Tag: location decisions

Guest Post: Repurposing Facilities as a Location Issue

 Howard Weiss is Professor of Operations Management Emeritus at Temple University. He is also the developer of our POM and ExcelOM software, provided free to adopters.

The location chapter (Ch. 8 in your Heizer/Render/Munson text) offers the following on why companies choose a location. “Companies make location decisions relatively infrequently, usually because demand has outgrown the current plant’s capacity or because of changes in labor productivity, exchange rates, costs, or local attitudes. Companies may also relocate their manufacturing or service facilities because of shifts in demographics and customer demand.”

However, sometimes rather than a company actively looking for a location, it chooses a location because the location has looked for an organization. This is particularly true of repurposed malls and automobile plants. Store closings in malls have been on the rise for some time now mainly due to e-commerce. But COVID-19 has accelerated the closing of stores, and vacancy levels in malls will likely never return to the vacancy levels pre-covid. Mall developers say they’re scouting for businesses other than retailers to replace shuttered stores, anything from schools to doctors’ offices and short and long-term storage facilities both for residential and commercial customers.

Repurposing malls has been underway prior to COVID-19. In a 2018 report, Livability.com gives several examples of malls that have been repurposed as a skating rink, a satellite college campus, libraries, a light rail station, offices, residences, a startup tech company, a theater and art museums. And it is not just malls that were being repurposed prior to COVID-19. One report indicated that 128 of 267 closed automobile plants have been repurposed as follows:

 

 

Classroom discussion questions:

  1. What store, mall or other facility has been repurposed near where your students reside?
  2. What industries, aside from automobile manufacturing, will have facilities that will need to be repurposed after COVID-19.

 

 

OM in the News: World Bank Halts Report Amid Data Manipulation by China, Others

The World Bank will not release its flagship report ranking business competitiveness by country, reports Newsmax.com (Aug. 27, 2020),  amid concerns of improperly altered data about four countries: China, Azerbaijan, the United Arab Emirates, and Saudi Arabia.

The report, which we illustrate in Table 8.1 on page 341 of your OM text. has become the premier international ranking of the business environment in different countries. Its annual publication draws headlines around the world about the standing of individual countries, and it has been cited as a powerful motivator for governments to jockey for higher rankings by improving their regulatory environment.

Countries can improve their rankings by reducing bureaucracy around starting businesses, easing their permitting process and expanding access to electricity, among other measures. The next version of the report, which would have been published in a little over a month, will be delayed.

For three of the countries affected, China, Azerbaijan and the U.A.E., the World Bank had reported a marked improvement in their business environments in recent years. Five years ago, China ranked 90th in the report. Last year, its ranking climbed to 31st. Azerbaijan rose from 80th to 34th over that time. In last year’s report, the U.A.E. was ranked the 16th-best business environment in the world, up from 22nd five years ago.

In 2018, the World Bank’s chief economist, Paul Romer, said data in the report was susceptible to manipulation. “Conflicts are inevitable,” he said, “when the member countries that fund World Bank programs are the ones ranked by the project, generating the potential for internal pressure to make some countries look better or worse.  And signs keep emerging of even deeper rot within the project.”

Classroom discussion questions:

  1. What variables, in addition to those noted above, would you suggest be included in the rankings?
  2. What alternative, but related rankings, might you include in a location analysis?

OM in the News: Tesla Searches for a New Location

Tesla is looking for locations in the central United States to build a new factory for the company’s electric pickup truck. Cybertruck, a wedge-shaped pickup, is expected to go into production in late 2021 and start selling for a price of just under $40,000. By publicizing Tesla’s plans to construct a factory for the truck, the firm is repeating a strategy used in 2014 to score a $1.3 billion incentive package from Nevada. The state lured the company’s massive battery factory there after Tesla held a bake-off in which Arizona, California, New Mexico and Texas were the finalists that came up short.

States with right-to-work laws that prohibit unions from requiring prospective hires to join their membership are likely to be contenders for Tesla’s facility, writes Industry Week (March 11, 2020). Government incentives will also play a role in Tesla’s decision-making on a plant location, along with logistics costs, access to big, talented workforces, and quality of life.

Tesla recently completed construction of its newest plant in China and started delivering locally assembled Model 3 sedans to consumers in January. It’s also planning a factory near Berlin.

Last month, Elon Musk hinted that Tesla could build a factory in Texas. The Texas Enterprise Fund, created by the state’s legislature, has become one of the largest payers of economic-development incentives in the nation. Texas offered $2.3 million to entice SpaceX, the rocket company Musk founded and runs, to locate a launch facility in Brownsville.

