CASE IN POINT 2
NAFTA's Impact on a Mexican Business
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 companies, 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 marketing techniques.
Once NAFTA became a reality, Hidalgo began to prepare for competition in Mexico from American frozen-food companies. It was clear that
Hidalgo could not go head-to-head in competition with larger and welloff 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 answer in text box
1. Does the fact that no tariffs and quotas will exist under NAFTA necessarily mean that American companies will be successful in Mexico? Explain. Answer in red font
2. Does NAFTA provide any opportunities for Hidalgo Tortilla Company to grow? Explain. Answer in red font
3. If Hidalgo proves to be a tough competitor to the American companies, what may the American companies do? Answer in red font
4. What should Hidalgo do to prepare itself for possible competition from American products? Answer in red font
5. How might cultural differences work to Hidalgo’s competitive advantage? Answer in red font
6. How likely would it be for an American company to buy Hidalgo? Answer in red font
7. Explain how increased competition from American companies would help or hinder the competitiveness of Mexican businesses. Answer in red font