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H2: The reforms in Mexico made possible the attraction of FDI from Taiwanese MNEs, and an eventual increase in imports of parts, including those coming from mainland China and Taiwan.
H3: In Mexico, the increase in imports of parts and components from Taiwan, grew faster than the Mexican exports to Taiwan, provoking a large trade deficit with the latter.
In simple graphic terms, the main relationship composed by the minor relations stated in this research’s hypotheses can be showed as follows:
↑ independent approach of Taiwan, combined with the Mexico’s integrationist approach and economic integration into North America → ↑ Mexico’s role as assembler and export platform → ↑
investments in manufacture and imports of parts from Taiwan → ↑ trade deficit with Taiwan
This set of hypotheses can also be presented in a negative form, by stating that in case of a lack of a Taiwanese independent approach, and in the absence of, or a slower pace in the economic integration process between Mexico and the US, the Mexico’s trade deficit with Taiwan would not be as large and pronounced as it is today, mainly because Mexico would not have had the chance to become an attractive place for FDI and an important assembler and exporter, and would not have the necessity to import a great amount of parts from the island. In this sense, the next section will deal with these key relationships, their implications, and how they will be operationalized in this study.
1.5. Variables and Methodology
This study will proceed with a set of qualitative methods, in order to prove the relations stated in the hypotheses, through the operationalization of the variables. The first part, which has an inductive nature, consists in the formulation of a literature framework and the construction of theory.31 As mentioned previously, there exist some descriptive and explanatory studies
31 Earl Babbie, op. cit.: 80-82.
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about investment and trade interactions between Mexico and East Asia, particularly mainland China, which can serve as a basis to the study of Mexican relations with Taiwan. Nonetheless, those studies hardly go beyond the classical Ricardian elaboration of commerce on final goods, and most of them assume the increasing trade deficit as harmful for the Mexican manufacturing sectors. For this reason, this thesis constructs a more elaborate theory, taking into consideration the independent and integrationist approaches as proposed by Alice Amsden in 2001, the ensuing efficiency-seeking motivations behind Taiwanese relationship companies investing in Mexico, as well as their impact on trade in components and parts, instead of thinking about trade in final goods.32 To do so, other studies comparing the industrial policies in Latin America and East Asia, such as those developed by Lall, Weiss, and Zhang; Lederman, Olarreaga, and Perry; and, Gallagher and Porzecanski were helpful to identify elements that can be applied for the relationships I intend to study; and are complemented through the collection of more secondary data elaborated by other scholars, as well as statistical data from governmental sources. 33
As mentioned in the previous sections, a key theoretical concept in this thesis is that of developmental state and its responses to the challenges of globalization. There is also an important distinction between the independent approach, as followed by the state in Taiwan, and the integrationist approach, as encouraged by the Mexican state (Figure 1.1.). A qualitative analysis of those approaches is made, once the theoretical framework is explained in the second chapter of this study. Historical Institutionalism is used as an important theoretical tool to understand the circumstances surrounding the adoption of those approaches by both Mexico and Taiwan, leading us to elaborate on the impact those measures had on the patterns followed by Taiwanese investments in Mexico first, and later in the unbalanced bilateral trade between those countries. Therefore, I consider necessary the consultation of numerous secondary data and existing literature, to offer a clarifying narrative on the initial relations between variables, as presented in hypotheses 1.1 and 1.2.
Plenty of books and articles have been written about Taiwan’s industrialization and the role of its developmental state. However, for the case of this study, I am interested in
32 Alice Amsden, op. cit., 2001: 251-283.
33 The mentioned studies include: Sanjaya Lall, et al., The “Sophistication” of Exports: A New Measure of Product Characteristics, (Manila: Asian Development Bank Institute, 2005); Daniel Lederman, op. cit.; and, Kevin Gallagher & Robert Porzecanski, op. cit.: 70-75.