Classroom discussion questions:

  1. What are the most important location factors for Tesla’s new plant?
  2. What kind of incentives did Amazon seek when it announced its search for a second HQ last year? (Hint: see our post on the topic).

OM in the News: Tesla Attacks Germany’s Auto Establishment

It’s Tesla’s first entry to European production, having selected a site that will churn out as many as 500,000 cars a year, employ 12,000 people and pose a serious challenge to Volkswagen, Daimler, and BMW, reports Industry Week (Jan. 20, 2020). The frantic activity underway to quickly set up Tesla’s latest assembly plant is a daring attack on the German auto establishment.

The project represents a second chance for the quiet town of Gruenheide, just southeast of Berlin. Gruenheide lost out on a similar factory two decades ago, when BMW opted for Leipzig. That missed opportunity helped town officials to move quickly when Tesla expressed interest in entering Europe, with a plot set aside for industrial use and offering easy access to the Autobahn and rail lines. “The investment is a unique opportunity,” said the mayor. “It gives young people with a good education or a university degree the possibility to stay in our region.”

The plant will make batteries, powertrains and vehicles, including the Model Y crossover, the Model 3 sedan and any future cars. The factory will include a pressing plant, paint shop and seat manufacturing in a building that will be 2,440 feet long—nearly triple the length of the Titanic. There’s space for four such facilities.

Tesla is taking its fight for the future of transport into the heartland of the combustion engine, where the established players long laughed off Tesla as a feeble upstart  that couldn’t compete with their rich engineering heritage.  “No other foreign carmaker has done that in decades given Germany’s high wages, powerful unions and high taxes.” said an industry analyst. Building a factory in Europe’s largest car market is a major test of Tesla’s global ambitions, a place where buyers are loyal to local brands. Meanwhile, labor costs in Germany’s auto sector are 50% higher than in the U.S. and five times what they are in Poland, just an hour’s drive away from Gruenheide.

For Gruenheide, the planned investment has suddenly transformed the town of 8,700 people into a sought-after location.

Classroom discussion questions:

  1. Why did Tesla select  this European site?
  2.  What is your SWOT analysis of this location decision? (See Chapter 2 in your Heizer/Render/Munson text)

OM in the News: Apple to Keep Building Mac Pro in U.S. After All

The new Mac Pro computer

Apple just said it is keeping production of its new Mac Pro in Texas, reversing earlier plans to shift assembly of the computer to China, reports The Wall Street Journal (Sept. 25, 2019). The decision follows the administration’s move last week to grant tariff exemptions on 10 items Apple imports from China. The exclusions for components includes a power supply and a logic board, and the U.S. will refund tariffs already paid.

The tech giant had earlier tapped Taiwanese contractor Quanta Computer to assemble the $6,000 desktop computer outside Shanghai. The high-end computer, which was introduced in 2013, had been assembled in Austin, Texas, and was touted as Apple’s only Made in USA product. Escalating trade tensions over the summer challenged Apple’s plans to make the product in China, where labor and logistics costs are lower than in the U.S. The proposed tariffs could have cut into Apple’s profits or forced it to increase the cost of the Mac Pro.

The parts for which Apple obtained exemptions are critical to the computer’s function. For example, Apple received a tariff waiver on the Mac Pro’s graphics-processing module, which itself incorporates more than 1,600 components and allows images to be rendered on a computer screen. Apple’s decision to reverse course and instead keep the computer’s assembly in Texas is among the most pronounced examples of how tariffs have roiled corporate decision-making.

Apple also said it is on track to fulfill its commitment to invest $350 billion in the U.S. economy by 2023, last year spending more than $60 billion with more than 9,000 domestic suppliers.

Classroom discussion questions:

  1. Where do you think Apple falls in terms of international operations strategies (see Figure 2.9)?
  2.  What factors did Apple consider in making this decision?

OM in the News: Amazon’s Un-Location Decision

Protesters held signs during a protest at an Amazon store in Manhattan

When Amazon announced plans for a second headquarters in 2017, it promised 50,000 high-paying jobs and billions in investment for a community that would be coequal to its home in Seattle. The company, which outgrew the number of people it could hire in the Pacific Northwest, set off a nationwide frenzy, with more than 200 cities making bids. (We in Orlando even thought we had a decent shot for being selected. But I guess when Amazon listed cultural opportunities as a criteria, they didn’t count Disney World). In the end, Amazon decided last fall that no one city could provide the number of tech workers it needed and split the headquarters in two. The “winners”: Arlington, VA., and NYC.

