Supplier responses to Walmart's invasion in Mexico

Leonardo Iacovone, Beata Javorcik, Wolfgang Keller, James Tybout

Research output: Contribution to journalArticle

12 Scopus citations

Abstract

This paper examines the effect of Walmart's entry into Mexico on Mexican manufacturers of consumer goods. Guided by firm interviews that suggested substantial heterogeneity across firms in how they responded to Walmart's entry, we develop a dynamic industry model in which firms decide whether to sell their products through Walmex (short for Walmart de Mexico), or use traditional retailers. Walmex provides access to a larger market, but it puts continuous pressure on its suppliers to improve their product's appeal, and it forces them to accept relatively low prices relative to product appeal. Simulations of the model show that the arrival of Walmex separates potential suppliers into two groups. Those with relatively high-appeal products choose Walmex as their retailer, whereas those with lower appeal products do not. For the industry as a whole, the model predicts that the associated market share reallocations, adjustments in innovative effort, and exit patterns increase productivity and the rate of innovation. These predictions accord well with the results from our firm interviews. The model's predictions are also supported by establishment-level panel data that characterize Mexican producers' domestic sales, investments, and productivity gains in states with differing levels of Walmex presence during the years 1994 to 2002.

Original languageEnglish (US)
Pages (from-to)1-15
Number of pages15
JournalJournal of International Economics
Volume95
Issue number1
DOIs
StatePublished - Jan 1 2015

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Supplier responses to Walmart's invasion in Mexico'. Together they form a unique fingerprint.

  • Cite this