Mexican Competitiveness in the U.S. Furniture Market versus China

Lidia Martínez Murillo

A thesis submitted in fulfillmentof the requirements for the Degree of Doctor of Philosophy, The University of Leipzig 2009

Abstract

A novel mechanism for measuring the competition between China and Mexico in the U.S. furniture market is presented in this work. Such a mechanism takes industry´s upgrading as the main indicator to find out the causes of China success and the loss of predominance of Mexico in the U.S. market. The proposed methodology combines elements of the Global Commodity and Global Value Chain Theories -for which upgrading mostly came from private companies- with those arguments from the Territorial Endogeneity and the Systemic Competitiveness frameworks – for which upgrading involves the interaction of several economic actors and policies. This novel approach will prove that in this globalization era, industry upgrading requires a close collaboration among economic actors and public and private policies. Unlike other studies, this research focuses on the causes of the upgrading experienced by the Chinese and Mexican furniture industries. Then it compares the competitiveness of Chinese and Mexican products in the U.S. market through a Revealed Competitiveness Index (RCA) applied to the 30 leading Chinese and Mexican furniture exports to the U.S. market at 6 digits of the harmonized system from 1992 to 2007.

This research demonstrates that China is not the cause of the loss of competitiveness of Mexican products in the U.S. furniture market. Instead, Mexico is losing market share and competitiveness because of a lack of upgrading in its domestic furniture industry. This has been caused by the lack of territorial endogeneity caused by internal conjectural problems such as an ineffective correlation between productive channels, deficiency in product design, lack of finishing, little production of Ready To Assemble furniture and MDF, and lack of financial resources. All these elements hinder the modernization of the Mexican furniture industry and disadvantage its competition with China in the U.S. market.

Field research was carried out in order to validate the above assumptions. This research is comprised of several professional interviews with stakeholders in the American and Mexican furniture industries including, members of the Business Institutional Furniture Manufacturers Association (BIFMA) in Michigan and the Mexican Furniture Manufacturers Association of Jalisco (AFAMJAL).