But, as the whole world knows, Amazon last week canceled its plans to build the expansive campus in NYC after facing an unexpectedly fierce backlash from lawmakers, progressive activists and union leaders, who contended that a tech giant did not deserve nearly $3 billion in government incentives that the state and city had offered in their confidential bid package. The backlash in New York showed no sign of abating and risked tarnishing Amazon’s image beyond the city.

“Amazon, one of the richest companies in the world, run by the richest man in the world, had held a nationwide contest in which governments scraped together enough entitlements to satisfy it, even as those same cities struggled to fortify corroding infrastructure and stave off a housing crisis that has pushed the middle class to the brink and forced the poor into homeless shelters,” wrote The New York Times (Feb. 15, 2019). Our current system of location incentives, in which powerful corporations can pry billions in tax benefits out of cities and states to locate facilities, without any added investment in infrastructure, schools and other benefits, is one worth a class discussion.

Classroom discussion questions:

  1. How important are incentives, in the final analysis, in location decisions?
  2. What was the “final straw” for Amazon, in deciding to pull out of NYC?

OM in the News: Amazon’s HQ2 Spectacle Ends

The Amazon HQ2 saga is finally over. Fourteen months ago, Amazon announced a beauty contest, in which cities could apply to win the honor of landing the 2nd headquarters. The prize: 50,000 employees. The cost? Just several billion dollars in tax incentives. Then last week, Amazon announced it would split the prize between Arlington VA, and NYC. So the question, writes The Atlantic (Nov. 12, 2018) is: “Did the world’s smartest company really need 13 months, and applications from 238 cities, to reach the striking conclusion that it should invest in New York and D.C.?”

When covering Location Analysis (Ch. 8), you could also ask your students: Why are U.S. cities spending tens of billions of dollars to take jobs from one another in the first place? (Recall the “Border War”, in which the Kansas and Missouri sides of Kansas City have spent $1/2 billion dragging companies back and forth across state lines, within the same metro area, creating no new jobs.)

Every year, American cities and states spend about $90 billion in tax breaks and cash grants to urge companies to move among states– more than the federal government spends on housing, education, or infrastructure. These deals take resources from everything local governments would otherwise pay for, such as schools, roads, police, and prisons. In the past decade, Boeing, Nike, Intel, Royal Dutch Shell, Tesla, Nissan, Ford, and G.M. have each received subsidy packages worth more than $1 billion to either move their HQs within the U.S. or, quite often, to keep theme right where they are. New Jersey and Maryland offered $7 billion for HQ2, which would have been the biggest corporate giveaway in history.

And companies don’t always hold up their end of the deal. Consider Wisconsin, which lured Foxconn with a subsidy plan that will end up costing over $4 billion. Foxconn said it would build a large manufacturing plant that would create about 13,000 jobs. Now the company is building a much smaller factory with just 1/4 of its initial promised investment, and much of the assembly work to be done by robots.

Classroom discussion questions:

  1. Money aside, why did Amazon select the D.C. suburb and NYC as co-HQ2 winners?
  2. Make the argument for and against the giant incentives being offered to companies.

OM in the News: Bitcoin Goes to Where the Power is Cheap

Power cords connect to hundreds of computers inside Giga Watt’s Washington mining facility. Giga Watt employs 45 people here.

“Home to hydroelectric dams that harness the flow of the Columbia River, north central Washington has some of the cheapest power in the U.S.,” writes The Wall Street Journal (Feb.12, 2018). That has made the largely rural area best known for its apple orchards a magnet for bitcoin miners, who use powerful specialized computers to generate new units of cryptocurrencies—a process that requires vast amounts of electricity to run and cool thousands of machines. “If you ask the guys at UPS or FedEx what they’re delivering to Wenatchee, I think they’d tell you it’s a whole bunch of bitcoin mining machines,” says that town’s mayor.

Mining operations can squeeze into small spaces. Shoebox-size computer servers that suck up as much power as 1,000 homes can be packed into a 25-by-25-foot room. Miners have popped up in unexpected places in the area: an old laundromat, a former warehouse, apartments. There are already at least 30 known cryptocurrency-mining operations in north central Washington.

