Should Ronco Toys expand to Mexico? One of the important reasons for expanding internationally is location advantages through which placing facilities outside one's home country can provide cost advantages. Advantages don't necessarily always have to be about cost reduction; the international country might provide access to important raw materials, logistical support, and energy or other natural resources.

For purposes of this exercise you are to consider that your team has been hired to act as a consulting company for the purposes of analyzing a potential cross-border expansion of a U.S. firm. Your client, Ronco Toys Inc., has made the decision to expand internationally to Mexico under the Maquiladora Program. Under this program American companies (and other countries as well) can establish factories in Mexico close to the Texas border and thereby gain significant cost reductions in labor. This program began in the 1960s but expanded rapidly after NAFTA was approved in 1994. By some estimates today there are over one million Mexicans working in over 3,000 factories producing goods that will most likely be exported to the United States.

Your client makes toys that are rather labor intensive and has found that demand is outstripping supply from their U.S.-based factory. In addition, cost pressures from competitors are squeezing margins uncomfortably. Therefore the CEO has decided to open up a new factory in a Mexican Maquiladora rather than expand domestically. Your challenge in this exercise is to critically examine this decision.

Provide both a list of pros and cons to help the CEO wade through the decision. Pay particular attention to the following:

Do you think this is the best solution possible given the limited data provided? What other options should be considered? What other items should go into this decision besides labor cost savings?