Contents

Chapter 1:    Introduction 14

1.1 Motivation. ………………………………………………………………………14

1.2 Upgrading and Competitiveness, Can They work Together?………………..17

1.3 Why Furniture?………………………………………………………………………………19

1.4 Methodology ………………………………………………………………….  22

1.5 Research Objectives…………………………………………………………. 25

1.6 Key Questions………………………………………………………………….26

1.7 Related Publications and Colloquia …………………………………………26

1.8 Thesis Outline………………………………………………………………….27

Chapter 2:    The Global Commodity and Global Value Chain Theories 30

2.1 Introduction……………………………………………………………………..30

2.2 The Global Commodity Chains Theory (GCC)……………………………..30

2.3 The Global Value Chain Theory (GVC)…………………………………….. 37

2.4 The Global Furniture Value Chain……………………………………………47

2.4.1 Furniture Commodity Chain………………………………………..47

2.4.2 Theoretical Works about the Global Furniture Industry………….54

2.4.3 The Role of China, Mexico and the U.S. in Global Furniture

Production……………………………………………………………57

2.4.4. The Role of China, Mexico and the U.S. in Global Furniture

Trade…………………………………………………………………60

2.4.5 Largest Manufacturers and Retailers in Global Furniture Value

Chain…………………………………………………………………..66

2.5 Concluding Remarks…………………………………………………………..68

Chapter 3: The Territorial Endogenous and the Systemic Competitiveness

Approaches 71

3.1 Introduction ……………………………………………………………………..71

3.2 Common Points…………………………………………………………………71

3.3 The Territorial Endogenous Approach……………………………………….74

3.4 The Systemic Competitiveness Framework……………………………….. 79

3.5 Concluding Remarks…………………………………………………………. 84

Chapter 4: Macrolevel Regional Integration Models in China and Mexico: Asian

Triangulation versus the Maquiladora Industry 85

4.1 Introduction………………………………………………………………………85

4.2 The Chinese Development Model …………………………………………   85

4.2.1 The Open Door Policy and Export Processing Zones………….86

4.2.2 The Importance of Specific Sectoral Policies and Productive

Clusters………………………………………………………………88

4.2.3 The Role of Foreign companies …………………………………..92

4.2.4 The Asian Triangulation Model……………………………………..94

4.3 Mexican Development Model ………………………………………………..99

4.3.1 The Export Oriented Industrialization Strategy……………………99

4.3.2 The Regional Integration Model (NAFTA)……………………….101

4.3.3 The Maquiladoras Model………………………………………….102

4.5 Further Steps to Remain Competitive……………………………………..109

4.5.1 Beyond Asia, China Goals in the Global Economy……………109

4.5.2 The Reinforcement of the Regional Integration (SPP Initiative)

4.6 Concluding Remarks…………………………………………………………205

Chapter 5: Mesolevel Industry’s Overview of the American, Chinese and

Mexican Furniture Industries 117

5.1 Introduction…………………………………………………………………..117

5.2 The American Furniture Industry……………………………………….….117

5.2.1 Production Levels…………………………………………………118

5.2.2 Largest Producers …………………………………………………122

5.2.3 Furniture Trade……………………………………………………..116

5.2.4 The Antidumping Case against Chinese Wooden Bedroom Furn.

5.3 The Chinese Furniture Industry……………………………………………..133

5.3.1 Production Levels and Regional Production Clusters………….134

5.3.2 Asian Triangulation within the Chinese Furniture Industry……..136

5.3.3 Largest Producers and Retailers………………………………….138

5.3.4 Furniture Trade………………………………………………………141

5.3.5 Governmental Policy in Furniture and Furniture Related Industries

5.4. The Mexican Furniture Industry ……………………………………………144

5.4.1 Production Levels…………………………………………………..146

5.4.2 Largest Producers and Retailers…………………………………149

5.4.3 The Maquiladora Furniture Industry………………………………151

5.4.4. Furniture Trade……………………………………………………..152

5.4.5 Governmental Policy in Furniture and Furniture Related …….  155

Industries

5.5 Concluding Remarks……………………………………………………….   159

Chapter 6:    Mesolevel Application of GCC and GVC Theories to the American, Chinese and Mexican Furniture Industries 161

6.1 Introduction……………………………………………………………………161

6.2 The Role of American Companies in the Upgrading of the Chinese and

Mexican furniture industries ……………………………………………….161

6.3 Types of Governance ………………………………………………………167

5.3.1 in the American Furniture Industry and M&RCs Companies..167

5.3.2 in the Chinese Furniture Industry………………………………. 170

5.3.3 in the Mexican Furniture Industry……………………………….. 172

6.4 Types of Upgrading………………………………………………………… 173

5.4.1 in the American Furniture Industry……………………………… 173

5.4.2 in the Chinese Furniture Industry……………………………….  174

5.4.3 in the Mexican Furniture Industry…………………………………176

6.5 Concluding Remarks………………………………………………………..  177

Chapter 7:    Microlevel Competing Products between China and

Mexico in the U.S. Furniture Market 178

7.1 Introduction…………………………………………………………………….178

7.2 Where Does the Competition take place?………………………………………..178

7.3 Performance of Chinese and Mexican Furniture Exports to the U.S. Market

in Terms of Market Share………………………………………………   183

7.4 Theoretical Competitiveness of Chinese and Mexican Furniture Exports

7.4.1 Vollrath´s RCA Index ………………………………………………189

7.4.2 Vollrath´s Index into the 30 Leading Chinese and Mexican Exports

7.5. Market Penetration Strategies followed by Chinese and Mexican Furniture

Companies to enter the U.S. Furniture Market…………………………200

7.5.1 Strategies followed by Chinese Furniture Companies………..200

7.5.2 Strategies followed by Mexican Furniture Companies………..203

7.6 Competition or Complementarily? The Importance of China within the

Mexican Furniture Industry…………………………………………………..205

7.7 Concluding Remarks…………………………………………………………210

Chapter 8:    Conclusions and Recommendations 212

8.1. General Conclusions…………………………………………………………212

8.2 Main Contributions of this Research Project……………………………….218

8.3 Alternatives for Mexico in order to remain competitive in the U.S.

Furniture Market…………………………………………………….………..219

Bibliography 222

Appendix A: Results of the Online Survey applied to American Companies

investing in the Chinese and Mexican Furniture Industries 248

A.1 General Profile………………………………………………………..248

A.2 Reason for Investing Abroad………………………………………..249

A.3 Type of Production in China and Mexico…………………………..251

A.4 Competitiveness of Chinese and Mexican Products……………..257

A.5 Type of External Support and Further Areas of Collaboration

Appendix B: Results of the Online Survey applied to Mexican Furniture

Companies exporting to the U.S. Market 259

B.1 General Profile……………………………………………………260

B.2 Type of Relationship with American Companies……………..262

B.3 Competitiveness of Chinese and Mexican Products………….263

B.4 Type of External support and Further Areas of Collaboration.26

Si desea que le enviemos la Tesis completa, por favor solicitarla en el espacio de Comentarios, aqui a continuacion, dejando sus datos y dirección electrónica. Muchas gracias.

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