These aren’t the first businesses to come to the region for its cheap power. Aluminum smelters once flocked here. In more recent years, companies including Microsoft and Dell have built data-storage centers. Electricity in the region costs 2 to 4 cents per kwh compared with more than 10 cents nationwide. Some residents and officials hope that mining will be the first step toward transforming the area into a business hub for blockchain technology, bringing new jobs.

Others worry these miners will drain the area of the surplus power that helps keep rates low. Here is why: Comparative power usage rates (per sq. ft. per year): school-10; home-12; hotel-18; hospital-32; grocery store-40; computer data center-2,100!

Classroom discussion questions:

  1. Why are some towns not welcoming the new miners?
  2. What is the primary location factor for cryptocurrency miners?

 

OM in the News: Is Bidding for Amazon’s HQ2 Worth It?

When New Jersey just announced a $7 billion package of tax incentives to try to lure Amazon’s 2nd headquarters to Newark, local officials saw a chance to jump-start a city that has long struggled with poverty and joblessness. But from an national perspective, this may be a failed development strategy, writes The New York Times (Jan.27, 2018). Tax incentives are little more than corporate giveaways that divert money from education, infrastructure and other priorities that ultimately do more for a region’s economy.

Several locations, like Chicago and DC area’s Montgomery County, have offered Amazon their own 9- and 10-figure incentive packages. Columbus, Ohio would waive all property taxes for Amazon for 15 years, and give back a share of the income taxes paid by Amazon’s employees to the company in cash. More than 200 North American cities submitted bids for HQ2, and the enthusiasm is hardly surprising. Amazon said it plans to invest as much as $5 billion in the project and to hire up to 50,000 workers, most earning high salaries.

But accommodating Amazon’s thousands of workers will require hiring more teachers, widening roads and building more housing. The costs for those upgrades will fall on residents. “The stakes are getting higher and the deals are getting worse for the taxpayer,” says a Brookings exec. Plus, incentives rarely work. Companies will play cities and states off one another to save money, but ultimately base location decisions on other factors: A talented work force, which requires good schools and colleges, and amenities like affordable housing, parks and public transit that make a place desirable.

Local officials say that refusing to offer incentives, though, is the equivalent of unilateral disarmament. “We’re not going to be outbid on Amazon doing business here,” states the mayor of Dallas.

Classroom discussion questions:

  1. So which location criterion is more important? Incentives–or a quality city?
  2. Use factor-rating to evaluate the 20 finalists on the 1/2 dozen most important factors Amazon has named. A good team exercise.

OM in the News: How Tyson’s Chicken Plant Became a $320 Million Turkey

On Sept. 5, executives from Tyson Foods, the nation’s largest meat processor, traveled to the small Kansas town of Tonganoxie with what they figured would be welcome news for the locals. Joined by Governor Brownback and other politicians, Tyson unveiled plans to build a huge chicken complex outside of town. The $320 million project, Tyson’s first new plant in 20 years, would be home to a hatchery, feed mill, and processing plant—employing about 1,600 workers to package 1.25 million birds a week.

“To many small communities, that would have been cause for celebration,” writes Businessweek (Oct. 16, 2017). But for residents of Tonganoxie, the news—which they complain had been kept from them because of nondisclosure agreements that officials had signed during Tyson’s site search—drew a far different response. They objected to the stress on roads and waterways, the plant’s proximity to local schools, and the dozens of chicken barns (often odoriferous operations.)

White-and-red signs demanding “No Tyson in Tongie” sprouted up on lawns. A mid-September rally organized drew thousands of locals, many concerned about the lack of transparency leading up to the Tyson deal. Not long after, the county’s board of commissioners—which 5 days before Tyson’s announcement approved the intent to issue $500 million in industrial revenue bonds for facilities, without naming an operator—revoked its decision. Tyson then said it was putting its plans on hold while it investigates other plant locations.

The backlash serves as the latest example of grassroots opposition to industrialized food plants, which stoke concern among residents about everything from environmental impact to animal welfare issues and fears of a potential influx of new workers. This is a good example to use in class when covering location decisions in Chapter 8. Not every community is willing to offer huge incentives to attract new jobs. (The median wage of poultry workers is $11.77 an hour– $24,490 annually.)

Classroom discussion questions:

  1. What were the plusses and minuses of Tyson’s offer to this Kansas town?
  2. Describe the main incentive offered to Tyson.