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presenting those features that help us clarify the particular independent approach followed by the state institutions, which eventually led to the interest of Taiwanese enterprises to invest in Mexico, using it as an export platform to the United States; and how those investments had an impact on the increasing deficit in Mexico’s bilateral trade with Taiwan. The study of historical sources and previous studies on Taiwan have been helpful in the identification of particular characteristics that made possible the observation of an independent approach in the country, as well as its eventual success. The third chapter is dedicated to the analysis of the Taiwanese independent approach, and it will present those characteristics, and how they evolved throughout the years, including, but not limited, to the control of government over capital and the early understanding of the need to develop domestic sources of technology and innovation, as a way to ensure a continuous economic growth and a modernization of industries, facing the challenges of globalization and the pressure to liberalize the national economy.
Therefore, the study of policies designed to encourage the creation of technology-intensive industries in Taiwan, and the strategic role played by the state despite its changes in attitude from its previous more interventionist stance, are a key component in the conception of the independent approach followed by the state in the island. For this part of the research, the resources at different libraries in Taiwan have been extremely beneficial, written both in English and Chinese. Similarly, the analysis of statistical data is showed as evidence of the success in the different stages of the developmental state and its independent approach in the island, obtained from government reports and other official sites. Particularly, the presentation of specific macroeconomic indicators, as GDP growth, inflation, GNI per capita, among others, is intended to demonstrate the good performance of state institutions in those realms, and as a way to compare it with the situation in Mexico during the same years, which is presented later in the thesis.
The research methods used for the study of the developmental state and its independent approach in Taiwan have also been used for the analysis of the Desarrollista state, its evolution and the deepening of its integrationist approach in Mexico. The study of existing literature and secondary data will be essential to understand the nature and progress of developmental institutions in Mexico, as well as the limitations that made impossible for the state to follow the same path as the one pursued by Taiwan. A historical analysis is in place,
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to see the way how the Estado Desarrollista took shape in Mexico, after numerous previous attempts to accelerate industrialization of the country, and which were the main elements of this new type of state.
As it is suggested by the theoretical approach of Historical Institutionalism, a particular emphasis is placed in critical junctures, which are important to appreciate the special circumstances leading the Mexican state to deepen its integrationist responses, and which also led to the negotiation and implementation of NAFTA. For this part of the research, I had access to the vast resources offered by the “Daniel Cosío Villegas” Library, at El Colegio de México, including numerous volumes in English and Spanish on the evolution of the Mexican economy throughout history, as well as other important resources in Mexico City and Guadalajara. As it was also mentioned above, some statistical analyses are included in this part of the study, as a way to compare the performance and outcomes in the approaches followed by the states in Mexico and Taiwan, reinforcing the understanding of the differences and similarities between one and the other.
After introducing the main characteristics of Taiwan’s independent approach and Mexico’s integrationist approach, two particularities of both cases will be identified as the following set of variables that impacted on the bilateral investments and trade relations, specifically in the pattern followed by Taiwanese investments in Mexico, and the effect they had on the increasing exports of goods from the island, particularly technology-intensive components and parts, to Mexico. For the case of Taiwan’s independent approach, I identify the so-called relationship enterprises (guanxi qiye), as a peculiar feature that has allowed Taiwanese industries to remain competitive globally.
By studying the circumstances under which this type of companies flourished in Taiwan, and its evolution, it is possible to realize their contribution to the formation of East Asian regional production and supply chains, influenced both by Japanese conglomerates, and the growing opportunities offered by the authorities in mainland China to open production facilities there. On the other hand, the main feature of the Mexican integrationist approach was the negotiation and implementation of NAFTA. The trilateral free trade agreement between Mexico, Canada, and the United States, is an important variable in this study, hence will be approached from a historical perspective, emphasizing the different motivations behind its settlement, as well as the main consequences it had for Mexico’s
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external trade during the past couple of decades. In fact, statistical data will be provided as evidence of that impact, highlighting the transformation of the country into an exporter of manufactures, including technology-intensive goods, such as cars, computers, TV sets, and other communication devices.
