This case is about the dilemma facing by John Martin, the CEO of Martin Textiles, a New York based textiles company. On August 2, 1992, which the day that the U.S., Canada, and Mexico agreed in principle to the North American Free Trade Agreement (NAFTA). Martin Textiles is a family business over four generation, which was started by John's great-grandfather in 1910. Today, the company employs 1,500 people in three New York facilities. John's dilemma, which is particularly troublesome to him because he feels a sense of loyalty to his company's longtime employees, is this. NAFTA will remove all tariffs on the trade of textiles between the U.S., Canada, and Mexico within 10 years. Textiles manufacturing is a low-skilled, labor-intensive business. As a result, the simple economics of the industry suggests that the under the auspices of NAFTA, the majority of textile manufacturing in the U.S. will move to Mexico, where wage rates are considerably lower than in the U.S. When he first realized the full implications of the NAFTA agreement, John thought to himself, "My God! Now I'm going to have to decide about moving my plants to Mexico." John dilemma is how to cope with this realization. If he moves his plants to Mexico, he'll have to let go many of his loyal employees. If he doesn't move, he risks going out of business.
Case Discussion Question:
1. What are the economic costs and benefits to Martin’s Textiles of shifting production to Mexico? Answer: The benefit for Martin’s Textiles moving to Mexico is whereby wages rate pay to the labour can be much lower than before and then might lead lower cost of production. It can give chance for Martin’s Textiles to compete with the other business competitor which ran in the same industries.
2. What are the social costs and benefits to Martin’s Textiles of shifting production to Mexico? Anwer: The benefit is Martin’s Textiles may satisfy the needs and maintain the loyalthy by his customers...