1. Consider the dominant factors for manufacturing as described in the text. Briefly describe how each one may have influenced Continental’s decision to locate its new plant in Sumter, South Carolina, instead of Mexico or Costa Rica.
2. South Carolina is also home to manufacturing plants for major tire competitors Michelin and Bridgestone. How might these two plants factor into the company’s location decision?
3. Explain why locating a plant solely on the basis of low labor costs may be the wrong approach.

As the world’s largest automotive company and fourth-largest tire manufacturer, Continental’s global business operations cover a diverse set of enterprises. Perhaps best known for its passenger and light truck tires, this sector of the Hanover, Germany-based company’s total tire activities only comprise about 30 percent of total revenues, which topped 33 billion euro ($44.5 billion USD) in 2013. The rest comes from chassis and safety equipment, powertrain, interior systems such as infotainment and navigation, and its ContiTech division that produces marine hoses, conveyer belts, vehicle springs, and other automotive hoses and trim components. With over 300 manufacturing sites in 49 countries, the company recently undertook an ambitious $500 million project to build a new passenger and light truck (PLT) tire plant near its customers in the United States and Canada.
While the decision at hand focused on locating a single facility, it is a decision that was impacted by Continental’s existing U.S.-based manufacturing plants in Mount Vernon, Illinois, and other plants in Mexico, Europe, and Latin America. Plants in the network operate independently of one another, yet may share raw materials sources and customers such as Walmart or Ford Motor Company. The existing network of warehouses and distribution centers located within the United States to handle the distribution needs had to be considered. Of particular concern was the cost of labor in the production of tires, which led senior management to direct Scott Barnette, Central Controller of the Americas–Finance, to analyze two potential locations with perceived low labor costs: Mexico and Costa Rica.
Scott was well aware that three of Continental’s four core values—trust, passion to win, and freedom to act—empowered him to explore beyond the locations initially favored by the company. The fourth core value, “for one another,” that encompasses teamwork also played a role. So, when he suggested adding a potential location in the United States to the list that might meet or exceed established internal rate of return hurdles, he was instructed to go ahead, but to continue with a primary focus on Mexico and Costa Rica.
In 2011, Scott began gathering all the necessary data to incorporate into his linear programming optimization software program. This program was designed to analyze all costs, called “landed costs” at Continental, which covered the entire stream from raw materials through to the customer, not just production costs at the plant. Approaches used in the past focused more on production costs than landed costs. Raw materials include natural rubber from Asia, synthetic rubber from Germany and Japan, textiles from Georgia and Asia, steel from Asia and domestic sources, chemicals from numerous global sources, and carbon black—the powdered petroleum processing byproduct that makes tires black and helps enhance durability. Continental is not a vertically integrated enterprise so all materials must be procured from these global sources.