World Development Vol. 27, No. 8, pp. 1427±1443, 1999 Ó 1999 Elsevier Science Ltd. All rights reserved. Printed in Great Britain www.elsevier.com/locate/worlddev 0305-750X/99/$-see front matter PII: S0305-750X(99)00064-9 Foreign Investment and the Global Geography of Production: Why the Mexican Consumer Electronics Industry Failed

NICHOLA LOWE Massachusetts Institute of Technology, Cambridge, USA

and

MARTIN KENNEY * University of California, Davis, USA Summary. Ð Explanations of industrial development in late-developing countries have become narrowly focused on the capability of governments to promote, pressure, or punish nationally-owned ®rms. Often overlooked is the contribution of ®rms, both national and multinational, in propelling, coordinating, and determining the path and location of such development. This paper examines the conditions that led to the decline of Mexico's consumer electronics industry and presents new evidence to support a more complex account of the role of both industrial and state actors within this process. In contrast to the traditional market- or state-based theories, we argue that the decline of Mexico's consumer electronics industry largely resulted from its foreign investment regime, particularly the timing of investment and the geographical locations of local and foreign manufacturers, and the subsequent depth and quality of the rela- tionships between these ®rms. The di€erences between Mexico's regime and that of Taiwan during the same period provide further evidence of the important role that foreign ®rms play in inserting local suppliers into the global production chain. We argue that Mexico's foreign investment regime and the resulting weak local-foreign ties, rather than inadequate state policy, sealed the fate of Mexico's once thriving domestic elec- tronics industry. Ó 1999 Elsevier Science Ltd. All rights reserved.

1. INTRODUCTION competitive status of that investor's national industry, can shape the learning environment During the last four decades the economic and industrial trajectory of ®rms in the host performances of East Asian and Latin Ameri- country. can countries have diverged dramatically. Most Industrial development is often viewed as a studies claimed that di€erences in state policy process whereby a country's industries advance or the relationships between the state and on a broad front. This is rarely the case industry could account for the divergence (see, for example, Evans, 1995). Although these studies recognized the impact that foreign * The authors thank the Alfred P. Sloan Foundation for direct investment can have on a country's funding this research as part of a larger study on the industrial performance, they typically viewed globalization of the color television industry. We foreign investors as homogeneous entities. acknowledge Christopher Stokes and Takeyoshi Ohgai While this was probably a useful ®rst approxi- for their assistance. We also acknowledge the valuable mation, our research suggests that the nation- suggestions of the anonymous reviewers. Final revision ality of the foreign investor, as well as the accepted: 15 February 1999. 1427 1428 WORLD DEVELOPMENT however, rather, industrial development is an Building on earlier conclusions about East uneven process, whereby some industries grow Asian success, observers have blamed Mexico's rapidly, while others remain relatively stagnant industrial failures on inadequate state inter- or even decline (Storper and Walker, 1988; vention (Grunwald, 1985a; Wilson, 1992) or, as Jacobs, 1969). Moreover, certain industries an outcome of Mexico's subordinate insertion inherently o€er greater potential for stimulat- within the international division of labor ing national growth and provide more oppor- (Sklair, 1993; Gere, 1994). In this paper, we tunities for the acquisition of new skills and examine the components of Mexico's technologies. Electronics has clearly established geographical and foreign investment situation itself as a dynamic, fast-growth industry in that account for the diculties it experienced in today's global economy. In contrast to other developing a consumer electronics industry. In industries, the broad spectrum of activities doing so, we are forced to reconsider many of covered by the electronics industry has provi- the theoretical insights and policy implications ded nascent ®rms and countries with multiple drawn from earlier studies of East Asia's points of entry into the industry, ranging from success. By opening the foreign investment routine, simple assembly to more sophisticated ``black box,'' we ®nd signi®cant di€erences capital- and knowledge-intensive manufactur- between the foreign ®rms hosted by Asian ing (Perez, 1985). countries and Mexico. Furthermore, we suggest East Asia's rapid economic expansion and that there is a strong correlation between entry into the international economy can be certain characteristics of a nation's foreign attributed to its success in developing a globally investors and that country's economic and competitive electronics industry. Behind the industrial opportunity. Asian electronics miracle is a complex web of To understand better the factors that have international interdependence, including many contributed to the growth and decline of joint ventures and technology transfer agree- Mexico's indigenous consumer electronics ments that have provided local ®rms with industry, we also examine the industrial opportunities for borrowing and internalizing trajectory of Taiwan's domestic electronics new processes (see, for example, Ernst and industry during 1965±85. The comparison may O'Connor, 1992). Contemporary studies of not seem obviously appropriate, but in fact Asia tend to equate the rise of the more glam- both countries initially shared similar industrial orous, high-end sectors of the industry, policies and industrial characteristics. Both including computers and semiconductors, with countries were opened to foreign investment in Asia's rapid economic and industrial growth. 1965. At the time, both countries housed an Yet, at the heart of this success was Asia's indigenous consumer electronics industry, initial entry into the more prosaic consumer although Mexico's was far larger and more electronics industry during the late 1960s. advanced. Initially, neither country had an Production of computers and semiconductors explicit electronics policy or sector-speci®c came later and relied on the previously accu- foreign investment policy. Rather, their indus- mulated knowledge and capital base of consu- trial policies remained fairly general and did mer electronics ®rms. not target particular industries, as commonly In 1965, an observer of the global economy attributed to South Korea. Finally, both easily could have concluded that Mexico, and countries were seen as natural sites for foreign not Taiwan or South Korea, would become one direct investment from their larger industrial- of the most successful developing countries in ized neighbors, Taiwan for Japan and Mexico establishing a competitive, indigenous elec- for the United States. tronics and related parts industry. In 1970, the In the ®rst section, we present an overview of Mexican consumer electronics industry was Taiwan's experience in developing a viable, larger than that in either South Korea or ``global'' electronics industry. The second and Taiwan. At that time Mexico had 16 manu- third sections introduce the reader to Mexico's facturers of televisions, 30 manufacturers of interior and border consumer electronics radios and audio equipment, and 120 supplier