Harvard Case - Hayco: Moving Manufacturing to the Caribbean, Mexico, or Central America
"Hayco: Moving Manufacturing to the Caribbean, Mexico, or Central America" Harvard business case study is written by Paul W. Beamish, Colette Southam, Alex Beamish. It deals with the challenges in the field of General Management. The case study is 11 page(s) long and it was first published on : Jun 13, 2023
At Fern Fort University, we recommend Hayco pursue a phased approach to manufacturing relocation, starting with Mexico as the primary destination. This strategy leverages Mexico's existing infrastructure, skilled workforce, and proximity to the US market while mitigating risks associated with a full-scale relocation.
2. Background
Hayco, a US-based manufacturer of consumer goods, faces increasing pressure from rising labor costs and competition. The company is considering relocating its manufacturing operations to either the Caribbean, Mexico, or Central America to reduce costs and improve competitiveness. The case study highlights the complexities of this decision, including:
- International Business: Navigating different legal and regulatory environments, cultural differences, and currency fluctuations.
- Corporate Strategy: Balancing cost reduction with maintaining product quality and brand reputation.
- Emerging Markets: Assessing the risks and opportunities associated with operating in developing economies.
The main protagonists are Hayco's CEO, who must make the critical decision on relocation, and the company's management team, responsible for evaluating potential locations and developing implementation strategies.
3. Analysis of the Case Study
Strategic Analysis:
- SWOT Analysis:
- Strengths: Established brand, strong customer base, experienced workforce.
- Weaknesses: High labor costs, limited flexibility in US operations.
- Opportunities: Lower labor costs in emerging markets, access to new markets.
- Threats: Political instability in some regions, potential supply chain disruptions.
- Porter's Five Forces:
- Threat of new entrants: Moderate, depending on the chosen location's regulatory environment.
- Bargaining power of buyers: Moderate, as Hayco has a strong brand and loyal customer base.
- Bargaining power of suppliers: Moderate, as Hayco relies on a diverse supplier network.
- Threat of substitutes: High, as the consumer goods market is highly competitive.
- Rivalry among existing competitors: High, as many companies are seeking cost advantages.
Financial Analysis:
- Cost-benefit analysis: Evaluating the potential cost savings from lower labor costs, taxes, and transportation expenses against the costs of relocation, infrastructure development, and training.
- Return on Investment (ROI): Projecting the financial returns from the relocation, considering factors like sales growth, market share, and operational efficiency.
Operational Analysis:
- Supply Chain Management: Assessing the impact of relocation on the existing supply chain, including sourcing, logistics, and distribution.
- Manufacturing Processes: Evaluating the availability of skilled labor, infrastructure, and technology in potential locations.
Marketing Analysis:
- Brand Management: Maintaining brand consistency and customer trust despite the relocation.
- Market Access: Exploring opportunities to enter new markets and expand the customer base.
4. Recommendations
1. Phased Approach: Begin with a pilot project in Mexico, establishing a smaller manufacturing facility and gradually increasing production volume. This allows Hayco to test the waters, gain operational experience, and mitigate risks before committing to a full-scale relocation.
2. Mexico as Primary Location: Mexico offers several advantages:* Proximity to US market: Facilitates logistics and reduces transportation costs.* Skilled workforce: Mexico has a strong manufacturing base and a growing pool of skilled labor.* Government support: Mexico offers incentives for foreign investment and has a stable political environment.* Infrastructure: Mexico has a well-developed infrastructure, including roads, ports, and airports.
3. Focus on Sustainability: Integrate sustainability practices into the new facility, including energy efficiency, waste reduction, and responsible sourcing. This aligns with growing consumer demand for environmentally responsible products and enhances Hayco's brand image.
4. Strategic Partnerships: Establish partnerships with local suppliers and businesses to leverage their expertise and access local networks. This fosters collaboration, reduces costs, and strengthens Hayco's presence in the Mexican market.
5. Talent Management: Implement a robust talent management strategy, including training programs, career development opportunities, and employee incentives to attract and retain skilled workers. This ensures a high-performing workforce and contributes to long-term success.
5. Basis of Recommendations
1. Core Competencies and Mission: The phased approach aligns with Hayco's core competency in manufacturing and its mission of providing high-quality products at competitive prices.
2. External Customers and Internal Clients: Mexico's proximity to the US market minimizes disruption for customers and allows for efficient communication and collaboration with internal teams.
3. Competitors: Relocating to Mexico allows Hayco to compete effectively with other companies seeking cost advantages in the region.
4. Attractiveness: Mexico offers strong financial attractiveness due to lower labor costs, tax incentives, and potential for market expansion.
5. Assumptions:* The Mexican government will continue to support foreign investment and provide a stable business environment.* Hayco can successfully adapt its manufacturing processes and train a skilled workforce in Mexico.* The company can maintain its brand reputation and customer loyalty despite the relocation.
6. Conclusion
Relocating manufacturing operations to Mexico through a phased approach offers Hayco a strategic path to cost reduction, market expansion, and enhanced competitiveness. By leveraging Mexico's strengths and implementing a comprehensive strategy, Hayco can successfully navigate the challenges of international business and achieve its long-term growth objectives.
7. Discussion
Alternatives:
- Caribbean: Offers lower labor costs but may have limited infrastructure and skilled labor.
- Central America: Offers potential cost advantages but faces political instability and infrastructure challenges.
- Full-scale relocation: Could lead to significant disruption and higher risks.
Risks:
- Political instability in Mexico.
- Currency fluctuations impacting profitability.
- Difficulty in finding and retaining skilled labor.
- Supply chain disruptions due to infrastructure limitations.
Key Assumptions:
- The Mexican government will maintain a stable business environment.
- Hayco can successfully adapt its manufacturing processes to Mexico.
- The company can attract and retain skilled workers.
8. Next Steps
Timeline:
- Year 1: Establish a pilot project in Mexico, assess feasibility, and recruit local workforce.
- Year 2: Expand production volume, refine operations, and build strategic partnerships.
- Year 3: Evaluate the success of the pilot project and consider further expansion or relocation of additional manufacturing facilities.
Key Milestones:
- Secure necessary permits and licenses in Mexico.
- Establish a local management team.
- Develop training programs for Mexican workforce.
- Negotiate contracts with local suppliers.
- Implement sustainability practices in the new facility.
By taking a strategic and phased approach, Hayco can successfully navigate the complexities of international business and achieve its long-term growth objectives.
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Case Description
In 2018, Christopher Hay, president and chief executive officer of Hayco, the top contract manufacturer to the brush industry globally, had been looking for a new location for some of its operations due to over a decade of rising labour costs in Hong Kong, China, where the company was based. The company accelerated its search in response to the US government's announcement of tariffs against Chinese products in April 2018. Hayco was seeking a location closer to the US and European markets where labour costs were still low for an initial workforce of over one thousand employees and where there was no threat of tariffs. Hay's focus was on Mexico, the Caribbean, and Central America. Hay considered questions such as, "What is the best market to which Hayco could move its operations? Should it establish a new subsidiary on its own or locate within a special economic zone?"
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