Question

After analyzing relative production, distribution, and tariff costs, AllStar decides to build a plant in Peru where costs are significantly lower than in the home U.S. plant (e.g., 20% lower to produce a small economy tube of toothpaste). Previously 200 million units for Latin America had been produced at the manufacturing facility in the U.S. (home plant). However, after the Peru plant is completed, AllStar begins supplying all of Latin America from the local plant. As such, the 200 million units no longer need to be produced at the U.S. plant. As a result of moving Latin America-bound production overseas, AllStar has too much excess capacity in the U.S., and decides to close a manufacturing facility in U.S. While you now employee hundreds of manufacturing workers in Peru, you have laid off roughly the same amount in U.S. • What are AllStar’s responsibilities in the U.S. when shifting production overseas? • How should AllStar manage its community relations activities in Peru? • What might be some “unintended consequences” of moving production overseas?

Answer 1

• What are AllStar’s responsibilities in the U.S. when shifting production overseas?

AllStar' responsibilities in the U.S. when shifting production overseas include:

• Not laying-off a lot of people from work, instead try to give work to those rendered useless elsewhere, probably in Peru (if possible)
• It should properly take care of the waste that is generated from shifting from one place to another
• AllStar should put the old facility to some meaningful use so that the resources can be used judiciously

• How should AllStar manage its community relations activities in Peru?

• It should engage in Corporate social responsibilities
• It should hire people from the local community like it intends to do
• AllStar shouldn't put a lot of undue pressure on the resources used by the Peruvian community

• What might be some “unintended consequences” of moving production overseas?

• The employees in the new country could be exploited by giving them lower wages
• The companies in some of the cases enjoy fewer restrictions on the exploitation of nature. This puts a lot of pressure on the environment
• A lot of resources could be rendered useless in the home manufacturing facility