industries. The remaining sections provide a ®rms, the majority of which were wholly chronological account of the investment deci- Mexican-owned. So why did Mexico fail, with sions of ®rms seeking to utilize Mexico's low- its advantages of greater wealth, a larger cost labor market and describe how variations internal market, an established indigenous among these ®rms, including their location industry, and a base of skilled personnel?1 decisions, a€ected the development trajectory FOREIGN INVESTMENT AND THE GLOBAL GEOGRAPHY OF PRODUCTION 1429 of Mexico's domestic electronics industry. In for local ®rms to gain access to global the concluding section, we review the implica- production chains and implement new tech- tions of this research for understanding the nologies, thereby strategically positioning local di€erences in industrial development in East entrepreneurs within emerging international Asia and Latin America. markets (see, for example, Ernst, 1994). Taiwan's linkages with both Japanese and US multinational ®rms provided the initial catalyst 2. TAIWAN REVISITED for developing a successful indigenous industry. Japanese electronics ®rms chose to invest in East Asia's economic success has attracted Taiwan for several reasons. Some sought access the attention of many scholars and has provi- to Taiwan's growing consumer market; others, ded an opportunity for political science to speci®cally suppliers of labor-intensive parts reassert itself within a debate traditionally such as wire harnesses, were more interested in dominated by standard economic analyses. tapping into Taiwan's cheap labor markets. In Many analysts now credit an ``Asian develop- the case of transistor radio production, Japa- mental state'' with a singularly uncanny nese supplier ®rms opted to follow the lead set capacity to predict and choose industrial by their assembler customers in relocating to winners (Deyo, 1987; Wade, 1990; Wilson, lower-cost production sites in Asia. By the early 1992; Evans, 1995). This approach, though 1970s, Japanese assemblers, including Sanyo, providing an alternative to standard economic Hitachi, and Matsushita, expanded their theory, has diculty capturing the true Taiwanese operations because, in part, of rising complexity behind the success of East Asia's trade friction with the United States. The electronics industry. Although the case of physical proximity of the island to Japan, and South Korea's growth may substantiate claims its colonial heritage, added to its attractiveness of state-driven development (and, more (Simon, 1988; Wade, 1990). As a result, Taiwan recently, perhaps of state-driven crisis), such received a disproportionate share of investment approaches are not applicable to all developing from newly mobile Japanese consumer elec- countries, for they do not adequately account tronics companies. for the many other cases in which state indus- Often Taiwanese entrepreneurs established trial policies were either inadequate or insig- joint ventures with smaller Japanese compo- ni®cant in stimulating development, or more nents makers and assemblers that were seeking importantly, emerged only after substantial access to the highly protected Taiwanese industrial development had occurred. consumer market (Gold, 1988, p. 166). In most New evidence indicates that many Asian cases, these joint ventures were the result of countries do not ®t neatly within this unidi- local content requirements and restrictions on rectional, top±down model in which corpora- the degree of foreign ownership. During the tions are viewed as mere pawns of omniscient 1960s, it was not uncommon for national central government bureaucrats (for a critique governments in developing countries to impose on Japan, see Callon, 1995). Recent studies of such restrictions: for instance, Mexico also Taiwan's electronics industry point to a more required joint ownership and local sourcing of negotiated process, whereby inter®rm alliances ®rms seeking access to their local consumer fostered an environment ripe for the lobbying markets. of state government by locally-owned manu- Through their participation in these joint facturers. These events, together, allowed ventures, local ®rms in Taiwan were able to Taiwanese ®rms to insert themselves within the observe and learn new technologies, internalize global electronics value chain (see, for example, new production processes, and increasingly Lam, 1992; Kuo, 1995). These newer revisionist participate in the changing international elec- approaches therefore recognize the complexity tronics industry. Importantly, the location of and variety of paths for local industrial devel- Taiwan's free trade zones put these foreign opment and identify the roles of developmental ®rms close to local Taiwanese ®rms, thereby, actors often overlooked under both traditional indirectly facilitating cross®rm communication and mainstream theories.2 (Hobday, 1995; Zenger, 1977). Both foreign Kuo (1995) and Lam (1992) depart from the and Taiwanese ®rms were also members of the state-centric model to highlight the impact of same trade association, fostering additional inter®rm collaboration on Taiwan's industrial channels for information exchange and learn- trajectory. Foreign investors made it possible ing (Kuo, 1995). 1430 WORLD DEVELOPMENT

In the mid-1960s, US consumer electronics opening their own domestic manufacturing ®rms established manufacturing sites in facilities. In summary, the Taiwanese electron- Taiwan. This investment eventually opened ics industry greatly bene®ted from the hetero- new markets for Taiwanese-made parts and geneity of foreign investors. The dual regime of components. The decline of the US parts Japanese and US corporations provided edu- industry, and the rising cost of Japanese-made cation for Taiwanese managers and workers, components during the 1970s, added to the helped improve the quality and eciency of urgency on the part of US ®rms to ®nd new parts productions, and supplied stable markets sources of low-cost parts and electronic and international business linkages for local components. US ®rms, which initially perceived ®rms. This combination of features created a Taiwan as merely a source of cheap labor, solid foundation for Taiwan's indigenous elec- increasingly became aware of the capabilities tronics industry, as well as for its future glob- and competitiveness of the island's growing ally competitive information technology and indigenous parts industry and eventually began computer industry. procuring parts from this local supplier base. The role of the state in contributing to the These US customers also provided local ®rms development of Taiwan's electronics industry with the opportunity to dissolve their Japanese was not sui generis, but rather resulted from joint ventures and establish wholly-owned aggressive lobbying by local ®rms. The ®rst of Taiwanese facilities. Their success is demon- the local-multinational corporation alliances strated by the shift in locally produced parts in occurred prior to the implementation of Taiwanese electronics exports from 10% in proactive product- or market-speci®c policy 1972 to over 30% by 1979 (Wilson, 1992, p. 24). targeting. It was not until the mid-1970s, after US ®rms continued to source from Taiwanese these relationships were well established, that parts makers even after the ®rms closed their the state became an advocate for local elec- Asian operations in the late 1970s and early tronics ®rms and shifted legislation from its 1980s. Once established in Taiwan, Japanese original general mandate meant to attract and US