Tag: Electrolux

OM in the News: Want Caterpillar’s New Plant in Your State?–Then Start Bidding

“Forget Kindle Fires and iPads”, writes The Wall Street Journal (Nov.26-27, 2011).”The holiday gift most coveted by local officials across the US is a new Caterpillar Inc. construction-equipment factory”. The planned $150 million factory (location announcement in the next few weeks) comes with 1,000 jobs– and election time bragging rights. So far, 2 dozen states, plus Canada and Mexico, have found enough cash for incentives to set off this major bidding war. Because Caterpillar is such a well-known brand with a long track record, it will be “asking for an awful lot from state and local governments”.

This is a great article to use in class when you discuss location decisions in Chapter 8.  First, we find that the firm is moving production of small excavators and bulldozers from Japan to North America –“to be nearer to customers”. Second, Caterpillar “says it is looking for good ports and other transportation links, as well as an established base of suppliers”. Third, the incentives. Caterpillar expects free land, road improvements, help with other infrastructure, tax relief, worker training programs, and cash. The firm is also adept at playing states against one another, and has released letters from governors of four states urging the company to move there. “If Illinois doesn’t want your business, Texas does”, writes Governor Perry.

Are these outrageous expectations? Electrolux AB, the Swedish appliance maker, won about $180 million in incentives from Tennessee when it located its new $190 million factory in Memphis last year. The plant created 1,200 jobs.

Discussion questions:

1. How would your state or local government justify a bidding war for a new plant like this one? Who pays the incentives?

2. Make a list of a dozen factors you think Caterpillar considers in its final selection process.

OM in the News: Locating in China and Avoiding Mexico

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.