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Openness and Industrial Response in a Wal‐Mart World: A Case Study of Mexican Soaps, Detergents and Surfactant Producers
Author(s) -
Javorcik Beata,
Keller Wolfgang,
Tybout James
Publication year - 2008
Publication title -
world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/j.1467-9701.2008.01142.x
Subject(s) - openness to experience , order (exchange) , profit (economics) , market share , latin americans , economics , speculation , business , international trade , commerce , international economics , marketing , finance , law , psychology , social psychology , political science , microeconomics
This paper uses a case study approach to explore the effects of NAFTA and GATT membership on innovation and trade in the Mexican soaps, detergents and surfactants (SDS) industry. Several basic findings emerge. First, the most fundamental effect of NAFTA and the GATT on the SDS industry was to help induce Wal‐Mart to enter Mexico. Once there, Walmex fundamentally changed the retail sector, forcing SDS firms to cut their profit margins and/or innovate. Those unable to respond to this new environment tended to lose market share and, in some cases, disappear altogether. Second, partly in response to Walmex, many Mexican producers logged impressive efficiency gains during the previous decade. These gains came both from labour‐shedding and from innovation, which in turn was fuelled by innovative input suppliers and by multinationals bringing new products and processes from their headquarters to Mexico. Finally, although Mexican detergent exports captured an increasing share of the US detergent market over the past decade, Mexican sales in the US were inhibited by a combination of excessive shipping delays at the border and artificially high input prices (due to Mexican protection of domestic caustic soda suppliers). They were also held back by the major re‐tooling costs that Mexican producers would have had to incur in order to establish brand recognition among non‐Latin consumers, and in order to comply with zero phosphate laws in many regions of the US.