multinationals also trained Taiwanese foreign investment to one aimed at encouraging employees and managers and initiated and protecting local ®rms by restricting foreign programs to upgrade the quality of the prod- participation in certain markets and technolo- ucts they received from local parts manufac- gies (see Lam, 1992; Kuo, 1995). Their ties with turers. Schive (1990) argues that this aspect of foreign ®rms provided local manufacturers foreign investment created substantial back- with the know-how and legitimacy necessary ward linkages and the necessary channels for for leveraging more customized industrial the transfer and adoption of new technologies policy in the 1970s. The electronics industry and manufacturing processes. The literature was the agent Taiwan, that led the state to its has not examined this process in sucient policies. detail; however, there are suggestive anecdotes. For example, when General Instruments opened its operations in Taiwan in 1964 it 3. MEXICO'S DOMESTIC CONSUMER initiated a rigorous training program for ELECTRONICS INDUSTRY Taiwanese managers and worked closely with Taiwanese parts producers to assist them in Consumer electronics production in Mexico upgrading the quality and standard of their began as early as 1940 with the local assembly products. By 1987 several senior executives in of vacuum-tube radios. In 1950, Mexican ®rms Taiwanese electronics ®rms were former started manufacturing transistor radios and employees and managers for General Instru- black-and-white (B&W) televisions. By 1968, ments and other US electronics plants (Sease, there were a large number of Mexican and 1987). foreign-owned electronics ®rms (mostly consu- According to Hayashida (1994), a similar mer electronics). In the early 1970s, for color dynamic was put into play by Japanese home televisions 85±90% of the total value was appliance makers. These ®rms implemented a produced in Mexico and for black-and-white series of training seminars for Taiwanese parts televisions it was 95% (NunÄez, 1990).3 This makers and dispatched Japanese engineers to industry was considerably larger and more work at these local supplier facilities. Further- advanced compared with nascent electronics more, large numbers of Taiwanese engineers industries in other developing countries. Mexi- worked at Japanese plants in Taiwan prior to co's consumer electronics ®rms were located FOREIGN INVESTMENT AND THE GLOBAL GEOGRAPHY OF PRODUCTION 1431 mostly near Mexico City and primarily as General Electric, Philco, and Admiral by supplied the growing domestic market. having a broad product line that included both Under the import substitution industrializa- white goods (fans, refrigerators, stores, etc.) tion (ISI) policies of the 1950s and 1960s, and consumer electronics. Majestic focused Mexico attracted several foreign manufacturers primarily on the low-end consumer market by seeking access to its expanding domestic market. manufacturing inexpensive radios and B&W In the 1930s, North American Philips, a television sets.4 By the early 1960s, Majestic subsidiary of Philips Holland, began manufac- procured a signi®cant share of its parts from an turing consumer durables, including refrigera- extensive supplier base of Mexican electronic tors and lighting equipment for the domestic parts and cabinetry ®rms (Business Week, 1970, Mexican market. In the 1950s, Philips started p. 49). Other Mexican-owned consumer elec- manufacturing consumer electronics. During tronics manufacturers at the time included the 1960s, the Mexican domestic market Zonda, Skyline, Royal, and Autec. attracted other foreign electronics ®rms includ- Due to local content rules, domestic parts ing Admiral, Philco, Telefunken, Beck, Motor- sourcing remained high, averaging 85±98%. ola, Stromberg Carlson, General Electric, and There was limited vertical integration, and Emerson. Foreign components manufacturers, most of Mexico's independent supplier ®rms including Sylvania (picture tubes), RCA specialized in particular segments of the (picture tubes), Corning Glass (glass for CRTs), production chain. For example, cabinet TRW (electronic components), Avnet (elec- manufacturers made the wooden cabinets for tronic components), Globe Union (electronic console sets; plastics ®rms manufactured the components), Federal Paci®c (electronic com- casing for portable radios and smaller televi- ponents), and Sprague Electric (capacitors) also sions; and electric cable and electronic compo- opened manufacturing operations in Mexico. nentry ®rms produced the necessary wiring and Paralleling the growth of foreign investment passive components, such as resistors, capaci- was the simultaneous expansion of Mexi- tors, and inductors for the video and audio can-owned manufacturing facilities. These equipment (Comercio Exterior, 1970). These operations were predominately subsidiaries of ®rms were usually small or medium-sized and family-run conglomerates (NunÄez, 1990; Fujita were typically family-operated. Ownership et al., 1994). The largest Mexican manufac- was evenly divided; approximately half of turer of radio and television sets was the Mexico's component ®rms were joint ventures Majestic Corporation, a multi®rm conglomer- with European and US ®rms, and the remain- ate consisting of 57 Mexican ®rms that sold ing ®rms were wholly-owned Mexican opera- products in Mexico and other Latin American tions. countries (Business Week, 1970, p. 49). Majes- During 1965±82, the industry experienced tic, which started production in 1957, resem- signi®cant growth in both output and new bled US consumer durable manufacturers such investment (see Figure 1). Foreign ®rms such as

Figure 1. Television and radio manufacturing in Mexico, 1972±80. (Source: CANIECE, 1987). 1432 WORLD DEVELOPMENT

Philips, General Electric, Admiral, Philco, and position of domestic producers, as did the Magnavox expanded their Mexican operations unexpected decision on the part of Mexican during the early 1970s. Other foreign ®rms, viz., policy makers to lower trade barriers for Stromberg Carlson, Telefunken and RCA components in 1982 (ZermenÄo, interview, opened new facilities in Mexico City. A number 1997). But, of interest here is why, in contrast of Mexican-owned ®rms also established new to Taiwan, Mexico's indigenous electronics operations following the lead set by Majestic. industry was unable to suciently cushion itself For example, Packard Bell5 began assembling against the economic crisis of the early 1980s. radios, phonographs, audio consoles, and B&W After all, Taiwan's insertion within the global televisions in the mid-1960s. The entry of Grupo electronics industry during the late 1970s, Industrial Alfa6 during the mid-1970s further propelled by its inter®rm relations and parts- demonstrated the pro®tability and signi®cance sourcing arrangements with Japanese and US of the industry. Larger regional cities, including manufacturers and assemblers, had allowed it Guadalajara, began to host medium-sized, to weather the global economic crisis. The regionally-based consumer electronics opera- following sections provide a historical account tions (e.g., Zonda). As new ®rms entered the of the foreign investment regime experienced in industry, there was increasing pressure to Mexico during 1965±85. By examining this diversify product lines and consumer goods. regime, we can identify clear di€erences After the mid-1970s, the production of small- between the characteristics of the investors sized color televisions increased ®vefold, hosted by Mexico and Taiwan, and the chan- replacing more outdated B&W