We gratefully acknowledge funding from the Office of the World Bank's Chief Economist for Latin America and the World Bank's Research Support Budget. We also wish to thank Mexican and multinational companies, the Mexican National Oils, Fats, Soaps and Detergents Industry Association (CANAJAD) and the Mexican National Chamber of Manufacturing (CANACINTRA) for making this study possible by being generous with their time. Thanks are also due to Isidro Soloaga for his invaluable help with conducting firm interviews in Mexico and Geoff Revell for superb research assistance. We are also grateful to two anonymous referees for their comments and suggestions. The findings, interpretations and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent.
Openness and Industrial Response in a Wal-Mart World: A Case Study of Mexican Soaps, Detergents and Surfactant Producers
Article first published online: 3 DEC 2008
© 2008 The Authors. Journal compilation © 2008 Blackwell Publishing Ltd
The World Economy
Volume 31, Issue 12, pages 1558–1580, December 2008
How to Cite
Javorcik, B., Keller, W. and Tybout, J. (2008), Openness and Industrial Response in a Wal-Mart World: A Case Study of Mexican Soaps, Detergents and Surfactant Producers. World Economy, 31: 1558–1580. doi: 10.1111/j.1467-9701.2008.01142.x
- Issue published online: 3 DEC 2008
- Article first published online: 3 DEC 2008
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.