Automotive industry in Mexico: development technological path and upgrading

Abstract:

Building research and development capabilities is considered imperative for developing countries in order to upgrade their industries and improve competitiveness. Once an industry reaches consolidation and entry barriers increase, the developing countries become confined to manufacturing products with low added value (UNCTAD, 2005). However, in developing countries emergence of new local players in consolidated industries, such as automotive manufacturing have proven the contrary. The economic and industrial policies in these countries have focused on actions that maximize the degree of technology spillovers from Foreign Direct Investment (FDI), improving their ability to absorbe new technologies, build infrastructure, educate human capital and encourage domestic companies to invest in research and development. Globalization of research and development has become a mayor trend increasing in the last decade; most of the FDI on Research and Development (R&D) was applied in developed countries, especially in manufacturing sectors. This aimed to take advantage of their innovation capabilities. However, in recent years this trend has changed and China and other Asian countries have increased their share of FDI on R&D. The 2008 economic crisis promoted a process to identify the technological potential of the automotive industry in Mexico, define the research activities that can produce more profits, and draw public policies capable of influencing these activities and their positive impact on the economy. In order to explain differences in the development of technological capabilities over the years, we analyze the relative importance of industrial, fiscal and R&D policy and its relationship with the production capabilities developed in Mexico. Although there are innovation capabilities in manufacturing and some automotive Research Centers have been opened in México, the amount of investment in R & D by multinationals, government and local companies as a percentage of the GDP have been insignificant when in comparison to other countries. The technological potential of the country is restricted in some degree to electronics and power train systems. Government support innovation in the automotive industry through tax incentives has had some positive results according to Calderon, but it is always of great concern in the country to provide subsidies to multinational corporations.