Impact of NAFTA on Corporate Headquarter Location

Move From Canada

The author of this report has been asked to consider a question about whether a pharmaceutical company should move from its current location outside Toronto to the United States in light of a few factors. These factors include their land outside of Toronto being very valuable, the fact that the taxes and costs of doing business being higher in Canada, the lowered trade barriers that came from the North American Free Trade Agreement (NAFTA) and a few other reasons. While it may seem like an easy decision to make, the company should be diligent about whether they make the move or not because there are both financial and non-financial considerations that should be taken seriously.

Analysis

As noted in the parameters of the assignment, there are several reasons why a move from Canada to the United States, with the destination state being Colorado, would be a good decision for the company in question. For one, the land that the company owns is worth a cool seven million and that does not count the buildings, structures and infrastructure that exists on the land. Second of all, the passage and implementation of the North American Free Trade Agreement has made cross-border trade and commerce much cheaper and easier to pull off than it was before the 1990's. Fourth, the taxes and labor costs in Canada are much higher than they would be in the United States and Colorado. While the financial considerations seem to be favorable, there are a few things that should be pondered and assessed before making a move.

First, there has been more than one company that has executed or publicly pondered a crossing of the Canadian border. In many instances, the crossing is actually into Canada rather than out of it. Burger King was considering a relocation of its corporate headquarters due to, among other things, the fact that income made around the world is taxable by the United States and not just the income that is generated within the United States. For example, if a company in the United States makes $10 million entirely from operations in Canada or some other foreign country other than the United States, the company will still pay taxes on that income. However, Burger King caught a lot of heat for even considering that and they were labeled cheats and "un-American" for considering such a move. There was also talk about the business paying its "fair share" of taxes, common parlance for pandering politicians and anti-capitalists in general (Ferdman, 2014).

Even so, this is something that the company should consider as they do have a duty (and a right) to explore options that will bring their costs down. Indeed, prescription drugs are an item that garners a lot of attention when it comes to cost and if the costs of the drugs can be brought down in terms of manufacturing cost and so forth, it could be a boon to consumers without hurting margins. It would also make the firm more competitive with firms that are already in the United States and/or have otherwise leveraged a way to lower costs in the same or similar manners. The twelve-month plan that the author of this report would offer would be to spend a few months, perhaps up to half of the twelve, doing a full review and survey of the implications, costs and likely outcomes that will result if the move is made and whether the totality of all of that is worth it in the short- and long-term horizon of the company. There should be a consideration of both financial and non-financial factors such as the costs of relocating, what will be necessary to replace the workforce shed in Toronto, what sites are available in the state of Colorado, what tax incentives Colorado or localities in the same might offer to lure the company to any particular site and so forth.