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The Auto Parts-Automotive Chain in Mexico and China: Co-operation Potential?

  • Enrique Dussel Peters (a1)

Abstract

Mexico's economic relationship with China has intensified substantially in the last decade. Based on an increasing literature on the overall and aggregate relationship, this analysis proposes a detailed examination of the auto parts-automobile chain, which is of utmost importance for both countries and will be significant for understanding the future trade relationship between them. In order to understand the industrial organization of Mexico and China, the article first gives an overview of the international trade and industrial organization patterns. After establishing the characteristics of Mexico's and China's legal framework, production, employment and trade, the analysis concludes with a group of proposals to improve binational co-operation. Both countries – China interested in increasing its export platform based on Chinese parts brands and Mexico supplying parts and components and providing decades of experiences in international networks – can benefit from these suggestions and overcome current tensions.

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1 Peters, Enrique Dussel, Polarizing Mexico. The Impact of Liberalization Strategy (Boulder, CO: Lynne Rienner, 2000).

2 Gallagher, Kevin and Porzecanski, Roberto, The Dragon in the Room: China & the Future of Latin American Industrialization (Stanford, CA: Stanford University Press, 2010); Jenkins, Rhys and Peters, Enrique Dussel (eds.), China and Latin America: Economic Relations in the 21st Century (Bonn/Mexico: DIE-CECHIMEX/UNAM, 2009).

3 CECHIMEX (Centro de Estudios China–México). Centro de Estudios China–México de la Facultad de Economía de la Universidad Nacional Autónoma de México. http://www.economia.unam.mx/cechimex/.

4 See e.g. the journal Cuadernos de Trabajo del Cechimex which has published since 2010 a group of detailed segments of value-added chains in Latin America and their relationship with China, with detailed conclusions and policy proposals, such as the case of minerals in Brazil and their relationship with China, copper and textiles in Chile and their relationship with China, soja in Argentina and their relation with China, and electronics in Mexico and their relationship with China, among others.

5 Peters, Enrique Dussel and Delfín, Yolanda Trápaga, Hacia un diálogo entre México y China. Dos y tres décadas de cambios socioeconómicos (Cámara de Senadores, CICIR, Fundación Friedrich Ebert y Cechimex/UNAM, Mexico, 2010).

6 In other analyses the argument is discussed in more detailed: for 1980–2009 the GDP per capita growth in China was 15 and 11 times higher than Mexico's and Latin America's, while efforts and results in terms of R&D have also widened gaps between both regions. Thus, the qualitative questioning of China is critical, in addition to concrete contributions such as this one on the AAC. See Peters, Enrique Dussel and Delfín, Yolanda Trápaga, Oportunidades en la relación económica y commercial entre China y México (Mexico City: Cechimex/UNAM, 2007). Jenkins and Dussel Peters, China and Latin America.

7 OCDE (Organización para la Cooperación y Desarrollo Económico) Banco de Datos (OECD, 2010), http://stats.oecd.org/index.aspx, accessed July 2010.

8 Michael, Michael Piore and Sabel, Charles. The Second Industrial Divide: Possibilities for Prosperity (New York: Basic Books, 1984).

9 CEPAL (Comisión Económica para América Latina y el Caribe), La inversión extranjera directa en América Latina y el Caribe (Santiago de Chile: CEPAL, 2010).

10 Timothy Sturgeon, Johannes Biesebroeck and Gary Gereffy, “Value chains, networks and clusters: reframing the global automotive industry,” Working Paper Series (Cambridge, MA: Industrial Performance Center) 08-002, 2008.

11 CEPAL, La inversión extranjera directa.

12 “Picking winners, saving losers,” The Economist, 7 August 2010, pp. 68–70.

13 Dani Rodrick, “The return of industrial policy,” Project Syndicate, 2010, http://www.project-syndicate.org/commentary/rodrik42.

14 Deloitte, The Mexican Automotive Industry: Key Aspects to Consider Regarding your Strategy and Plans for the Mexican Automotive Market (Shanghai: Deloitte, 2010).

15 INEGI (Instituto Nacional de Estadística, Geografía e Informática), La industria automotriz en México (Mexico: INEGI, 2010).

16 SE (Secretaría de Economía), Agenda para la competitividad de la industria automotriz en México (Mexico: SE, 2008).

18 Enrique Dussel Peters, Clemente Ruiz Durán and Taeko Taniura, “Changes in industrial organization of the Mexican automobile industry by economic liberalization,” Joint Research Program Series No. 120 (Institute of Developing Economies, 1997); Hufbauer, Gary and Schott, Jeffrey, NAFTA Revisited: Achievements and Challenges (Washington DC: IIE, 2005).

19 DOF (Diario Oficial de la Federación), “Decreto para el apoyo de la competitividad de la industria automotriz terminal y el impulso al desarrollo del mercado interno de automóviles,” 31 December 2003.

20 As of the close of 2010, the decree may in fact be considered “anti-China and anti-India” given that they are practically the only relevant international manufacturers that have not invested in Mexico.

21 Dussel Peters et al., “Changes in industrial organization”; INEGI, La industria automotriz en México; information directly provided by several business chambers such as AMDA (Asociación Mexicana de Distribuidores de Automotres), INA (Industria Nacional de Autopartes) and AMIA (Asociación Mexicana de la Industria Automotriz).