OM in the News: Let the Bidding Begin

Amazon’s current HQ in Seattle

If I were teaching class this week, I would start by asking my students how many would like to get a job at Amazon when they graduate. This is because, as The New York Times headline (Sept. 8, 2017) says: “Let the Bidding Begin.” Wanted by Amazon for its second headquarters: A place with a million people, a diverse population, good schools and malleable lawmakers. Room to accommodate up to 50,000 high-paid workers. 

Amazon has laid out in meticulous detail what it is looking for, even acknowledging that new laws may be required to get the high level of incentives necessary to hold the company’s attention. “This is the trophy deal of the decade,” said one industry expert.

Amazon’s detailed wish list for its new project, which it is calling HQ2, also includes on-site access to mass transit, a commute of 45 minutes or less to an international airport and easy access to a major highway. It wants excellent fiber optic internet connections, strong cellular phone service, traffic congestion figures, lists of universities, statistics on the qualifications of local workers, and recreational opportunities.

Political leaders in cities around the U.S wasted no time saying how badly they want Amazon to join them. Amazon has already been a beneficiary of generous public subsidies as part of its expansion of its warehouse network. It has received public subsidies totaling at least $613 million for 40 of the 77 warehouses it built from 2005 to 2014. Additional subsidies for Amazon data centers were about $147 million.

The average incentive package from a state usually adds up to 2-3% of wages, although recently there have been a spate of megadeals, like the $3 billion state tax credits that Wisconsin offered Taiwan’s Foxconn. Such outsize offers could end up being a “winner’s curse,” where the costs outweigh the benefits. Such gifts may not even be what is crucial. In G.E.’s recent HQ move to Boston, tax incentives were far from the most significant selling point.

Classroom discussion questions:
1. Why is this the location “deal of the decade?”

2. What do you think are the most important location factors Amazon should consider?

 

 

OM in the News: The Incentives Needed to Land an Auto Factory

Toyota and Mazda’s CEOs make the announcement

Toyota and Mazda’s recent announcement that they have joined together to develop a $1.6 billion factory in the U.S. set off cheers among auto-parts manufacturers and other businesses. But officials in the states and cities that are in hot pursuit of the 1,000 acre plant are holding off on celebrating until the venture makes the critical decision of where to locate the facility and 4,000 jobs. The shortlist includes: Alabama, Florida, Kentucky, Illinois, Indiana, Iowa, Michigan, Mississippi, N. Carolina, S. Carolina and Texas.

Foreign automobile manufacturers have been making cars in the U.S. for more than 30 years, writes The Wall Street Journal (Aug.9, 2017). The southeast has become the preferred location for many because of the business-friendly labor laws of many of the region’s states. Suppliers set up facilities near some of the region’s early plants, like the BMW factory in S. Carolina. “The assembly operations are saying we want suppliers close by,” said a site location expert. “When Toyota comes into a market, they’ll already be there.”

The Toyota-Mazda venture is likely to make its decision in part based on labor force and government incentives. Over the years, state and local governments have provided foreign auto makers a wide range of tax breaks, free land, infrastructure, training programs and other inducements that can be worth hundreds of millions of dollars. Toyota and Mazda are hoping to open the new plant, which will have an estimated production capacity of 300,000 units, in 2021.

Classroom discussion questions:
1. What incentives are usually offered auto manufacturers?

2. List the many factors that auto manufacturers consider in their location decisions.

 

OM in the News: Location Decisions and Incentives

When Elyria Mayor Holly Brinda learned that Riddell Inc. was looking to leave this small Ohio city, she came up with a $14 million package of tax incentives and offered to lease land to the company for $1 a year. It wasn’t enough. Riddell, which makes the football helmets used by NFL and college players, decided to move its 320 employees just over 2 miles down the road to a neighboring town, which offered its own bundle of incentives and lower corporate and individual income-tax rates.

“These days, the competition often isn’t Mexico, China or some other country promising cheap wages and low taxes,” writes The Wall Street Journal (March 17, 2017). In many cases, towns like Elyria are vying with cities that aren’t very far away. The race to woo companies has intensified as state and local governments struggle with a slow economic recovery, sluggish new business formation and job losses resulting from automation. Many older industrial cities see tax incentives as one of the few levers they can pull.

Economic-development tax incentives more than tripled over the past 25 years, offsetting about 30% of the taxes the companies receiving incentives would have otherwise paid in 2015, compared with about 9% offset in 1990. By 2015, the total annual cost of these incentives was $45 billion. Incentives climbed after the financial crisis, but their growth slowed in 2016 as some state and local governments began re-examining the effectiveness of the programs. Critics say tax incentives do little to spur job creation or economic growth.

