CASE 4-2: NAFTAâ€™s Impact on a Mexican Business Despite intense lobbying by Mexican frozen-food companies against NAFTA, the Mexican government approved the treaty. Hidalgo Tortilla Company is a small firm based in Guadalajara, Mexicoâ€™s second-largest city. It makes frozen taco and enchilada products for Mexicoâ€™s rapidly growing middle class. The company was against the trade treaty, because it feared that American competitors would come to Mexico and drive smaller Mexican firms like itself out of business. American food companies, such as Sara Lee and Swanson, are very large and resourceful. They have huge modern factories with low production costs. Because the frozen-foods market is well developed in the United States, the American companies produce a wide range of products and use sophisticated marketing techniques. Once NAFTA became a reality, Hidalgo began to prepare for competition in Mexico from American frozen-food companies. It was clear that Hidalgo could not go head-to-head in competition with larger and welloff American companies. However, the companyâ€™s brand name is well known to Mexicans, and the company produces frozen food that appeals to the Mexican palate. There is a very large population of Mexicans in the American states just across the Mexican border. Hidalgo Tortilla Companyâ€™s management is exploring a number of options, such as focusing only on the Mexican market, using NAFTA to expand into the U.S. market, expanding into other Central and South American countries, or selling their current business to a large U.S.-based company.
THINK CRITICALLY 1. Does the fact that no tariffs and quotas will exist under NAFTA necessarily mean that American companies will be successful in Mexico? Explain. 2. Does NAFTA provide any opportunities for Hidalgo Tortilla Company to grow? Explain. 3. If Hidalgo proves to be a tough competitor to the American companies, what may the American companies do? 4. What should Hidalgo do to prepare itself for possible competition from American products? 5. How might cultural differences work to Hidalgoâ€™s competitive advantage? 6. How likely would it be for an American company to buy Hidalgo? 7. Explain how increased competition from American companies would help or hinder the competitiveness of Mexican businesses.