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. ...view middle of the document...
50 per hour) and non-unionized textile plant in southeastern US(USD8 to USD10 per hour). The production too will be able to avoid cost disadvantage that they have to face in US due to tougher and stricter labour law, regulations and standards imposed by US as advanced country. Furthermore the production will be able to take advantage of lower labour cost allowing them to better compete with Asian and European rival. Benefits are any gained or advantage that a company would get in performing an activity, or a following decision or course of action. North American Free Trade Agreement (NAFTA) agreement that came into force in January 1, 1994 which one of its contents stated that abolition by 2004 tariff on 99% goods traded between Mexico, Canada and US. Therefore, the production can enjoy free tariff within next 10 to 15 years and ability to maximize its production profit. Martin’s major customer will be able to enjoy and benefits from the lower prices of products made in Mexico since the production has taken advantage of the lower labour cost efficiently.
2. What are the social costs and benefits to Martin’s Textiles of shifting production to Mexico?
Social costs include both the private costs and any other external costs to society arising from the production or consumption of a good or service. Private costs for a producer of a good, service, or activity include the costs the firm pays to purchase capital equipment, hire labor, and buy materials or other inputs. Martin Textile will have to face the situation whether the Mexican workers could be as loyal and productive just like its present employees in New York. In Mexico the production might be facing too low productivity, poor workmanship, high turnover and high absenteeism of Mexican workers as faced by other US textiles companies in Mexico. The question that should be asked is will the production able to create good labor relationship atmosphere in their company. The benefits to Martin are they have loyal and productive workers. All production employees were union members, and the company has a long history of good labour relations. Moreover, the company had never had a labour dispute since long time ago. John also knew many of the employees by name, and knowing a great deal about the family circumstances of many of the longtime employees. In conclusion, the success of the company is because of the existence of loyal and productive employees that has been built up over four generations.
3. Are the economic and social costs and benefits of moving production to Mexico independent of each other?
No. The economic and social costs and benefits of moving production to Mexico are...