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Should a Malaysian furniture maker build a plant in Mexico?
The prompt
A fictional furniture maker in Malaysia sells 200,000 sets a year to US retailers. Per set, factory cost is USD 100 in Malaysia against USD 112 for a new plant in Mexico. Freight is USD 9 against USD 4. Stock in transit and in safety stock is 50 days against 10, at USD 0.05 per set per day. Goods from Malaysia face the 10 percent US Section 301 tariff. Assume the normal duty is zero and that Mexican sets would qualify under the USMCA (the US, Mexico and Canada trade agreement). The Mexican plant costs USD 8 million. The board wants a payback under three years. Should it build?
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