Japanese Cooperation and Supporting Industry in Mexico’s Automotive Sector

The Mexican automotive industry faces challenges from an evolving context and changes in the manufacturing process. The industry is a pillar of the Mexican economy and showed resilience during the COVID-19 pandemic. As the world moves to a post-COVID-19 scenario, the industry faces new challenges stemming from the United States-Mexico-Canada Agreement (USMCA) regulations and a shift to Electric Vehicle (EV) production. Japanese cooperation has shown to be an important avenue for supplier development and human resource training needed in the industry.

During the past three decades, Mexico has participated actively in Global Supply Chains (GSC). The Mexican automotive sector stands out as one of the major players by becoming the fourth global exporter of automobiles and the seventh of auto parts. Japanese cooperation has played an essential role in promoting the sector’s development and thus increasing the impact of Japanese Foreign Direct Investment (FDI) in the country. Using the Fragmentation of Production approach and based on firm-level data, this chapter analyses the role that Japanese FDI has played in the Mexican automotive sector, becoming a main stakeholder in the sector’s production, exports, and employment. The study also shows how Japan’s cooperation has facilitated the development of local suppliers and the training of human resources, facilitating the entry to the networked production chains that Japan has contributed to building in North America. With the new challenges posed to local suppliers by the new rules of origin from USMCA and the recent tendencies of nearshoring, the chapter highlights how the experience accumulated through Japanese cooperation can inform public policies to overcome those challenges for the development of the automotive sector.

The transition to Electric Vehicle (EV) production is a worldwide phenomenon. Many countries have established transition goals by the end of the decade and are offering incentives for producers and consumers to shift to EV technology. The transition is expected to be phased out depending on demand pull factors occurring in developed nations in the first stage and in developing nations afterward. For Mexico, the COVID-19 pandemic and new regulations under the United States-Mexico-Canada Agreement (USMCA) have also accelerated interest in EV technology. A post-COVID-19 scenario suggests less reliance on Chinese parts and components, and the USMCA regulations favor the further integration of North American Global Value Chains (GCVs). The challenge for local Small and Medium Size Enterprises (SMEs) resides in entering more competitive GVCs as EVs require fewer parts and components than traditional Internal Combustion Engines (ICE). Thus, the EV transition will have a crowding-out effect on suppliers that do not meet quality and dependability indicators. Also, automotive assemblers will increase in-house production of integral parts, components, and software development, altering the different stages of production. Japanese cooperation may assist in the EV transition via joint ventures and projects aimed at human capital and supplier development.

From an international Relations perspective, Japanese international cooperation in Mexico is analyzed as a strategy that promotes investment in the automotive sector through training the labor force and improving conditions for Japanese investment prosperity, assuming that the United States-Mexico-Canada Agreement (UMSCA) is a fundamental incentive.

The analysis recovers the institutions as the vehicles that promote the response of the different actors involved in the production processes to make them successful. Thus, institutional neoliberalism will be the theoretical approach that allows an understanding of the importance of institutions to give certainty to the agreements and potentiate the results of the International Development Cooperation (IDC). While in Japan, the Japan International Cooperation Agency (JICA) is the institution responsible for technical cooperation programs, in Mexico, the Mexican Agency for International Development Cooperation (AMEXCID) is the institution responsible for cooperation actions. Mexican local governments also contribute to taking advantage of the externalities of FDI and IDC by designing public policies.

This paper focuses on the weaknesses of the SME sector and Japan’s efforts to meet the needs of large industries in Guanajuato, Mexico, through JICA programs, analyzing how IDC supports small and medium-sized enterprises (SMEs) to improve the local labor force and strengthen the automotive industry.

Previous literature regarding the spatial distribution of Japanese automotive production networks focuses on regional factors. However, data limitation of empiric studies is observed when the role of the keiretsu is analyzed. This limitation is primarily due to the fact that Japanese firms do not publicly inform about their affiliation with a Keiretsu group. When information is available, it is reported for firms established in Japan and not generalizable to affiliate firms abroad. This study attempts to fill in these gaps in the literature by employing quantitative research methods and employing data at a local level. The keiretsu type of an organization is analyzed using Social Network Analysis for Japanese automotive firms in Guanajuato, Mexico. The results highlight that major automotive companies such as Toyota, Honda, and Mazda are topologically close and share ties among them. Assemblers share supplying firms and maintain exclusive relationships with a low number of firms. This type of production preference allows firms to benefit from shared supplier development and allows suppliers not to be tied to one client. The pandemic’s effects on production have demonstrated the necessity to reconsider processes that allow the automotive industry to enhance supply chains by fortifying cooperative ties. The analyzed Keiretsu system is observed as a complicated, intertwined, and collaborative network in the State of Guanajuato.