO of Terex, a heavy equipment maker. Whirlpool’s concern about safety was also a factor in building an oven plant in Tennessee, rather than Mexico. Toyota’s approach was to build a plant deeper inside the country, in a relatively safer area.
Discussion questions:
1. What is the long-term danger to Mexico in terms of foreign investment?
2. Why are US fast-food chains trying to penetrate Chinese markets?
3. Discuss the difficulty McDonald’s faces in a rapid expansion abroad.
Thanks for identifying these articles. I plan on using them in my classes at Iowa State in the spring, since they should allow for a good discussion about location analysis and supply chain risk management – an often overlooked topic. A few additional questions I intend to use include:
1. the merit of Toyota’s decision to move the plant further within Mexico since the transit lines for the output will still probably have to move through the border areas affected by violence,
2. what would be the impact of a broad disruption of materials transported from Mexico on the US economy (the cascading impact of that disruption throughout the US economy), and
3. are there cultural factors that have influenced KFC’s ability to quickly spread into China?