22 AMDA, AMIA and INA, “El sector automotriz en México ante la crisis financiera y económica internacional,” Mexico: AMDA, AMIA and INA (Working meeting with Secretary of Finance, Agustín Carstens Carstens), 19 March 2009.

23 The auto parts-automotive chain is constituted by 129 sub-divisions (to six digits): 112 auto parts and 17 automotive segment companies.

24 This integration with the US is also obvious at the company level: vehicle production by the “big three” US producers (Chrysler, Ford and General Motors) represented 52.4% of total automobile production in 2009, although this is far below the levels above 60% prior to the signature of NAFTA. Paradoxically, NAFTA resulted in the notably reduced participation of these companies in total production, also affected by the rise of other companies such as Honda, Mercedez-Benz, Renault and Toyota, and the growing participation of Volkswagen and Nissan.

25 INEGI, “La industria automotriz en México,” p. 5.

26 INA (Industria Nacional de Autopartes), “El sector de autopartes en México: Importancia del sector,” Mexico: INA, 2010, http://www.ina.org.mx, January; SE, “Agenda para la competitividad.”

27 AMDA, AMIA and INA, “El sector automotriz en México.”

28 SE, “Agenda para la competitividad.”

29 Ibid.

30 Enrique Dussel Peters, “Don't expect apples from a pear tree: foreign direct investment and innovation in Mexico,” Discussion Paper 28 (Cambridge/MA: Working Group on Development and Environment in the Americas), 2009.

31 Ibid.

32 Result of research carried out in November and December 2009 in the Institute of Latin American Studies of the Academy of Chinese Social Sciences. I am very grateful to Hanban and the Embassy of the People's Republic of China in Mexico, as well as ProMéxico, the Mexican Embassy in China, and the Universidad Nacional Autónoma de México.

33 See Peters, Dussel, “Don't expect apples from a pear tree”; OECD, OECD Economic Surveys: China (Paris: OCDE, 2010); Dani Rodrick, “What is so special about China's exports?” NBER Working Paper 11947, 2006.

34 For specific analysis, also from a Latin American perspective, see Medina, Lourdes Álvarez, “La industria automotriz China: posibilidades de competir con la industria automotriz en México,” in Peters, Enrique Dussel and Delfín, Yolanda Trápaga (eds.), China y México: implicaciones de una nueva relación (La Jornada, ITESM, Cechimex/UNAM, Mexico, 2007), pp. 191208; and Álvarez Medina and Sepúlveda Reyes, “Reformas económicas, inversión extranjera directa y cambios en la estructura de la industria automotriz China (1980–2004),” Contaduría y Administración, No. 218 (2006), pp. 87–113.

35 CCPIT (China Council for the Promotion of International Trade). China Business Guide 2008. Auto (Beijing: CCPIT, 2009).

36 See DRC (Development Research Centre of the State Council), Annual Report on Automotive Industry in China (Beijing: DRC, 2010).

37 CCPIT, China Business Guide 2008, p. 6.

38 Ibid. pp. 24ff.

39 Xingmin, Yin, The Future of China's Automobile Industry (Geneva: United Nations, forthcoming, 2011).

40 Ibid.

41 CCPIT, China Business Guide 2008.

42 DRC, Annual Report on Automotive Industry.

43 Other sources calculate a passenger vehicle demand approaching 20 million units for 2020. See ibid. p. 133.

44 Ibid. pp. 78 and 83.

45 The companies of the Chinese AAC have stood out recently for important global acquisitions, in particular: the purchase of the US company UAI by Wanxiang Group (2001), of the Korean companies Ssangyong Motor and MG Rover by SAIC in 2004 and 2007 respectively, of Volvo by Geely in 2010, and of Rover by Nanjing Auto (2007) and DSI by Geely (2009), among others. Chery and Great Wall have also increasingly established plants abroad; Chery already has more than nine foreign-based plants. See ibid. p. 86.

46 A substantive and exemplary case was the failed co-investment between FAW and Grupo Salinas in 2006 which was definitively abandoned in 2009. In this case, the three parties, FAW, Grupo Salinas and the Secretary of the Economy, all failed: FAW, for not elaborating a sufficiently clear business plan and failing to foresee the difficulties of creating a supplier network to allow it to produce more than 50,000 units in three years required according to NAFTA rules of origin and the national decrees; Grupo Salinas, for its failure to envisage a long-term project of commitment to and knowledge of the AAC beyond momentary considerations regarding the internal and international market; and the Secretary of the Economy, who only three years later verified the incompliance with the original business plans of both companies, after the import of more than 7,000 units, the consumers of which now face serious service problems. This case is an example of how not to conduct business between two countries in the AAC, and sets a horrible precedent of co-operation.

47 A little known case is that of Giant Motors, a joint venture between a group of Mexican investors and FAW-trucks in Pachuca, Hidalgo, that began in 2006. This Mexican group invited FAW trucks to start investments in the light truck segment to be assembled. Stressing the importance of a good distribution network – and the demand and sales of production, contrary to the case of FAW-Grupo Salinas – the Mexican part buys parts, components and the core parts of the light trucks, while FAW trucks is responsible for the “tropicalization” of the light trucks, the plant and other technical matters in Mexico. The plant has produced and sold more than 3,000 trucks and expects to double this in 2011. With fewer than 150 workers the firm is expecting to increase substantially both production and labour in the short term.

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The Auto Parts-Automotive Chain in Mexico and China: Co-operation Potential?

  • Enrique Dussel Peters (a1)

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