Martin's Textiles

1780 Words Nov 20th, 2011 8 Pages
Case #1- Martin’s Textiles The survival of Martin’s Textiles is very much in doubt with the enactment of the North American Free Trade Agreement (NAFTA), which would not only eliminate tariffs but also allow an increase in the quota for Canada and Mexico to ship textiles to the United States. Compounding the issue, Martin’s Textiles has been registering small losses the past several years and is in danger of losing major customers. Therefore, John Martin, CEO of Martin’s Textiles, has to decide whether to move production of his company to Mexico in order to lower labor costs or keep production in the United States, where the company has good labor relations with its employees. In regards to the dilemma that Martin’s Textiles face, …show more content…
First we will look at the option to keep production in the United States, where there are several strengths in this decision. Martin’s Textiles would be able to maintain its strong labor relationship with employees that is has built over the years and consequently not have to deal with labor disputes. Also, the company would not have to invest additional resources in building or purchasing a production plant in Mexico as well as having to move equipment down south. In the short run, they would be able to enjoy the benefits of tariffs in trade. But there are also weaknesses to this decision as well. For one, the company would have to deal with cheap imports coming from Asia and now Mexico since those countries have the advantage of cheaper labor. Also, the company would not have the benefits of a trade barrier with the enactment of NAFTA. Whereas before, the company could justify having higher prices since cheaper imports were subjected to quotas and tariffs; now the higher costs that Martin’s Textiles employed would no longer be protected. Thus, Martin’s Textiles could lose a lot of its clientele since many could opt for cheaper alternatives with the same quality. Additionally, the tariff barrier will be rescinded within 10 years creating further problems for Martin’s Textiles if it is still operating. An opportunity that could arise if Martin’s Textiles decided to remain in the United States would be to brand itself as an
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