consoles. nels for learning that were either opened or Production of smaller, portable radios acceler- closed to ®rms in each country. It is these ated tenfold during the same period with local di€erences, rather than simply national indus- content averaging 95%. In summary, prior to the trial policy, that shaped the industrial trajec- early 1980s, the industry expanded its produc- tories of each country. tion capacity and attempted to adopt to changes in consumer demand and new technologies. By the early 1980s, however, the growth of 4. THE BORDER INDUSTRIALIZATION this industry was severely constrained. By the PROGRAM: 1965±74 late 1980s, only 25% of the original audio manufacturers and 47% of the video equipment The decision in the 1960s by US consumer makers continued to produce for the domestic electronics ®rms to move television assembly market (Fujita et al., 1994, p. 222). Surviving and component production o€shore was driven ®rms were forced out of manufacturing, and by the increasing penetration of their domestic began to assemble and distribute imported market by Japanese-made goods. Already by Asian products, thus re¯ecting the larger the mid-1950s, US consumer electronics recon®guration in the international consumer assemblers began substituting low-cost impor- electronics industry. By 1985, Asian consumer ted Japanese components for US-made parts.7 electronics ®rms clearly had become the global In the late 1950s, ®nished products from Japan, leaders in terms of cost, quality, and technol- such as transistor radios, entered the US ogy. In contrast, the ranks of the US consumer market. Imported tape recorders and B&W electronics industry had thinned, with only television sets quickly followed. As a result of General Electric, RCA, and Zenith remaining. these imports, by the late 1960s US radio Rising imports from Asian component manu- manufacturing had largely ceased (Curtis, 1994, facturers further devastated Mexico's indige- p. 109; Schi€er, 1991). Contemporaneously, nous supplier base, and the cyclical nature of Japanese ®rms captured an ever-greater market Mexican consumer demand expressed during share for B&W televisionsÐin response, US the global recession of the early 1980s disrupted manufacturers increasingly switched to the corporate planning. As a result, by 1988 local production of color televisions. The ability to content rates in Mexico's domestic consumer stave o€ competition in the color television electronics industry dropped to 10% (NunÄez, market was limited, however, by the increasing 1990, p. 93). popularity of small Japanese-made color sets In part, the decline of this industry can be (Itagaki, 1987; Hiramoto, 1994; MIT attributed to Mexico's growing domestic Commission on Industrial Productivity, 1989, ®nancial crises of the 1980s. Rising imports, p. 14). By the mid-1960s, US color television both legal and contraband, also threatened the manufacturers found themselves struggling to FOREIGN INVESTMENT AND THE GLOBAL GEOGRAPHY OF PRODUCTION 1433 maintain market share against aggressive Table 1. Wage di€erences in electronics assembly by Japanese manufacturers (Porter, 1983, 1986). country, 1970 (average hourly earnings, including In response, many US consumer electronics supplementary compensation in US dollars) a ®rms decided to transfer labor-intensive Country Semiconductors Consumer electronics segments of the production chain to developing countries with low labor costs. Firms typically Taiwan n.a. $0.14 used these o€shore sites to assemble low-qual- Hong Kong $0.28 0.27 ity and/or labor-intensive parts and compo- Singapore 0.29 n.a. nents, rather than to produce complete sets. Jamaica 0.30 n.a. Independent parts suppliers in the United Korea 0.33 n.a. States were among the ®rst to move their Mexico 0.61 0.53 Japan 1.30 0.58 production facilities to Mexico. After all, they Canada 2.11 3.50 were the ®rst to be a€ected by the increasing United States 2.97 2.69 penetration of Japanese-made goods. US assemblers that produced components in-house a Source: Adapted from Wilson (1992, p. 22). Wilson's also moved their parts operations overseas. original source: US Tari€ Commission, Economic Gradually, these ®rms would move a signi®cant Factors A€ecting the use of Items 807.00 and 806.30 of share of their total assembly and manufactur- the Tari€ Schedule of the US, Washington, DC 1970, ing operations overseas. p. A-90. By the late 1960s, Mexico and Taiwan vied for direct US investment (Grunwald, 1985b, 1985b, p. 18). Mexico's advantage was attracted a large number of US investors, and its border infrastructure and its proximity to by June 1971 Mexico hosted 293 predominantly the United States, which allowed US manu- US-owned `maquiladora' plants and in 1978 facturers to be closer to their parent facilities there were 540 of which 32% were in electric/ and headquarters, their domestic supplier base, electronics industries (Fernandez-Kelly, 1983, and their core consumer market (Fawcett, pp. 34, 39).9 1993, p. 5). Mexico's geographic proximity One of the most aggressive US ®rms was however, was not suciently advantageous to Warwick. With its longstanding reputation as a preclude larger US ®rms, including RCA, low-quality, low-cost original equipment General Instruments, Zenith, Philco, and manufacturer (OEM), it was the ®rst US tele- Admiral, from opening facilities in Asia, vision assembler to move to Mexico. As an speci®cally in Taiwan. In the late 1960s, Taiwan OEM for Sears, Warwick was unable to hold had one of the lowest hourly wage rates of any onto its market share on the basis of brand developing country (see Table 1). Early invest- name loyalty.10 Rather, in contrast to other US ment by Japanese electronics ®rms also manufacturers, Warwick was forced to demonstrated the ability of Taiwan, including compete with Japanese OEMs in the late 1960s. its labor market, to support a growing foreign The resulting pressure to lower its wholesale electronics industry. prices forced Warwick to pursue immediate In 1965 Mexico initiated the Border Indus- cost-cutting strategies. Warwick, therefore, trialization Program in an e€ort to attract US became a pioneer through its decision to ®rms moving o€shore (Baerresen, 1971). Under transfer the majority of its operations to this program, foreign-owned plants, referred to Tijuana, Mexico in 1966. In 1968 and 1974, as maquiladoras, were given immunity from Warwick opened two additional facilities in Mexican import duties if they were located Mexico to assemble and produce components within 10 miles of the US-Mexican border and and parts for both its B&W and color television re-exported all ®nished products back to the facilities (Sklair, 1993, p. 51). Although United States. Under this program, cities along Warwick never captured more than 9% of the the US-Mexican border, and later those in US market, it nonetheless remained the largest Mexico's interior (1971), established free-trade electronics assembler in Mexico until the mid- zones and built industrial parks to house new 1970s. During 1966±74, Warwick was also foreign investors.8 This was encouraged by US responsible for the majority of the B&W tele- tari€ schedules 806/807, which allowed US vision exports from Mexico to the United ®rms to circumvent high import duties on only States. As Figure 2 indicates, when Warwick the value-added from Mexican labor, raw discontinued the production and export of materials, or parts. The program quickly complete television sets from Mexico in 1974, 1434 WORLD DEVELOPMENT

Figure 2. Mexico's TV exports to US custom value. (Source: Feenstra, 1995).

