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Case title: Are We Ready for an Automotive Plant?

Topics are: Site Selection, Global Strategy, Decision Making, Yi-Chia Wu, Joo Y. Jung

Summary: The city of McAllen, Texas and its partners

Are We Ready for an Automotive Plant? The City of McAllen, Texas

Factors to consider on automotive plant site selection

1. What are the most vital factors when an automotive company chooses a site for its manufacturing operation? List and explain all factors you would consider important based on case Exhibits 1 through 8, and provide raw scores for the four potential sites given in the case.

The most vital factors for selecting a site for automotive company include labor cost, union activity, financial incentive, workforce availability, supplier availability, and living costs.

Labor cost – The global market environment is difficult so companies strive to find sites where labor cost is low as the companies try to lowers costs in the competitive automotive industry. Ability to reduce the cost of labor is a major competitive advantage that automakers seek in the global market.

Union activity – While union membership benefits employees, they influence issues such as wages, layoffs, lifetime health care and pensions. High union activities make it difficult to reduce lifetime costs and costs associated with work rights.

Financial incentive – Financial incentive includes tax abatement, credit and exemption, financing, contribution, job screening, recruitment and training incentives which helped cut the operational costs. Supplying required infrastructure like railways and highways, furnishing companies with assistance in marketing, utility and service fee waivers helped reduce the cost of production.

Work availability – Access to skilled labor and commitment of society to acquiring basic manufacturing skills is an important factor in selecting a site for automotive company. For instance, local education institutions that prepare individuals for work in manufacturing plants influences selection of a site.

Supplier availability – Availability and proximity to qualified suppliers affects market efficiency such as reducing the transportation cost.

Living Costs – The cost of living affects the decision to choose a site because of living quality and buying power. This include elements like housing, food and groceries, transport cost, utilities and health care costs. These factors are used to assess the cost of living and doing business in a given location.

McAllen, Texas – 45%

Detroit, Michigan – 15%

Norfolk, Virginia – 20%

Louisville, Kentucky – 20%

The raw scores are based on the assessment of the different costs at each of the site. McAllen, Texas had lowest labor cost, many suppliers, and huge stimulant package hence the highest raw score. McAllen, Texas has a large available workforce with a low manufacturing laborer’s entry wage of $7.93 per hour. There are over 200 existing automotive suppliers with a two-hour drive, railroads on site, and two airports within a mile’s reach, an international bridge connecting McAllen and Reynosa.  McAllen received a $9 million stimulus package for an automotive assembly plant. In Norfolk, Virginia there is a strong labor pool with about 10,000 qualified workers.  there is a $375 million incentive for a 350,000 square feet automotive assembly plant. The state and city added incentives of about $12 million. There was sufficient infrastructure including a highway system, railway, port and access to air transportation.

2. Calculate the weight for each of the factors based on your team’s opinion. Justify your answer.

Labor cost  
Union activity  
Financial incentive  
Work availability  
Supplier availability  
Living Costs  

3. Calculate the total scores for each site by using the relative-aggregate score method and rank the four cities.

Weaknesses and Strengths of the City of McAllen, Texas and Detroit

4. What are the strengths and weakness for the city of McAllen? What are the strengths and weaknesses for the city of Detroit?

The strengths of McAllen include availability of several specialized schools and colleges to train the workforce and a network of 47 partners at all levels of education committed to generate a qualified workforce. The weaknesses of McAllen include a high rate of unskilled, uneducated and poor service workforce.

The strengths of Detroit include abundant suppliers and workers, a large financial incentive and reduction of personal income taxes. The weakness is that most of the workers are highly educated making them costly to hire for working in the manufacturing plants.

5. Are there other factors that decision makers should consider?

The other factors that decision maker should consider include site characteristics, business climate, and disaster risk. Disaster risks such as hurricanes, earthquakes and other natural or man-made risks should be considered when selecting a site for automotive company (Williams, 2013). Business climate entails support from local citizens, political and business community, and acceptance of foreign firms. Site characteristics such as elevation and risk of flooding, site access, and environmental status influences the selection of a site (Williams, 2013).

6. Suppose you are the team managing a Saudi automotive company. Select two different cities in the Kingdom and conduct a qualitative and quantitative analysis to choose the best location for your manufacturing process. Discuss the advantages and disadvantages of each city. The qualitative and the quantitative analysis should be exhaustive, convincing, represents SA of 2019 and numerically reliable. (use real statistics/numbers for the two selected cities, % of qualified labor, average wages, cost of land, financial governmental incentives, etc.)

The two cities are Riyadh and Tabuk. The approximate cost of living in Riyadh for a family without rent per month is $2700 without rent. Compared to New York, Riyadh is 47.53 percent more expensive and a single person’s living cost is $758. Riyadh has 4 airports giving it access to international markets (“Riyadh – The Future of Infrastructure”, 2021). The workforce participation is 56.4 percent hence readily available source of labor. There are thousands of miles of pipeline and easy access to electricity and fuel for manufacturing activities (“Incentives & Support”, 2019). The disadvantages include high cost of living that is 57 percent higher than New York make it less attractive. The average wage for a manufacturing or factory worker is $8.53 per hour. The cost of land is $1,067 per square meter.

In Tabuk, the average wage is $36.64 per hour. The percentage of qualified labor is 48, who have skill and semi-skilled workforce as well as highly educated and experience employees who can work in a manufacturing plant (“Saudi Arabia Labour Force Participation Rate, 2016 – 2021”, 2021). The cost of land is about $987 per square meter. Financial and government incentives include 100 percent foreign ownership of companies and properties as well as land. Other incentives include half the annual training expenditure and half annual salaries paid (“Incentives & Support”, 2019).