Swiss Automotive Supplier: Producing in Mexico or USA?
In anticipation of shifts in the market and customer demand, a Swiss automotive supplier with a rich tradition in providing innovative solutions to drivetrains and powertrains considered establishing a new production plant in North America to improve its market access and position. The strategic consideration was whether to expand an existing facility in the Midwestern USA or to establish an entirely new production plant (greenfield) in Mexico or another U.S. region. The underlying question was: “Where is the optimal production location considering the future market situation?”
The reasoning for asking that question was sound. The existing facility in the Midwest did not seem to be in the best geographical and logistical location since the U.S. automotive cluster gradually moved further South in the last decades and the company saw increasing demand from customers in Mexico. Moreover, the production was rather labor-intensive so that the wage gap between the USA and Mexico was considered significant. On the other hand, expanding the existing location in the USA would offer synergies that could be capitalized.
Our team at Navigator Consulting was asked to perform a feasibility study to design business cases for the different scenarios:
- Expansion of the existing location;
- Establishing a new production location somewhere else in the USA;
- Establishing a new production location in Mexico.
Based on the agreed upon project requirements and parameters, our team determined the target geography (i.e. regions, states and communities) for a possible new location in both the USA and Mexico. Our benchmarking system was focussed on providing a detailed overview of the macro and micro factors in all considered target geographies. More specifically, for each location, we helped our client understand the business environment (e.g. economic viability, industry cluster, workforce availability) on the one hand and the investment needs (e.g. land and property acquisition cost) and operating costs (e.g. wages, logistics/transportation and utilities) on the other hand. At the same time, we cooperated with management at the existing facility in the Midwest to design the business scenario for a potential expansion of the facility.
At the end of the day, we assisted company management in completing its due diligence as it reported to the owners and board of the company. By having performed the feasibility study, our clients were able to justify their reasoning and provide a data-driven rationale for their strategic decision-making.
- Reduction of management’s time commitment to performing due diligence
- Cost-sensitive design of different strategic scenarios
- Enable management to demonstrate rigorous due diligence and evidence-based decision-making to owners and board of the company
- Provision of reliable and current information on macro and micro environment of different target geographies
- Industry: Automotive
- Geography: Mexico OR USA
- Service: Feasibility Study