Mexican exports of complete receivers to the number of Fortune 500 ®rms after RCA agreed United States ceased altogether. to locate their core operations within the city's With the exception of Warwick, before 1970 industrial park (Sklair, 1993, p. 102).11 Prior to the majority of US electronics plants in Mexico the early 1980s, Ciudad Juarez housed the produced passive electronics components and largest number of US maquiladoras; however, parts that were shipped directly to ®nal goods only a handful were producers of consumer assemblers in the United States. Most of these electronics products and parts. parts suppliers initially located their facilities in By 1973, over 100 electronics maquiladoras Tijuana and Nogales, and they were primarily were fully operational in the border states of small independent ®rms that supplied US B&W Baja California and Sonora (Mexican-Amer- television manufacturers with low-cost, low- ican Review, 1974, p. 26). Our data show that quality tuners and passive componentry. These most of these plants produced or assembled ®rms had no intention of using these facilities parts and components.12 Only four ®rms, to participate in Mexico's expanding domestic Warwick, GTE, Magnavox, and Teledyne, market, as had been the objective of many of used their Mexican facilities to assemble their Japanese counterparts in Taiwan. Rather, complete sets.13 Initially, Nogales had a clear these companies simply took advantage of advantage over other cities along the border as Mexico's lower labor costs. As a result, these a result of its proximity to electronics parts initial investments did not provide ®rms in suppliers in California and Arizona. Wage rates Mexico's interior with the opportunity for in Nogales were also signi®cantly lower than establishing joint ventures or purchasing those in TijuanaÐ$0.34 per hour in Nogales arrangements. versus $0.46 per hour in Tijuana (Kent, 1971, p. By the early 1970s, larger US electronics 6). In 1969, Arthur D. Little designed and manufacturers followed suit and also opened ®nanced the construction of Parque Industrial facilities along the US-Mexican border. de Nogales, S.A., as a means to attract new Commercial and corporate real estate compa- investors to the region (Kent, 1971, p. 6). By nies fueled the burgeoning competition between the early 1970s, the park housed plants owned border cities. By the early 1970s, many of by Magnavox, General Instruments, and Mexico's border towns had established some General Electric. In 1973, 17 of the 37 form of industrial park. Typically, these parks maquiladoras in Nogales were manufacturers of sought investment from a large US ®rm in electronics components.14 Of these, eight had order to o€er a ``seal of approval'' for other parent corporations or plants in Arizona, potential investors. In 1969, Matamoros California, or Texas (Bosse, 1973, p. 21). successfully courted Telectronics (which would As a result of these investments, northern later go bankrupt). During the 1970s, Ciudad Mexico was a key source of parts for the ailing Juarez was able to recruit a considerable US consumer electronics industry. Vertically FOREIGN INVESTMENT AND THE GLOBAL GEOGRAPHY OF PRODUCTION 1435 integrated ®rms, such as Zenith and RCA, used corporate headquarters, and customer base. their facilities in Matamoros and Ciudad The primary objective for these ®rms was Juarez, respectively, to produce components for primarily to protect their position within their their assembly operations in the United States. own domestic market. It was not to take on During 1968±77, Mexico provided US greater risk by attempting to penetrate new producers with the largest foreign source of foreign markets. television tuners, a labor-intensive component. In both 1971 and 1972, Mexico was responsible for 43% of tuner imports to the United States. 5. SELLING TO THE BORDER? In the early 1970s, Mexico was also the largest exporter of tantalum capacitors to the United Despite the continuing relocation of States. production facilities to Mexico, foreign invest- These foreign investors had little interest in ment levels ¯uctuated dramatically throughout the growing consumer base in Mexico. Rather, the 1960s and early 1970s. This phenomenon they were focused on the single goal of surviv- was important, because it colored the percep- ing in the US market. The smaller ®rms hoped tions of Mexican part suppliers (Grunwald, to use their Mexican operations to stave o€ the 1985b, p. 164; Sanchez, interview, 1997; pressures that had forced many of their fellow ZermenÄo, interview, 1997). They saw the producers out of the industry altogether maquiladoras as unstable and very susceptible (Newsweek, 1972, p. 60). Mexico o€ered a to market vicissitudes. This image was espe- close, relatively safe investment environment cially pronounced for the smaller US compo- and an opportunity to cut costs by employing nent makers that established plants in Mexico Mexican workers; consequently, ®rms located in a fruitless e€ort to survive. The complete close to the border. These ®rms did not seek televisions assembled at the US-Mexican access to the domestic market so they were not border during the 1970s were typically low- required to source parts from Mexican-owned quality, low-cost products whose domestic ®rms. This stands in contrast to the Taiwanese markets were under the greatest threat from investment regime over 1965±75, where Japa- imports (e.g., Warwick). Due to vicissitudes of nese producers were interested in accessing the the US market, the purchasing requirements local market. These Japanese ®rms were forced were too unpredictable to warrant an aggres- to seek joint ventures and establish local parts sive marketing campaign on the part of local suppliers in order to meet the high local content supplier ®rms in Mexico's interior (Sanchez, requirements. Although US ®rms in Taiwan interview, 1997). Furthermore, prior to the never tried to gain access to local consumer mid-1970s, the larger US maquiladoras were markets, the contemporaneous development of producing simple, passive componentry that Taiwan's supplier ®rms, and their physical required only basic raw materials and had little proximity to these US ®rms, facilitated local need for Mexican-made subcomponents. sourcing agreements. Both of these conditions The other possibility was for Mexican were lacking in Mexico before the mid-1970s. suppliers to attempt to establish sourcing The distance between Mexico's interior and arrangements with the handful of US manu- the border further restricted the level of inter- facturers that had established both ISI plants in action between Mexico's two distinct consumer Mexico's interior and maquiladora plants at the electronics industries. As initially required border. By supplying to these ®rms, ideally under Mexican law, the ®rst maquiladoras were Mexican ®rms could open new channels for located along the US-Mexican border. This sourcing to both the US maquiladoras and policy was originally intended to encourage eventually to plants in the United States. By the industrial development and employment in the early 1970s, RCA, General Electric, and northern border cities, while simultaneously Magnavox were the only US ®rms that had providing continued protection for domestic established facilities at both the border and ®rms (Sklair, 1993). This law, however, may interior of Mexico. But, the ability of local not have been necessary, as even with the ®rms to use these ISI plants to access the US opening of the entire country during the 1970s electronics industry proved dicult. First, both to maquiladora investment, new electronics the RCA and General Electric ISI plants had investors continued to locate plants close to the little demand for Mexican-made consumer border. As with earlier investors, they enjoyed electronics components. By the 1970s, General the bene®ts of proximity to their US suppliers, Electric, which had originally opened its 1436 WORLD DEVELOPMENT

