Openness and Industrial Response in a Wal-Mart World: A Case Study of Mexican Soaps, Detergents and Surfactant Producers

38 Pages Posted: 24 Oct 2006

See all articles by Wolfgang Keller

Wolfgang Keller

University of Colorado; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Beata Smarzynska Javorcik

University of Oxford - Department of Economics; World Bank - Development Research Group (DECRG); Centre for Economic Policy Research (CEPR)

James Tybout

Pennsylvania State University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 4 versions of this paper

Date Written: September 2006

Abstract

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 U.S. detergent market over the past decade, Mexican sales in the U.S. 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 United States.

Keywords: Trade liberalization, FDI liberalization, NAFTA, GATT, WTO, Wal-Mart, retail sector reform, technology transfer, trucking, multinational enterprises, detergent industry

JEL Classification: F1, F2, L1, L6

Suggested Citation

Keller, Wolfgang and Javorcik, Beata Smarzynska and Tybout, James R., Openness and Industrial Response in a Wal-Mart World: A Case Study of Mexican Soaps, Detergents and Surfactant Producers (September 2006). CEPR Discussion Paper No. 5823, Available at SSRN: https://ssrn.com/abstract=939801

Wolfgang Keller (Contact Author)

University of Colorado ( email )

Department of Economics
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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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Beata Smarzynska Javorcik

University of Oxford - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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James R. Tybout

Pennsylvania State University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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