GB720 Unit 5 Nonmarket Strategy Analysis Example

Being Heard Before the Review: A Unit 5 Nonmarket Strategy Analysis for a Supplier Facing the USMCA Joint Review

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Purdue University Global

GB720: Business Policy in a Global Economy

Unit 5 Nonmarket Strategy Analysis

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[Date]

Harwell Structures, its data and its plans are composite and illustrative; the agreement, its review clause, the actors' public positions and the frameworks cited are real.

The Issue, Narrowed

The issue is whether the joint review keeps the agreement's automotive rules of origin as they are, loosens them or tightens them. Two rules matter most to Harwell: the requirement that 75 percent of a vehicle's value, and of core parts such as battery enclosures, originate in North America, and the labor value content requirement that 40 to 45 percent of a vehicle's value come from work paid at least 16 dollars an hour. Harwell's plants in Michigan, Alabama and Coahuila produce enclosures whose value counts toward both, and changes in either threshold would change what its customers ask of it.

Baron (1995) argued that firms operate in a nonmarket environment of governments, interest groups and the public as well as in markets, and that nonmarket issues can be analyzed through four elements: issues, interests, institutions and information. Each is taken in turn.

Interests and Their Sources

Automakers generally favor stability or some loosening, since the rules raise costs for vehicles with parts from outside North America. Their trade associations have said publicly that they want the agreement extended without disruptive changes.

Parts suppliers are divided. Many favor keeping or tightening the content rules because they protect North American suppliers against imports, particularly of battery components from Asia. Their main trade association has supported strong rules of origin.

Steel and aluminum producers favor tighter requirements that the metal in vehicles be produced in North America.

The United Auto Workers supports the labor value content rule and has argued for raising the wage threshold, which has not been adjusted for inflation since 2020.

The Mexican government opposes tightening that would disadvantage Mexican plants, and the Canadian government has emphasized extending the agreement on predictable terms.

Hillman et al. (2004) note that a firm's political activity is shaped by how dependent it is on government decisions, and few decisions matter more to Harwell than these rules. Its own interest is mixed. Tighter content rules would protect it against imported enclosures, but a higher wage threshold could reduce the share of its Coahuila plant's work that counts.

Institutions That Set the Stakes

Article 34.7 of the agreement provides that on the sixth anniversary of entry into force, in July 2026, the three governments meet to review its operation, and each confirms in writing whether it wishes to extend the agreement's term for another sixteen years. If any party does not confirm, the agreement does not end at once; instead annual joint reviews follow, and the agreement expires in 2036 unless all three confirm extension in the meantime. This structure gives each government bargaining power to seek changes, and it makes the period before the review the moment when interested parties can most usefully be heard. In the United States, the Trade Representative's office collects public comments and holds hearings ahead of such reviews.

Information as Harwell's Asset

The fourth element, information, is where Harwell has something others lack. It knows, plant by plant, how much of its enclosures' value comes from labor paid above 16 dollars an hour, how its costs would change under different thresholds, and how its customers' sourcing would respond. Government negotiators have aggregate data but rarely this kind of detail from individual suppliers.

What Harwell Should Avoid Asking For

The analysis also identifies positions Harwell should not take. It should not ask for exemptions that would apply only to its own products, since a request that benefits one firm is easy for negotiators to dismiss and invites the criticism that the firm wants special treatment. It should not argue against the labor value content rule as a whole, which would put it at odds with the union representing workers at its customers' plants and with a rule that has bipartisan support. And it should not overstate the costs of tightening, since negotiators can compare its figures with those of other suppliers. The strongest position is narrow and evidenced: keep the 75 percent threshold, and if the wage floor is raised, phase the increase in so that suppliers can adjust.

Three Strategic Choices

Hillman and Hitt (1999) described corporate political strategy as a series of choices. Each is made here for Harwell.

Transactional or relational. A transactional approach responds to each issue as it arises; a relational approach builds lasting relationships with policymakers. Harwell's exposure to trade rules will continue well beyond this review, so a relational approach fits, but its government affairs function is one person, so the relationships must be built mainly through its trade association.

Individual or collective. Acting alone gives a firm control over its message but carries more cost and visibility. Acting through a trade association spreads the cost and adds weight but dilutes the message. Harwell should act mainly through its parts suppliers' association, which shares its interest in strong content rules, and individually only where its position differs, on the wage threshold.

Information, financial incentive or constituency building. Hillman and Hitt identify three kinds of political strategy: providing information to policymakers, offering financial incentives such as campaign contributions, and building constituencies of employees, suppliers or communities who will contact officials. Harwell's comparative advantage is information. A financial incentive strategy would be expensive relative to its size and less effective on a trade issue decided by negotiators. A modest constituency strategy, informing its 1,400 American employees about the review and how it affects their jobs, could support the information strategy.

Harwell cannot outspend automakers on this issue, but it can tell negotiators things no automaker knows about how the rules work in a supplier's plant.

The Recommended Strategy

Harwell should file detailed written comments with the Trade Representative's office, supported by plant-level data on labor value content and the cost effects of different thresholds. It should offer testimony at a public hearing if invited. It should provide the same data to its trade association for use in the association's comments, while stating its own position on the wage threshold separately. And it should brief its employees and its Michigan and Alabama congressional delegations on the review's stakes.

Limits the Strategy Observes

Any comments must be accurate, since misleading information would damage the relationships the strategy depends on. Harwell must register and report under federal lobbying disclosure law if its contacts with officials cross the statute's thresholds. Discussions within the trade association must avoid any exchange of pricing or market information that could raise antitrust concerns. And the company should disclose its position publicly, so that its employees and customers understand what it is asking for and why.

References

Baron, D. P. (1995). Integrated strategy: Market and nonmarket components. California Management Review, 37(2), 47-65. https://doi.org/10.2307/41165788

Hillman, A. J., & Hitt, M. A. (1999). Corporate political strategy formulation: A model of approach, participation, and strategy decisions. Academy of Management Review, 24(4), 825-842. https://doi.org/10.5465/amr.1999.2553256

Hillman, A. J., Keim, G. D., & Schuler, D. (2004). Corporate political activity: A review and research agenda. Journal of Management, 30(6), 837-857. https://doi.org/10.1016/j.jm.2004.06.003