Mexico City operations to manufacture radios along the Texas border alone, including Ciudad for the Mexican consumer market, switched to Juarez, Nuevo Laredo, Piedras Negras, Mata- manufacturing mostly white goods such as moros, and Brownsville (Newsweek, 1969). refrigerators and stoves. RCA's Mexico City Connections between these cities were not well plant manufactured only picture tubes for developed because of the relatively weak B&W and color televisions and required few transportation infrastructure interlinking locally-made parts or electronic componentry. Mexican border cities. The reason is that the Magnavox, which at ®rst appeared to o€er transportation system is organized as a hub- greater potential for Mexican parts producers, and-spoke system radiating out from Mexico closed its border operations and sold its Mexico City and connecting to US transportation City plant in the mid-1970s. arteries going North from the border. In addition, as noted in our interviews with The Mexican government intended to veterans of Mexican parts suppliers, it was encourage linkages and preferred investment necessary for Mexican ®rms ®rst to establish that provided some bene®ts beyond jobs and contact with corporate headquarters before foreign exchange; however, with the exception initiating sourcing arrangements with a of infrastructure and public works, at the onset maquiladora plant (e.g., Sanchez, interview, there were few policies to promote local-foreign 1997). A multi-industry study by the Colegio de relations. Perhaps what some have character- la Frontera Norte and the University of Texas, ized as the ``ambiguous'' pre-1974 Mexican El Paso in the late 1980s found that 59% of government policy toward maquila investment plant managers had freedom or great in¯uence (Sklair, 1993, p. 50; Wilson, 1992, p. 27) may be on purchasing to purchase, while 41% had little explained, in part, by the general anti-US or no control over purchasing (Aron et al., sentiment common in Mexico. Wilson (1992) 1993).15 Several factors, including the poor has concluded that this ambivalence and lack of reputation of Mexican ®rms and the bias of US state action precluded the development of manufacturers for Asian-made parts, made it local-foreign investment. increasingly dicult for competitive Mexican The logic internal to both the US consumer ®rms to insert themselves successfully within electronics industry and the promoters of these US purchasing chains.16 The centralized industrial parks in the border cities indicate nature of purchasing also limited the extent to that there was little ``space'' for state policies which US maquiladora plants could learn about directed at industrial upgrading. Most Mexi- new sources of parts and components from US cans assumed that the maquiladoras were plants in Mexico City. In contrast to US temporary. As mentioned earlier, this seemed a subsidiaries in Taiwan, the Mexican maquila- reasonable conclusion, given the large number dora plants had little autonomy over and of small, highly vulnerable ®rms, many of knowledge about their own purchasing. It was which did close. Mexican entrepreneurs did not more ecient for US corporations to centralize press for the institutionalization of local-for- their North American purchasing department eign networks or increasing local participation than it was to decentralize responsibility for in maquiladora activities. The problem was not purchasing decisions to maquiladora managers. mistaken state policy, but rather an environ- US subsidiaries located across the Paci®c ment in which state policy could well have been probably had greater autonomy as a result of completely ine€ectual because of US and their physical distance from their US head- Mexican ®rm strategy. Any decision to quarters. purchase Mexican parts would have to be made In addition to the lack of linkages between at corporate headquarters in the United States. the border and interior plants because of US Although the Mexican federal government corporate purchasing policies, another problem decided to open the entire country to foreign related to the geographical separation of investment in 1971 (Sklair, 1993, p. 140), the Mexican parts suppliers and the maquiladoras response by foreign investors was disappoint- restricted the creation of local-foreign rela- ing. The state's decision alone could not change tionships. From its initiation, the Border the dicult investment scenario. Few ®rms Industrialization Program o€ered US ®rms a chose to locate in the interior, quite under- wide selection of host cities at which to locate standably, because moving to the interior along the US-Mexican border. Consumer elec- would have increased the distance from the US tronics activities were dispersed along the market and infrastructure. Even when they border, with ®ve major maquiladora centers located in the interior, however, local content FOREIGN INVESTMENT AND THE GLOBAL GEOGRAPHY OF PRODUCTION 1437 rates remained extremely low (2±3%), especially to supply the maquilas would be unwise (Sklair, in comparison to the 30% average in Taiwan 1993, p. 200). It is dicult to make general- (see, for example, Wilson, 1992). izations, as the recession varied by city and Investment before 1974 o€ered few oppor- industry, but consumer electronics was partic- tunities for linkages to develop. Production ularly hard hit. Tijuana and Nogales experi- sites were scattered, and the investors tended to enced considerable employment losses due to be small, vulnerable ®rms with no interest in factory closures (Sklair, 1993). Whatever busi- establishing ties to the Mexican economy. The ness relationships or production knowledge assemblers had established suppliers in the that had been acquired during operation of United States, so there was no reason to solicit these earlier factories was dispersed when the new suppliers. These characteristics reinforced factories closed. the decision of Mexican suppliers to concen- The Mexican government played a role in trate on supplying domestic TV assemblers, worsening the situation. In 1974, not foreseeing such as Majestic located in Mexico City, rather the impending global recession, the Mexican than risk investing in linkages to the highly government increased the minimum wage by mobile, shifting US ®rms. The uncertainties 22%. For many ®rms, this was the latest in a were too great and the distance to the northern series of wage hikes that increased labor costs border too far, especially given Mexico's rela- more than 100% over 20 months (Mexican- tively weak infrastructure, to convince the American Review, 1974, p. 4). According to domestic ®rms of the advantage of foreign-local Sklair (1993), p. 59), minimum wages tripled in relations. dollar terms from the late 1960s to the ®rst peso The initial investments in consumer elec- devaluation in 1976. Added to this ®nancial tronics maquiladoras were exclusively by US pressure were the mandated bene®ts that companies. Thus the Mexican border was tied increased the total wage to 50% above the to the production decisions, strategies, and Mexican minimum wage. constraints motivating US producers. The US For the US consumer electronics companies companies that opted to rely heavily on already experiencing lower demand due to the o€shore production to lower production costs US recession, the rapidly increasing wages and were already in severe diculties and had a a concomitant upsurge in labor activism high probability of failure (Willard and prompted some ®rms to reevaluate their Cooper, 1985, p. 311). Here the Mexican situ- investments in Mexico. Because the electronics ation diverged from that of Taiwan, which was operations were labor-intensive, Asian ®rms receiving investments from US and Japanese could o€er low-end televisions and television ®rms. In the case of Taiwan, all the US inves- parts at a better price than US ®rms could tors eventually closed; however, their opera- make them in Mexico (Mexican-American tions imparted skills to the Taiwanese and Review, 1974, p. 5). By the end of the oil crisis built supplier relationships that continued even of 1974±75, there had been a dramatic reori- after US ®rms left. Put in another way, entation of the global consumer electronics production knowledge was created in Taiwan supplier chain to the advantage of Asian parts and US managers learned about Taiwan and and components suppliers, and Japanese ®rms Taiwanese capabilities. These relationships had established assembly factories in the then provided a conduit for Taiwanese ®rms to United States, while US ®rms continued to begin supplying US companies with parts withdraw from the industry. and components. Moreover, Japanese ®rms Although the smaller ®rms experienced the continued to operate their manufacturing greatest losses during the 1974±75 recession, facilities in Taiwan. Mexico experienced none some larger ®rms were severely a€ected.17 In of these advantages. 