Page 118 - Business Principles and Management

C HAPTER 4 A SSESSMENT

CASE 4-2: NAFTA’s Impact on a Mexican Business
Despite intense lobbying by Mexican frozen-food companies against
NAFTA, the Mexican government approved the treaty. Hidalgo Tortilla
Company is a small firm based in Guadalajara, Mexico’s second-largest
city. It makes frozen taco and enchilada products for Mexico’s rapidly
growing middle class. The company was against the trade treaty, because
it feared that American competitors would come to Mexico and drive
smaller Mexican firms like itself out of business. American food com-
panies, such as Sara Lee and Swanson, are very large and resourceful.
They have huge modern factories with low production costs. Because the
frozen-foods market is well developed in the United States, the American
companies produce a wide range of products and use sophisticated mar-
keting techniques.
Once NAFTA became a reality, Hidalgo began to prepare for compe-
tition in Mexico from American frozen-food companies. It was clear that
Hidalgo could not go head-to-head in competition with larger and well-
off American companies. However, the company’s brand name is well
known to Mexicans, and the company produces frozen food that appeals
to the Mexican palate. There is a very large population of Mexicans in
the American states just across the Mexican border.
Hidalgo Tortilla Company’s management is exploring a number of
options, such as focusing only on the Mexican market, using NAFTA
to expand into the U.S. market, expanding into other Central and South
American countries, or selling their current business to a large U.S.-based
company.

THINK CRITICALLY
1. Does the fact that no tariffs and quotas will exist under NAFTA
necessarily mean that American companies will be successful in
Mexico? Explain.
2. Does NAFTA provide any opportunities for Hidalgo Tortilla
Company to grow? Explain.
3. If Hidalgo proves to be a tough competitor to the American com-
panies, what may the American companies do?
4. What should Hidalgo do to prepare itself for possible competition
from American products?
5. How might cultural differences work to Hidalgo’s competitive
advantage?
6. How likely would it be for an American company to buy
Hidalgo?
7. Explain how increased competition from American companies
would help or hinder the competitiveness of Mexican businesses.

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