Once those two features were elucidated, I proceed to a quantitative presentation of the pattern followed by the Taiwanese investments in Mexico, focusing in those sectors where investments coming from firms in the island are concentrated and demonstrating the efficiency-seeking motivations behind FDI from Taiwan in Mexico. A particular interest in the manufacturing sectors, and particularly in the production of computers and communication devices, serve as an evidence of the combination between the independent approach followed by Taiwan and the integrationist approach followed by Mexico. In the same tune, a presentation of the bilateral trade statistics, will show how the increase in investments in those sectors, was also followed by a rise in imports from Taiwan. When looking at the numbers, it is possible to identify that those imports are also concentrated in capital goods, notably electrical machinery and electronic goods, which can be used in the same products exported to the US by Taiwanese firms investing in Mexico. In this sense, it is possible to confirm how investments made by Taiwanese relationship enterprises in Mexico is aimed to use the country as an export platform to the United States, taking advantage of the geographical proximity, as well as of the benefits offered by NAFTA.
As a way to offer more evidence on the impact of the independent approach followed by Taiwan, with its particular features, including the role of relationship enterprises, I also present a comparison with those investments coming from mainland China. Since part of the interest to study this particular topic comes from the growing attention given to Chinese outward investments in Latin America, I think it is important for this thesis to understand why Taiwanese accumulated investment in Mexico has surpassed investments from the Mainland during the past two decades. The findings of the quantitative analysis on the pattern followed by mainland Chinese investments in the country, can also serve to understand the effort of industrial diversification in the PRC, with large state-owned and private corporations investing around the world, to have access to raw materials and commodities in different locations (natural resource-seeking motivations), as well as infrastructure projects to have access to those sources (strategic assets-seeking motivations). Similarly, considering that
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China is under an important effort to go from assembler to technology exporter, it is still not highly attractive for mainland Chinese companies to invest in Mexico, using the latter as an export platform to the United States (efficiency-seeking motivations). All these considerations are important to appreciate the relationship between variables in this study, offering an explanation to Taiwanese investments in Mexico, and its impact on the highly unbalanced bilateral trade, as contained in Chapter 5.
An important part in this research consists in the selection of particular cases of Taiwanese relationship enterprises investing in Mexico, focusing in their main motivations to open plants and production facilities in the country. The cases have been selected on their utility, paying attention to how they shed light on the way Taiwan’s independent approach led the island to become an exporter of technology, while Mexico’s integrationist approach turned this country into an assembler of those products. An assembler country is defined based in the performance of a country that is a net exporter of final products and a net importer of parts within the same category, and that is likely to be re-exporting those parts as final products. The counterpart of this concept is that of outsourcer, which is defined as the country that exports parts and reimports final products, or outsources assembly activities.
Outsourcer countries are likely to have greater technological capacity than assemblers.34 Therefore, most of the cases in this study are related to high technology sectors, particularly computers, and HD TV sets and communication devices. An important reason to choose those goods is their propensity to be assembled in different locations and the availability of deeper trade data at the input and final-product level. Besides, these are two of the sectors where most of the Taiwan-Mexico bilateral trade is concentrated, and where Taiwanese investments in Mexico is more visible. These two profiles are complemented by others including the countries considered as net exporters of high technology, that export both final goods and parts; and those countries labeled as net importers of high technology, which have negative balances in their trade of high technology final goods and parts.35
After identifying the relevance of those industries, Tijuana, in the Mexican northern border, right across San Diego, California, has been chosen as an ideal location for the performance of interviews, conforming the study cases in this thesis. Despite it is not the
34 Kevin P. Gallagher & Robert Porzecanski, The Dragon in the Room: China and the Future of Latin American Industrialization. (Stanford, CA: Stanford University Press, 2010).
