Competitors may put interiors at serious cost disadvantage

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Reference no: EM132191125

Summary of the Robotics Alliance Study

Low labor rates by competitors may put Interiors at serious “cost disadvantage.” Labor costs are presently 20% of present sales. Whereas it is not expected that competitors will attempt to lower prices significantly, the higher profit margins might free up funds that may be used to gain further competitive advantage. If the competition follows the same strategies as other German and Japanese firms, aggressive advertising and marketing a well as heightened product innovation can be expected. Firms might attempt to slowly gain a price advantage. Over the long term, prices for these companies will probably rise at a rate lower than the inflation rate and certainly lower than the rates of companies such as Interiors. As a rough point of comparison, the average labor rate for competitors in the new factories is approximately U.S. $3.40/hr. This compares to average rates at Interiors in Elmira of U.S. $11.56/hr. The creation of NAFTA and the European Union’s free trade agreement with Mexico present opportunities in terms of lower production costs.

Alternative 1 Relocation of production facilities to the area of Magdalena de Kino, a highly favorable Mexican production zone approximately 80 miles south of Tucson, Arizona.

Alternative 2 Remain “as is” in terms of plant location and attempt to continue differentiating the company’s products with respect to quality

1. What alternative did you select? Why?

2. What supporting detail did you pull form the case to help you reach you conclusion?

Reference no: EM132191125

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