Sourcing strategies of Asian manufacturers and the development of local linkages in San Diego and Tijuana

Abstract

The Asian manufacturers in Tijuana have a considerable impact on the regional transboundary economy of Baja California and Southern California. The respondent firms in the survey conducted as part of this study sourced an average of 30 percent of all inputs regionally. This is of fundamental importance since linkages promote regional sustainable economic growth and the transfer of technology to local suppliers. However, in the case of Asian manufacturers in Tijuana, these beneficial local linkages were primarily restricted to Japanese and Korean suppliers; indigenous Mexican suppliers were rarely used. Local linkages developed by Asian companies in San Diego and Tijuana are in large part generic inputs, although some core inputs have also been purchased. This may be due to greater local decision‐making authority for generic inputs sourcing compared to more meaningful core inputs. The four most important reasons given by respondent companies for using local suppliers in San Diego and Tijuana are, in order of importance: quality, cost competitiveness, consistent availability, and local content regulations (NAFTA Rules of Origin). These results sharply contrast with with those of earlier research on local inputs from Mexico. This contradiction is primarily due to confusion regarding the term “local suppliers.” The results of this study support the statement made earlier that Asian respondents mainly use Asian‐owned local suppliers. Survey respondents did not use local Mexican suppliers for the same reasons, in order of importance: required inputs were simply not available, there were quality deficiencies, local suppliers were not cost‐competitive, and capacity was not available. Nearly 85 percent of all plant managers from the respondent companies stated that there was no company policy against sourcing locally. In combination with the large amount of local decision‐making authority in choosing local suppliers, this appears to create a huge opportunity for the supporting industries in Mexico. Furthermore, nearly 70 percent of the respondents stated that the cost of locating and cultivating local suppliers would not be an obstacle. There has been more local linkage formation in the service sector. The Asian respondents purchased most of their services externally from service providers in both San Diego and Tijuana. There was no difference in the importance of the two cities in providing services. Transport and distribution, customs brokerage, and packaging materials were found to be the most important service categories. Local linkage formation is also very dependent on each company's strategy and the number of years that the firm has been in Tijuana.