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Map Source: www.visitputinbay.org
In the summer of 2000, my wife and I decided to take a day trip to Put-in-Bay on South Bass Island in Lake Erie. We were excited at the prospect of visiting this resort, which played a key role in America’s history during the War of 1812, and today serves as a popular summer resort offering a variety of holiday attractions. Among these are tours of the island’s wineries, and high on our list of places to visit was one of two wineries on the island. After driving from our home in Bowling Green, Ohio, about 25 miles south of Toledo to Sandusky, Ohio, about midway between Toledo and Cleveland, we took the Jet Express ferry to Put-in-Bay. Stepping off the ferry, after the 45-minute trip, we found ourselves in Downtown Put-in-Bay. There was so much to see and do and we had less than a day to do it all, so we rented a golf cart to move around the village and see as many places as we could.
The idyllic ambience of the island in 2000 was in sharp contrast to the days when the Battle of Put-in-Bay, also known as the Battle of Lake Erie, raged between American and British naval forces (in September 1813). At that time, the American fleet, led by Oliver Hazard Perry, fought with the British naval squadron just north of South Bass Island and captured several British ships and over 300 soldiers, thus ensuring victory for America.
Our beautiful summer’s day on the island started at Perry's Victory and International Peace Memorial. We visited the Lake Erie Islands Historical Society Museum, the South Bass Island Lighthouse, and stopped at a pizza place for lunch. In the afternoon, we planned to visit a winery.
Although we rarely indulge in wine, my wife and I love wineries and have visited some in Northern Virginia, where we now live, and in Napa Valley and Sonoma Valley. The winery we visited at Put-in-Bay offered tours of the tasting room, vineyards, grounds, and other places of interest in the winery. We paid $5 each and signed up for a tour. We each received a glass of wine and joined 10-12 others waiting for the tour guide.
Our guide soon appeared – with a glass of wine in hand. I thought he looked a bit tipsy and wondered whether he received a glass of wine for every tour he led!
After sampling the delights of the tasting room, we headed for the vineyard, wine laboratory, wine-processing plant, wine cellar, and the shipping warehouse. During the tour, our guide offered interesting information about the wine-making process and related tidbits to keep us engaged. As we passed through the warehouse, one of our group, a thirty-something, suddenly became visibly excited. She had been eyeing cartons of bottles stacked on one side of the warehouse. Each carton was labeled Made in Mexico. Unable to contain herself any longer, she blurted out, “Why do you buy bottles from Mexico? Why not from the U.S.?”
(By way of some background: Ohio had been part of the Rust Belt, a region extending from the Midwest to New York, especially states near the Great Lakes. Until the 1970s manufacturing had been the dominant industry, but started to decline in the late 1970s because of manufacturing companies relocating their plants to Mexico, and later to China and other low-cost countries. Practically, every family in the Rust Belt region had suffered a job loss or knew of some family that had suffered a job loss).
As a professor of strategy and international business at Bowling Green State University, I saw this as a godsent opportunity for me. Raising my voice, I said, “And, you know what? The largest wine bottle maker in North America, Asia, and Europe, Owens-Illinois, is located right here in Toledo. Why don’t you buy bottles from them?” The tour guide, already flustered by the young lady’s question, could only mutter, “I only work here; I don’t make those decisions.”
The tour continued with a sense of unease, though I couldn’t help thinking that perhaps the guide should have been wearing a sombrero!
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How would you respond to the young lady’s question? Please post your responses here.
I will post Part 2 of this article here with a summary of the responses (without names) I receive.
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Winery Visit Turns Sour (Part 2)
My “winery visit” blog didn’t produce much feedback—responses to the young lady’s question, “Why do you buy bottles from Mexico? Why not from the U.S.?” Some 500 people did click on the article at some places or the other where it was posted (Medium, LinkedIn, Facebook, and my personal website) and sent to people on my mailing list, but I have no way to know how many of them actually read it.
It’s indeed a difficult question, which became apparent when I discussed the issue in a group of which I am a member. The discussion produced multiple viewpoints, as expected, though cost being a prominent reason for buying wine bottles from Mexico. Someone talked about maquiladora factories in Mexico’s border region with the U.S. as a possible place where bottles could be manufactured and exported to the U.S. (More about maquiladoras later). The discussion strayed from time to time to topics such as politics and migration.
