You are doing research on where to produce a new component for your product to b

Question

You are doing research on where to produce a new component for your product to be sold in the United States. You developed the following table capture the information provided by your company’s point of contact in each location:

Country: Daily Wage Laborers Production

Vietnam 112,500 Dong 8 50 units

China 45.5 Yuan 10 60 units

Mexico 740 Pesos 3 120 units

(explanation: 8 laborers in Vietnam working 1 week make 50 units)

Assumptions: Workers in each country work 5 days a week.

The exchange rates are as follows (note, these numbers are close to the real exchange rates):

$1 = 22,500 Dong

$1 = 6.5 Yuan

$1 = 18.5 Mexican Peso

a. Based solely on wages, which is the best location to produce the component?

Analysis of Vietnam _______

Analysis of China _______

Analysis of Mexico _______

Best Location? _______________

b. The transportation costs are as follows. How does that change your analysis?

Vietnam 27,000,000 Dong for 300 units

China: 3,900 Yuan for 1,000 units

Mexico 18.5 pesos per unit

Analysis of Vietnam _______

Analysis of China _______

Analysis of Mexico _______

Best Location? _______________

c. The United States decides to put a $1 per unit tariff, which will affect Vietnam and China, but will not affect Mexico as they are part of NAFTA. How does that affect your analysis?

Analysis of Vietnam _______

Analysis of China _______

Analysis of Mexico _______

Best Location? _______________

Explanation / Answer

Based on solely wages

Vietnam would be the best place to manufacture the component. Vietnam has the highest cost to product ratio where company has to pay $40 for 50 units.
China would be the least preferable option as china has the worst unit to value ratio. China we have to pay $70 for the 60 units.
Mexico is the most efficient but at the tariff of $1 for unit and having an efficiency of $120 for 120 units.

Best location- vietnam

Based on transportation costs

By applying transportation cost + unit charge

Vietnam would be the most expensive place to produce the product as the overall shipping charges would be $4 per unit and a total unit charge would be $4.8
China would be the best option in terms of logistics as the final price is including logistics would be $1.76 which includes $.6 shipping.
Mexico would Still offer $1 for shipping and $1 for the unit construction and overall cost of the unit would be $2.

Best location - china

Effect of $1 tariff

This condition Vietnam would be the least preferable option as it would cost $5.8 after adding $1 for the unit tariff.
China would be the second preferable option as it would reach up to the $2.76 after the import duty is applied.
Mexico would be the most preferable option as it would remain at $2 as there would be no unit tariff for Mexico as it is the part of nafta.

Best location - mexico

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.