Posted: May 25th, 2022
Classical examples of some of the consequences that globalization has for some American companies. Indicated as one of Orleans’s best supplier of different parts and accessories, used in the construction of elevators, Customs Fabricators Inc. faces the cheaper competition from Mexico. Orleans has decided to reduce its production costs and has organized an auction, where suppliers from Mexico are seen as favorites, due to their low costs. On the other hand, one of Customs’s main advantages was its presence next to the Bedford plant, where some of the parts it used were produced. If a company from Mexico would be chosen, then there would be no legitimate reason for Orleans not to move the entire production facility to Mexico.
Ben’s company crates value by supplying Orleans with parts and accessories. The distinct specialization of Ben’s company ensures that the accessories and parts produced respond to the exact requirements from Orleans.
Customs Fabricators has enjoyed over time an excellent business relationship with Orleans. The company’s main competitive advantage was its location near the Bedford plant that supplied some of the parts needed in production. Additionally, the company had a group of employees that had in the past worked for Orleans and was thus familiar with the working and production process. Customs Fabrication had never had human resource related problems, had a stable social situation, with high pays for its workers.
3. It is most certain that Orleans’ priorities have changed. In the past, Orleans was simply interested in providing the best products, price being a variable that was not taken into consideration.
However, globalization and the ease of access of foreign competitors on the U.S. market, many of them at much lower and competitive prices have brought Orleans in a situation where it needs to reduce costs. The best beginning in this sense can be done by optimizing the supply chain and by trying to minimize some of the costs inherent along the way of producing parts for the elevators.
Given Mexico’s proximity and the free trade agreement it is part of, together with Canada and the United States (NAFTA), it seems that an idea to reduce cost would be to outsource part or the entire production to Mexico.
4. Ben should probably change his business model so as to be more adapted to the necessities of today’s market requirements. However, in my opinion, he has a significant problem in reducing wages for his employees (a first way of coming up with competitive cost reduction measures), because this has always been a condition for the excellent social climate in the company. It is more likely that he could proceed to administrative or other types of cost reductions. In the last instance, he can probably try to open a subsidiary in Mexico, one that could enjoy the benefits of proximity, in the case the contract is awarded there.
5. It is possible that Ben’s response could comprise a significant increase in quality levels, an increase that would allow Ben’s company to position itself so that Orleans would need to still use the company as the best source of parts and accessories. As one important competitive advantage, the quality of the product could turn the balance to its favor.
6. Adapting is the key word for Ben’s company. Adapting would mean, in my opinion and in this case, finding the suitable answers and responses to challenges coming from the market. The first and most obvious challenge is that coming from cheaper producers. This can be fought either by reducing prices as well or by increasing quality levels.
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