Some of the written responses I did receive presented interesting viewpoints. Here’s a quick summary of the response in no particular order, some presented almost verbatim.
I think it all comes down to where it hits our pocketbooks. Raised as I was, I look for bargains. If a shirt is made in the USA but I see a similar one from China that is cheaper, I will buy the one made in China… I consider myself a giving person who realizes there are poor nations where employees aren’t paid much. I consider myself helping those poor employees out when I buy the products they make rather than the more expensive products made in United States.
Since businesses are always watching their bottom line; my first thought is that it was probably cheaper to import the bottles from Mexico than to buy them from Owens Illinois.
Speaking firsthand, I have worked at two wineries, joyfully for wine but not salary. The owners of private wineries have small profit margins, given the cost of staff, products for shipping, supplies used for wine making and bottling process, labor in the fields, fertilizers, chemicals, stakes, netting, etc. Too many costs that can be trimmed, the better. Wine bottles are much cheaper in Mexico because of the cost of raw materials, labor, and fewer US companies competing for the bottle business.
In these days of global sourcing, it is not surprising that the tour guide was shocked at the comment; it shows that such matters are rarely seen by the average visitor (and maybe the tour guide as well).
Who does not know what the USMCA agreement is all about? I would think bottles from Mexico, vineyard and processing in the US, and consumption in US and export markets would be the ideal situation.
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I have used this mini case study several times since 2000 in my International Business courses. Here are some answers I received over the years (including background and context added by me).
Cost. The cost of a company’s inputs is always a factor in purchase decisions, along with factors such as quality, lead time, and the cost of freight and shipping. Another reason companies are so focused on cost control and cost reduction is the existence of intense competition for most goods and services. Small wineries compete with other wineries, large and small, that also import wine bottles from low-cost nations such as Mexico. If they don’t do that, they will be priced out of the market, and their owners/investors and employees will lose out in the process. It’s management’s fiduciary duty, under law, to act in good faith serving the owners’ (shareholders’) best interests, typically financial interests.
NAFTA. The North American Free Trade Agreement created a free trade zone between the U.S., Mexico, and Canada in 1994, which remained in force until 2020. It was designed to promote trade by eliminating most tariffs on exports and imports between the three countries. So, most U.S. goods and services could be exported to Canada and Mexico without tariffs and quotas, and vice versa. Wine bottles made in Mexico could therefore be exported to the U.S. without tariffs, which made them much cheaper than wine bottles imported from other countries. Bottles made in the U.S. were much costlier than imported bottles due to the higher cost of labor and practically all manufacturing inputs.
The Trump Administration discontinued NAFTA in 2020, and replaced it with the United States Mexico Canada Agreement (USMCA), essentially an updated version of NAFTA, with major changes relating to labor and environmental standards, intellectual property protection, and certain provision relating to digital trade.
Maquiladoras. Another factor helping Mexico’s manufactured exports to the U.S. is the maquiladora program launched by the Mexican government in 1964 to boost the manufacturing sector by allowing foreign companies to set up factories in certain regions, typically just below the U.S.-Mexico border. Such factories, known as maquiladoras, can import the needed raw materials and export finished goods—all without paying any customs duties or tariffs. Foreign companies also benefit from cheap labor.
Mexico has been the United States’ third largest trading partner (after China and Canada) and the second largest export market (after Canada) for a long time.
Trade Theories. Theories of international trade, which we have known since Adam Smith’s seminal book published in 1776, The Wealth of Nations, explain why it is in a country’s interest to engage in trade with other countries. A country should specialize in the production and export of goods it can produce more efficiently than other countries, and import goods produced more efficiently by other countries. Trade theories answer questions like “why does the United States export commercial jet aircraft and import textiles and clothing.” Therefore, it’s in a country’s interest to specialize in the production of goods it produces most efficiently and import goods from other countries that it produces (comparatively) less efficiently, even if it could produce them more efficiently itself. As a result, a country can increase its consumption of goods and services that go beyond what it could produce on its own.
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Towards the later part of my stay in Bowling Green, Ohio (1997-2002), I knew the Executive Vice President of Toledo-based Owens-Illinois. I posed the same question to him. He laughed and said that they don’t supply bottles to small wineries. His own family owned a small winery in Michigan and they didn’t supply bottles even to them.
See also my related article, “Old is New Again:”