1974, US giant Magnavox announced that it would discontinue all production in Nogales, Mexico. In 1977, after purchasing Warwick a 6. THE MAQUILADORA RECESSION, year earlier, Sanyo closed all its Mexican 1974±76 factories. By the end of the recession, most of the smaller component makers in Nogales and The instability of the US investors was Tijuana had disappeared. con®rmed during the 1974±75 recession, vali- As a consequence of this recession, the dating the perception among Mexican busi- possibility that Mexican ®rms could become nessmen that investing in plant and equipment maquiladora suppliers vanished. The space 1438 WORLD DEVELOPMENT formerly occupied by relatively inecient, low- in Tijuana and Nogales, which were mainly by quality US suppliers was now occupied by smaller independent parts suppliers it was the highly ecient, high-quality Japanese suppliers. leading US consumer electronics ®rms that In addition, aggressive low-cost Taiwanese concentrated in Ciudad Juarez and Reynosa. independents had built their capabilities This was one result of a shift within the tele- supplying United States and, to a lesser extent, vision and consumer electronics industry to a Japanese electronics ®rms. The new competitive more oligopolized structure with a few domi- environment demanded ever-greater quality at nant ®rms (Dicken, 1992, pp. 327±328).19 This constantly decreasing costsÐa dicult objec- shift is also re¯ected in the dramatic increase in tive for Mexican companies that relied on the average number of employees per estab- antiquated technology and a protected home lishment in Ciudad Juarez and Reynosa from market. 100 employees to an average of 400 employees. Since these assemblers required large numbers of workers, smaller cities such as Nogales and 7. NEW BORDER DEVELOPMENTS: Nuevo Laredo, were no longer attractive loca- TARIFFS, TRADE AND MORE TROUBLE tions because of their small labor markets. In addition, transportation costs could be mini- After the 1974±75 recession, the maquiladora mized because the Texas border was much sector, speci®cally the consumer electronics closer to these assembler's television tube industry, experienced several changes. In operations in the Midwest and the large East response to the previous instability, ¯uctuating Coast and Midwestern markets. unemployment rates, and rising wages, the Maquiladora production gradually shifted Mexican government developed measures from component assembly as many US parts aimed at improving the investment environ- suppliers went out of business and the number ment. In 1976, the Mexican government of ®nal assembly plants increased. This trend is lowered wages and launched promotional re¯ected in the export statistics. By the late campaigns and seminars touting the bene®ts of 1970s, Mexico's role had shifted from being a maquiladoras for US ®rms (Television Digest, parts supplier (the parts being increasingly 1976). Although these e€orts may have imported from Asia, except for picture tubes improved the environment, it is dicult to say that came from the United States and Asia) and whether such policies were the reason for the exporter of B&W televisions to an assembler of new investments in consumer electronics. A color TV chassis and kits. The trend was also new round of investment began; however, it a€ected by US trade law, which had higher also was related more to the recon®gurations of tari€s for ®nished televisions than for incom- international industry than to Mexican policy plete televisions. Companies such as RCA, decisions. Sylvania, Zenith, Thomas, Quasar, and The investments by Japanese ®rms in the Motorola shifted their Mexican plants to United States in the mid-1970s were contem- incomplete set assembly. poraneous with a new wave of maquiladora The new maquiladoras were more permanent investment by the US ®rms struggling to than earlier operations, allowing Ciudad Juarez compete.18 The most signi®cant investment was and Reynosa to weather the 1982 recession, by Zenith, which moved the greater part of its even as television assembly factories in the assembly operations from the United States to United States closed. This time production at Mexico (its television tube production the Mexican factories was far more stable and remained in the United States). Prior to this, provided greater potential for growth and Zenith's Mexican plants assembled only backward linkages. Still, the possibility of components. Moreover, RCA, Sylvania, and Mexican ®rms becoming suppliers continued to CTS (soon to exit the business) commenced dwindle, because US ®rms were now almost maquiladora production (Television Digest, completely dependent upon Asian parts 1977). suppliers. In e€ect, building backward linkages In the mid-1970s, the loci of maquiladora to Mexican ®rms was no longer viable investment shifted from Tijuana and Nogales economically because of the ready availability to Ciudad Juarez and Reynosa on the Texas of low-cost Asian-made parts. border. Both cities experienced a considerable Since parts could be imported into Mexico in¯ux of investment from US consumer elec- duty-free as long as they were exported later, tronics ®rms. But, unlike the earlier investments US ®rms could assemble televisions in Mexico FOREIGN INVESTMENT AND THE GLOBAL GEOGRAPHY OF PRODUCTION 1439 and avoid high tari€s on parts. US tari€ laws US-dominated investment regime during 1965± had been written to protect US corporations 85. It is only by relating developments in assembling televisions overseas. Thus, parts Mexico to those in Taiwan during the same and components had higher tari€s than period that we can understand how and why completed sets, so if the parts were shipped to the situation in Mexico unfolded. Mexican plants and imported into the United We identi®ed several factors that contributed States in the form of an assembled or semi-as- to Mexico's failure and the demise of its elec- sembled television, the duty was lower. For tronics industry. Mexico's misfortune in initi- example, the duty on a television tube was ally receiving investment only from the higher than on a ®nished television. Often US declining US parts makers and assemblers, and companies would purchase the tubes in the a lack of integration of the indigenous Mexican United States or Asia and assemble the entire consumer electronics industry with foreign TV set in Mexico (Ohgai, interview, 1996). The investors, were serious obstacles to creating the rules enacted to protect US parts ®rms ulti- backward linkages that might have assisted in mately encouraged the decay of the US parts sustaining a Mexican-owned group of elec- infrastructure, while strengthening the Asian tronics ®rms. Mexico never experienced the infrastructure. Assembly in Mexico also mutually reinforcing relationships generated circumvented the voluntary restraints the between foreign and national ®rms that devel- United States negotiated in the late 1970s with oped in Taiwan. In Mexico the foreign-local Japan and in the early 1980s with Korea and exchanges were ¯eeting or nonexistent, thereby Taiwan limiting the number of televisions that providing little catalyst for entrepreneurs. In could be imported into the United States. contrast to Taiwan, Mexican ®rms were in a In the early 1980s, when Mexico received protected but ultimately stagnant market and investment from more stable ®rms, it was too did not experience ®rst-hand the changes in the late for local ®rms to bene®t because the global industry. market had changed. To remain in business, Another signi®cant obstacle was the long US ®rms competing with high-quality Japanese distance between the US-Mexican border and assemblers needed similar quality parts; they the interior industrial centers such as Mexico had to purchase from Asian component City and Guadalajara. In contrast, foreign makers. In contrast, when the Taiwanese ®rst investors in Taiwan were located close to entered the consumer electronics parts market, indigenous entrepreneurs, thereby encouraging they did so on the basis of joint ventures with communication. The maquiladoras were widely Japanese ®rms, when global quality standards separated from one another, thus inhibiting the were far lower, so they could evolve with the creation of a ``critical mass'', i.e., a supporting global standards. At an advantageous time network of suppliers. The changing centers of Taiwanese ®rms were able to produce relatively electronics assembly along the border meant low-quality and low-technology parts as a that there was insucient opportunity for a means of entering markets. Mexico never had local infrastructure to develop. The transient such opportunities. nature of these foreign investors provided little incentive to Mexican ®rms to make