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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 USD 100 in Malaysia against USD 112 for a new plant in Mexico; freight USD 9 against USD 4; stock in transit and in safety stock 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 Mexican plant costs USD 8 million. The board wants a payback under three years. Should it build?
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