INTRODUCTION
In October 2005, top management of Southern Recreational Vehicle Company of St. Louis, Missouri, announced to relocate its manufacturing and assembly operations by constructing a new plant in Ridgecrest, Mississippi.

The firm, a major producer of pickup campers and camper trailers, had experienced 5 consecutive years of declining profits due to production costs. The costs of labor and raw materials had increased alarmingly, utility costs had gone up sharply , and taxes and transportation expenses had steadily climbed upward. In spite of increased sales, the company suffered its first net loss since operations were begun in 1982.

When management initially considered relocation, it closely scrutinized several geographic areas. The importance to the relocation decision were the availability of adequate transportation facilities, state and municipal tax structures, an adequate labor supply, positive community attitudes, reasonable site costs, and financial inducements. The management of Southern Recreational Vehicle Company was impressed by the efforts of the Mississippi Power and Light Company to attract “clean, labor-intensive” industry.

Two weeks prior to the announcement, management of Southern Recreational Vehicle Company finalized its location plans. An existing building in Ridgecrest’s park was selected; initial recruiting was begun through the state employment office; and to lease or sell the St. Louis property were initiated . Among the inducements offered Southern Recreational Vehicle Company to locate in Ridgecrest were: • Exemption from county and municipal taxes for 5 years • Free water and sewage services • Construction of a second loading dock - free of cost – at the industrial site • An agreement to issue $500,000 in industrial bonds for future expansion • Public-financed training of workers in a local industrial trade school.

In addition, other factors weighed in the decision to locate in the small Mississippi town. Labor costs would be less than those incurred in St. Louis; utility costs and taxes would be moderate. All in all, management of Southern Recreational Vehicle Company felt that its decision was sound. On October 15, the following announcement was attached to employee’s paycheck about plans to cease all manufacturing operations in St. Louis on December 31. Because of increased operating costs and the unreasonable demands forced upon the company by the union, it has become impossible to operate profitably.

QUESTION 3
Evaluate the reasons cited by O’Brian for relocation. Are they justifiable?
O’Brian’s rational for relocation was just and fair. Viewing the fact that the firm, a major producer of pickup campers and camper trailers had experienced five consecutive years of declining profits as a result of spiralling production costs, one year of loss. The costs of labor and raw materials had increased, utility costs had gone up sharply , and taxes and transportation expenses had steadily increased. Also, labor union is unreasonable.

The company have been struggling in five consecutive years due to the production costs, the statement made by the O’Brian was acceptable to the previous employees and the management as well.

In addition, Southern RV could ask for Union concessions in Missouri. When does the current union contract end? And Southern RV could automate current plant with union assistance. Southern RV could ask Missouri for tax breaks and reduced utilities (Match Mississippi’s offer). Besides that, the company can consider costs of raw material, will they be cheaper in Mississippi? The decision on labor should be made by looking at productivity not labor costs. However, there will be problems when lag time for employee training. It will take a few months to train the new employees in Mississippi.