35 Ibid, p. 73.
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Mexican region attracting the largest sum of Taiwanese investments during the past two decades, Tijuana stands for its place as the world’s largest TV set producer, making 20 million sets a year, and exporting them to the rest of the world, particularly, but not exclusively, to the United States.36
Taiwanese original equipment and original design manufacturers have a strong presence in Tijuana, and have contributed to the grow of this industry, mostly through the maquiladora model. Besides, different from Ciudad Juárez, the largest recipient of Taiwanese investments and the other major industrial center, across the border with El Paso, Texas, the city of Tijuana is characterized for being home to the Taiwan Businessmen Association in Baja California.37 This low-profile organization, established in 1996, is composed by 11 Taiwanese companies currently operating in the Tijuana-Mexicali region, mainly large manufacturers who offer support to each other and to new companies interested in investing in Mexico, as well as serving as a link between the companies and the local, state, and federal authorities in the country. The association also offers advice on issues related to financial and immigration laws and regulations, hence making Tijuana an interesting place to perform interviews to Taiwanese investors in Mexico.
On the other hand, Tijuana has also been chosen for a particular case proving the benefits Taiwanese corporations can have from investing in Mexico. Merry Yard International, also known as Da-Da Group, is an important Taiwanese conglomerate, which have continuously expanded operations in Mexico, making it a relevant part in its successful business strategy. Currently, it is the only Taiwanese company producing in Mexico, and exporting its goods back to Taiwan, focusing in the elaboration of furniture under its own brand, Lagoon. Landing in Tijuana since 1989, the case of Merry Yard, and its Mexican subsidiary Merrytech, is a valuable case to highlight the difference in motivations and results
36 This number represents 99% of digital TV sets in the world, making Tijuana the world capital for these products, with plants from the largest conglomerates in the world, such as Sony, Samsung, LG, Vizio, Philips and AOC, among others. The last couple of brands are actually manufactured by a Taiwanese company, TPV, as it will be observed in Chapter 6. See: Notimex, “Tijuana fabrica 99% de las TV digitales,” in El Financiero, February 2, 2014, online, http://www.elfinanciero.com.mc/empresas/tijuana-fabrica-99-de-las-tv-digitales.html
37 Since Foxconn operates two large plants in Ciudad Juárez, it concentrates most of the Taiwanese investments in that part of the country. On the other hand, Tijuana offers the valuable advantage of having a more varied set of Taiwanese corporations investing in Mexico. Despite the latter’s investments are smaller than those performed by Foxconn, they can still give us a better idea of the difference in motivations and consequences of their investments in the country.
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in the Taiwanese firms investing in Mexico, being the largest Taiwanese MNE investing in the country for market-access motivations.
From all the cases selected to perform interviews, while also studying their business historical evolution through secondary data, four of them are located in Tijuana, hence the necessity to perform field research in this city during the first weeks of 2017. The fifth study case is different in nature, focusing in Taiwan educational services in Mexico, with the only Mandarin school with native Taiwanese professors in the country, Wen Cheng, located in the city of Metepec, not far from Mexico City. Therefore, interviews in this research were performed to Taiwanese companies’ managers or persons in charge of their international trade units, distributed in Tijuana, and the specific case of the language center in central Mexico. Other type of interviews was also performed to officials in charge of the trade promotion in both countries, namely the directors and staff at the Taiwan Economic and Cultural Office in Mexico City, and the Mexican Liaison Office in Taipei and the ProMexico Office in Taiwan, also between mid-2016 and early 2017.
From all the cases selected to perform interviews, while also studying their business historical evolution through secondary data, four of them are located in Tijuana, hence the necessity to perform field research in this city during the first weeks of 2017. The fifth study case is different in nature, focusing in Taiwan educational services in Mexico, with the only Mandarin school with native Taiwanese professors in the country, Wen Cheng, located in the city of Metepec, not far from Mexico City. Therefore, interviews in this research were performed to Taiwanese companies’ managers or persons in charge of their international trade units, distributed in Tijuana, and the specific case of the language center in central Mexico. Other type of interviews was also performed to officials in charge of the trade promotion in both countries, namely the directors and staff at the Taiwan Economic and Cultural Office in Mexico City, and the Mexican Liaison Office in Taipei and the ProMexico Office in Taiwan, also between mid-2016 and early 2017.