Internationalization of a firm is often defined as its cross border business activities, which include trading resources and final products or services, capital transactions, and widening human resources. By adopting internationalization, a firm can expand its market size, minimize operation cost, and enhance competitiveness. Relocating production plant to Mexico from Texas, Huxley sets the first step into internationalization.
The movement of the manufacturing site can save a significant amount of production costs like transport tariffs, labor payments and taxations. Huxley Maquiladora should utilize the benefits offered by the new location and NAFTA, and hence focus on research & development in order to improve innovation aspect. Since we enter into technology-bombard world, hi-tech is the next step to internationalize. Only by upgrading effective know-how is the solution of long-term growth and market power maintenance.
There are three ways to internationalize in Mexico: subcontracting, shelter operation and wholly owned subsidiary (WOS); however in term of Huxley’s domination power, it should mainly consider shelter operation and WOS for bigger profits and larger sustainable plans with the option of locating either in Ciudad Acuna or Saltillo. Both shelter and WOS provides the company complete control over the quality and production management, but the costs and the set-up procedures are completely different. In this case, I would suggest applying shelter operation in Saltillo.
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First, shelter offers a faster, simpler, and cheaper start up than WOS; it only takes about 45-120 days to turn from authorization to actual production rather than six months to a year as WOS. Also, with shelter, the company does not have to worry about choosing appropriate plant site, recruiting and training new employees, cultural practice differences, complicated taxations, getting official legalized permits and licenses, and developing a close and healthy relationships with all government levels.
The only cost involved in shelter operation is paying the shelter service provider in term of working hours with the rate of roughly $3. 5/hr. By paying this money, Huxley can enjoy administration, HR management, and trading services without a panic. And often times the payment rate is negotiable with a long-term contract, so in the long run it may cost less than what it seems like. Furthermore, if the business is doing ell, then it is easier to become a physically locally present company than starting from zero. Ignoring the complications and hazards, the company can fully employ its higher skill-level manpower to R&D and thus come up with more up-to-date concepts and products, which is beneficial to both the firm and consumers. As far as the location choice, Saltillo has a better doing business environment than Ciudad Acuna overall.
According to the information provided, Saltillo has a higher educated population with a lot more females, which is more favorable to Huxley as it highly demands skillful and fast learning female workers for lamination and filing processes. Moreover, the transportation is more developed and efficient in Saltillo, like it is closer to the international airport with more and higher capacity operated airlines, along with well urban connected highways and railroads, and more importantly it offers 100+ tons/day cargo service, which Ciudad Acuna does not.
With this feature, trading and other transactions can undergo smoothly, frequently, and effortlessly. To add on, there are more industrial parks that give the company a larger degree to compare various service providers and pick the best fit one. Even though the labor and water costs are more expensive in Saltillo and the average round trip from Saltillo to the US border costs $850 more than that from Ciudad Acuna, Saltillo is still more attractive to a manufacturing business.
It is because it contains more conditioning beneficial infrastructural features, which I believe can help achieving the goal of profit maximization, and with that being said, the benefits will overshadow the higher cost rates after all. To conclude, the decision of Huxley on moving the production line across the border to Mexico can enhance its profit earning and Mexico’s economy and bring opportunities to local people, as well as the relationship between the two countries. A successful internationalization can lead to positive ripple effect worldwide.
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