Here in Florida, the legislature just approved legislation to eliminate the state’s main provider of tax incentives and other development assistance. Florida has attractions such as a good climate and no income tax, said a politician, and would be better off focusing on other forms of economic development, such as education and infrastructure.

Classroom discussion questions:

  1. What are the pluses and minuses of tax incentives?
  2. Did Florida make a good decision?

OM in the News: Ford Moves Its Small Car Production to Mexico

Ford’s factory in Wayne, Mich., will focus on making trucks and S.U.V.s, while production of smaller cars will be moved to a plant in Mexico
Ford’s factory in Wayne, Mich., will focus on making trucks and S.U.V.s, while production of smaller cars will be moved to a plant in Mexico

“There is no doubt that Nafta played a role in the migration of many American manufacturing jobs to Mexico in the last 22 years,” writes The New York Times (Oct. 19, 2016). Before the trade agreement, U.S. automakers barely had a presence in Mexico. Now, Mexico’s car-making work force is about 675,000 strong. And in a move that has drawn fire from critics of the Nafta, Ford is giving up on making small cars in the U.S. and plans to move production of its Focus compact cars from its Wayne, Michigan factory to a new plant under construction in Mexico.

Ford’s retooling of its Wayne factory, though, is a reflection of the industry’s desire to keep pace with growing demand for high-profit trucks and S.U.V.s, while continuing to produce less expensive models at lower costs with the cheaper wages paid in Mexico. Detroit simply cannot make money producing small cars in the U.S., where a UAW union worker earns about $29 an hour, more than triple the wages of a Mexican employee.

Detroit’s Big-3 auto companies are loath to close any existing facilities, both to keep peace with the UAW and to protect their billions of dollars of assets in factories in the U.S. that are already up and running. What’s more, plants like the one in Wayne are staffed by experienced workers and able to deliver high-quality products. .

It is unlikely, though, that any Detroit automakers will invest in new manufacturing plants in the U.S.. Mexico is simply too attractive an option for carmakers looking to add to their overall production capacity. “Nine of the last 11 auto factories built in North America have been in Mexico,” said one expert. “The fact is Mexico offers high productivity and low wages, and that is a hard combination to beat.” Ford is hardly alone. G.M. is investing $5 billion to upgrade its plants in Mexico. Toyota, Volkswagen, Kia, Honda and BMW are all adding jobs and new products there.

Classroom discussion questions:

  1. Is Ford cutting U.S. jobs?
  2. What factors impact major location decisions such as this?

OM in the News: Can Mexico Renege on Location Incentives?

Workers at the Kia plant near Monterrey, Mexico conducted tests on the assembly line, which just opened. last month.
Workers at the Kia plant near Monterrey, Mexico conducted tests on the assembly line, which just opened.

The new governor of the northern Mexican state of Nuevo León is balking at the tax breaks, land grants and other public perks that have underwritten the country’s automotive boom of recent years, reports The Wall Street Journal (May 17, 2016). He is refusing to honor a large portion of the incentives promised by the previous state government to woo a $2.5 billion new assembly plant by South Korea’s Kia Motors. Officials say the incentive package amounts to nearly 28% of the investment by Kia and its suppliers, and they are challenging provisions worth up to $100 million, including a 20-year holiday on payroll taxes.

Kia executives say they want it to be honored. The newly opened Kia plant will eventually produce some 300,000 compact Forte cars a year, most of them destined for the U.S., and Mexico has become one of the hottest countries in the globe for car companies. The country churned out 3.4 million vehicles in 2015, making it the world’s 7th-largest producer and 4th-largest exporter. Kia is one of 5 foreign auto makers that have assembly plants coming on line over the next 5 years. Those plants would increase Mexico’s annual production to 5 million vehicles by 2020.

Offering public incentives to auto makers has been standard practice since the 1980s and were key to U.S. southern states winning automotive assembly plants from the Rust Belt, with packages giving back 25%- 35% of the total investment. With its promise of eventually generating 14,000 jobs, Kia’s move here was seen as a vote of confidence for Nuevo León, emerging from years of gangland violence that had turned it into one of Mexico’s more dangerous corners.

Classroom discussion questions:

  1. What other location factors, besides incentives, drew Kia to Mexico? (See Chapter 8).
  2. Compare the Kia location decision to that made by Mercedes, which chose Vance, Alabama, for its first U.S. plant in 1993.