large-scale or long-term investments to supply the 8. CONCLUSION maquiladoras (Grunwald, 1985a, p. 127). Because they could not generate relationships Consumer electronics was the industry that with US consumer electronics ®rms during the placed Korea and Taiwan on their economic late 1960s and 1970s, Mexico's industry missed development path. Our comparison of the the opportunity to bene®t fully from the tech- Mexican and Taiwanese experience provides a nical expertise and production methods of deeper understanding of the complicated foreign ®rms, and consequently developed few nature of development, and an insight into the sustainable capacities. constraints faced by the Mexican state and its Blaming the Mexican government for these industry. To explain the di€erences between failures is as simplistic as crediting the Taiwan's and Mexico's economic development, Taiwanese government with success. Even an the critical variables are not the competence of autonomous state, whether embedded or not, state bureaucracies or inadequate industrial cannot undertake political actions directed policies, but rather relate to ownership and the toward speci®c industries without recognizing spatial and temporal characteristics of Mexico's the internal logic and trajectory of a particular 1440 WORLD DEVELOPMENT industry. Given its proximity to the United industrial concentration, and industry trajec- States, Mexico began with a problematic tories. investment scenario. Mexico's dependence on In Taiwan the indigenous industry developed the US consumer electronics ®rms provided it connections and joint ventures with Japanese with few alternatives for upgrading its elec- ®rms and gradually began supplying US ®rms. tronics industry. In fact, it was only in the This permitted the creation of the ``bed'' for 1980s that Mexico began to receive the Asian Evan's ``embedded autonomy''. Mexico's bed investment that transformed it into a leading of local ®rms had little interest in supplying the assembler of televisions (Kenney and Florida, maquiladoras, so autonomy was far more di- 1994; Choi and Kenney, 1997). cult and autonomous state action would likely While recognizing Mexico's dicult initial have ended in failure. It is dicult to support conditions, however, it is also true that the the assertion that if the state had been more Mexican government did not develop any active it could have fully corrected the prob- signi®cant sectoral policies. Perhaps an e€ort to lems of the Mexican consumer electronics convince Mexican parts suppliers to relocate to industry and the instability of the early foreign the northern border region, combined with a investors. In the late 1980s and 1990s, Mexico long-term persistent campaign to induce developed a thriving Japanese ®rm-led consu- foreign investors to buy Mexican parts, might mer electronics industry in Baja California, have set the groundwork for a more positive even though there were no signi®cant sector- outcome. But, success would not have been speci®c policies for this industry. Our study of guaranteed, as the great vicissitudes their target the Mexican consumer electronics industry customers experienced would have made any provides ample evidence that the state-centric e€ort to integrate Mexican ®rms with US- theories undervalue industrial trends, owned maquiladoras extremely dicult. Policy geographic factors, infrastructure and labor makers driven by various short-term political variables, and global economic shifts and considerations (and, to an even greater degree, oversimplify or fail to characterize correctly the academicians viewing decisions retrospectively historical and industrial complexities at play. In and having no deep industry knowledge) often this sense, they may be poor guides for policy- overlook the importance of physical proximity, making.

NOTES

1. Though we do not examine the development in ®rm as a means of acquiring the brand name. No other Latin American countries, a similar decline was production, marketing, or ®nancing arrangements were experienced by ®rms in Argentina, Colombia and Brazil made between the Mexican and the US companies. (Azpiazu, Basualdo and Noche€, 1988). 6. Grupo Industrial Alfa, SA (Alfa) was created in 1974 to manufacture steel, paper products, and packag- 2. Haggard (1990) begins the process by recognizing ing materials. Its origins can be traced back to Mexico's that these are di€erent state policies, but does not Cerveceria Cuauhtemoc brewery founded in 1891 by explicitly acknowledge that di€erent industrial structures Eugenio and Robert Garza Sada (Robinson, 1982. p. 44). condition the outcomes of industrial policies. This has Alfa entered the consumer electronics market in 1975 become much more obvious with the recent Asian with the purchase from Ford Motors of its Philco ®nancial crisis, where the fates of Korea and Taiwan operations in Mexico City. In 1978, it also purchased the have diverged noticeably. Mexico City operations of Admiral and Magnavox (Flores, interview, 1997). 3. Even the most valuable component in a television, the picture tube, was produced in Mexico. 7. Baerresen (1971, p. 118) showed that Japanese suppliers o€ered various tuner components at between 4. Majestic controlled over 16% of the B&W television 30 and 60% less than did US suppliers. market in 1970 (Saul Flaschner, interview, 1997). 8. Several terms were used to describe the foreign 5. Packard Bell SA had no aliation to Packard Bell in plants that took advantage of these free trade zones. In- the United States. The rights to the name were bond plants referred to the bonded nature of these ®rms, purchased from Teledyne during the 1970s by a Mexican speci®cally to their requirement to purchase a govern- FOREIGN INVESTMENT AND THE GLOBAL GEOGRAPHY OF PRODUCTION 1441 ment bond as a means of guaranteeing the re-export of 14. Not all of these were consumers electronics facil- all goods produced or assembled within this border ities. Some plants assembled transistors and components export zone. The bond was approximately 1 percent of for other purposes. the value of the imported materials, equipment, or components (South, 1990, pp. 551, 567). 15. It is unlikely that the US industry, which was under such severe pressure because Japanese television sets 9. It is important to note that not all of these ®rms were already considered to be higher quality, could risk were in the consumer electronics industry. Another sourcing suspect parts. The electronics industry tradi- important sector was transistor and semiconductor tionally has operated with global purchasing oces assembly; however, by the end of the 1970s nearly all located at headquarters, though in the early 1980s many semiconductor assembly had been relocated to South- US ®rms established regional components purchasing east Asia (Scott, 1985). operations in Asia.

10. These were sold at Sears stores under the brand 16. Brannon, Dilmus and Lucker (1994) show that this name Silverstone for the US market. reputation persisted into the 1990s. Kenney and Florida (1994) found a similar belief among Japanese managers 11. The park's owner was Antonio Bermudez, a major in the early 1990s. Mexican proponent of the maquiladora program (Busi- ness Week, 1972). 17. During this period there was a global shift as US semiconductor ®rms, some of which had operations in 12. Our database draws on several sources. The most Mexico, decided to relocate assembly and quality important source is Television Digest, the weekly televi- control facilities to Southeast Asia (Scott, 1985). sion trade journal. It primarily covers events and decisions speci®c to the US television industry. The other important source of information is a database on 18. The ®rst investments were by Sony in 1972. In foreign investment in Mexico compiled by the North 1973, Matsushita purchased the Motorola plant in American Committee on Latin America (Herold, 1979). central Mexico. The bulk of investment in Mexico by Our database is not a complete record of all investments Japanese consumer electronics ®rms occurred after the in Mexico during 1965±85; however, it provides su- late 1970s (Kenney, 1999). cient detail to examine the broad trends in investment and their impact for the border economy. 19. Despite the fact that the number of competitors decreased, price competition remained ferocious, 13. The share of complete sets assembled by GTE, prompting all participants to adopt measures aimed at Magnavox, and Teledyne was insigni®cant. lowering costs.

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