An empirical investigation of strategic responses of United States firms to the North American Free Trade Agreement (NAFTA)

The present study was designed to investigate how American businesses have strategically responded to NAFTA and why businesses have reacted differently. NAFTA calls for a drastic change in the regulation of international trade and investment. It serves as one of the major driving forces toward a highly integrated economy and consequently, more efficient cross border operations of business in North America. Therefore, a significant change in business operations in response to a macro environmental change should be observed. Previous studies in the literature focus on the diverse effects of a free trade agreement on macro economic variables such as G.D.P, employment, etc. They generally concentrate on how a free trade agreement affects economies of the U.S., Canada, Mexico, and deal with pros and cons, opportunities and costs of NAFTA. Studies of firms' strategic behavior with regard to NAFTA are largely neglected in the literature. For this study, data were gathered through a mail survey and explored through a variety of multivariate statistical methods to examine strategies and determining factors. The research results suggest a few meaningful dimensions where firms' strategic responses to a free trade agreement take place. Research findings demonstrate some evidence that more internationalized firms/businesses, relatively larger in size, tend to focus on the restructuring/reorganization dimension of their business operations by reorganizing their manufacturing activities and/or by creating a new structure: regional unit. In addition, it is found that relatively small sized firms/businesses tend to depend on the integration/coordination dimension of their business operations. They rely heavily on strategic alliances. A few implications for both academicians and practicing managers are also suggested. Using a more comprehensive view of the strategic response process to a free trade agreement, this study furthers our knowledge of firms' behavior and the relationship between strategic response and macro environmental change due to a free trade agreement. Some of our findings open a fertile ground for future research. Although this is an exploratory study, its findings suggest some tentative implications for practicing managers. For example, the perception factor was found as the most powerful discriminator for group differences. They can use the findings from the current research as useful reference material.