Case Study

Alfredo Panceron S., 301112728

from Chapter 8 - Location Strategies

Atlantic Assembly Services

Starting from humble beginnings in 1984, Joe Hobbs successfully built a mid-sized
assembly plant in Mississauga, Ontario. His company (Atlantic Assembly Services) gained a
reputation among those manufacturers that outsourced to him as a reliable and flexible
assembler of goods. But early in 2012, the economy was changing, and so too were the
expectations placed upon his firm. Quicker turnaround, faster delivery, and lower costs
were all in demand. The competition was fierce, and Atlantic found itself with diminishing
market share and revenues, along with increasing costs. To save the company, Joe and his
management team were forced to make some difficult decisions.

It was abundantly clear to Joe that he could operate from a somewhat distant location
because his customers were spread all over southern Ontario. Mississauga was becoming
too expensive for his business. General facility and overhead costs were high, as were
wages in the area. Thus the hunt began for a new location, and contact was made with the
Economic Development offices in certain targeted cities throughout southern Ontario in
order to ascertain the types of incentives that might be available.

Ultimately, Atlantic Assembly Services decided upon Midland, Ontario. Midland offered
property tax breaks for five years, reductions in utility costs, financial support for training
costs when hiring local residents, and other considerations and minor relief on moving
expenses. In addition to this, real estate costs were substantially lower in Midland versus
Mississauga, and so too was the wage rate for comparable work. Overall, the reduction in
capital and operating costs plus the municipal incentives contributed to making the
decision to move to Midland justifiable.

On July 20, 2015, Joe Hobbs advised his staff of the decision. He provided each of them
with the following letter:

To: Employees of Atlantic Assembly Services

From: Joe Hobbs, President

Thank you for your dedication and service over the years. I sincerely appreciate your hard
work and loyalty. It is with regret that I announce Atlantic Assembly Services will
discontinue operations at the Mississauga location after November 1, 2015. Reduced
revenues coupled with increased costs and unreasonable demands on the part of the
union have forced us to make this decision. I extend to you best wishes for your future
endeavours.

Discussion Questions
1. Comment on the incentives offered by the municipality of Midland. Is this type of
practice ethical?

The location decisions have huge effects on both fixed and variable costs. The location has
one major impact on the overall risk and profit of a company.
For instance, depending on the product and type of production or service, transportation
costs could reach as much as 25% selling price.

That is, one-fourth of a firm’s total revenue is on average only to cover freight expenses of
the raw materials coming or in finished goods going out. Other costs that may be
influenced by location include taxes, wages, raw material costs, and rents.
When all costs are considered, the location may alter total operating expenses as much as
50%.

That why the incentives offered by Midland Municipality in our opinion it seems to us an
ethical and fair business because while they are the taxpayers who would trust these
incentives in the long term, the company’s will generate jobs, stability and economic and
social development, as well as significant future income in the usually these contracts, are
for periods less than the company's stay in the area, for instance:

Amazon.com Inc. will open two new Ohio fulfillment centers. The projects, one in Akron
and the other in Rossford (near Toledo), will create more than 2,500 full-time jobs.

“Ohio has been a great place to do business, serve customers and create jobs; as a result,
we are thrilled to develop two state-of-the-art fulfillment centers in Akron and Rossford,”
Alicia Boler Davis, Amazon’s vice president of global customer fulfillment, said in a
statement.

Amazon said it has more than 8,500 employees in Ohio.

Or the newest conflict where Amazon cancelled its plans to build an expansive corporate
campus in New York City after facing an unexpectedly fierce backlash from lawmakers,
progressive activists and union leaders, who contended that a tech giant did not deserve
nearly $3 billion in government incentives.
The decision was an abrupt turnabout by Amazon after a much-publicized search for a
second headquarters, which had ended with its announcement in November that it would
open two new sites — one in Queens, with more than 25,000 jobs, and another in
Virginia. [CITATION JDa19 \l 3082 ]

The economics of transportation are so significant that companies have coalesced around
a transportation advantage. For centuries, rivers and ports, and more recently rail hubs
and then interstate highways, were a major ingredient in the location decision.
Today airports are often the deciding factor, providing fast, low-cost transportation of
goods and people.

Economically according to the information available it is a well-supported decision, mainly

on the economic basis, since the genesis and the objective of any company are to
generate gains, although social responsibility and with workers exist, the s decisions in this
area should consider compensation, retirement plans, additional pay periods, or any other
that support workers in their reintegration, but they cannot impede if this involves
reducing cost and the survival of the company.

2. Do you feel there may be challenges in relocating Atlantic’s senior management team
to a smaller town such as Midland as opposed to remaining in Mississauga (a much
larger city)?

We think if it might be a challenge to relocate the company's senior management, but it

should be considered that this is the trusted staff and that it is part of the board that
made this determination, so they will have the alternatives and responsibilities that their
position entails or the compensations that will allow them to continue with their
professional life.

For otherwise it is not always necessary to move the headquarters, at the same time as
the plant and both don't need to be in the same location for which senior management
could continue in Mississauga while the plant operates in Midland.

3. Assess the notification made by Joe Hobbs to his employees. Are there aspects of this
letter that are inappropriate? How would you rewrite this notice?

Perhaps you might think that it is a somewhat short communication for this type of
situation, although in the face of a decision made it does not subtract much more than
informing and in that sense, the message is clear and objective. For our part, I would have
avoided the phrase "unreasonable demands on the part of Union because even though it
is always better to avoid the conflict as far as possible than to generate it and this
comment could be an "unnecessary provocation" overall in the case of this
communication going to send directly to the employees.

We would have worked better the wording, not only by thanking but empathizing with the
staff, giving him peace of mind for the near future and mentioning what the benefits are if
they exist to which they can be accommodated or if there is some relocation program
etc... with a slightly kinder and more human tone given that behind every job that is a
person and has a family and responsibilities behind him or her. So a more human tone
would be appreciated.

For another reason communication seems to be for your team of managers more direct,
so it is designed to formalize something that they already knew and that is expected to be
adapted to the leadership style of each one to be able to share it with their teams, later.

Pensando en esto no le haría mayores cambios.

4. Does a company in Atlantic’s position have a legal, moral, or ethical responsibility to

the staff?

Of course, every company has responsibilities to its staff, both moral, ethical and legal.

Moral, try to respect people's dignity and put themselves in their place by empathizing
and entering support and support during this and other challenges.

Ethics, in form but singular or plural in construction: the discipline dealing with what is
good and bad and with moral duty and obligation.

Legal: Because contracts and mutual employment relationships must respect each other
and based on this desirable habit we could avoid the risk of any further problem.

List of References

Referencias

Goodman, J. (2019, February 14). nytimes. Retrieved from /www.nytimes.com:

https://www.nytimes.com/2019/02/14/nyregion/amazon-hq2-queens.html