Spillovers from MNCs through worker mobility and technological and managerial capabilities of SMEs in Mexico.

SUMMARY

At international level, there is a consensus that the Multinational Corporations (MNCs) can function as a channel of diffusion of knowledge and technology, and that they can contribute to accelerate the economic development processes in the countries where they are established, by means of technological spillover effects. The spillovers are beneficial if they are captured by the firms linked to the MNCs.

Human capital spillovers are associated with the continuous training of employees by MNCs and the mobility of these employees toward domestic firms. These spillovers, can contribute to the development of technological and managerial capabilities of the local firms, which in turn increase their absorptive capacity,

This paper explores the spillovers from the MNCs through worker mobility toward small and medium-sized enterprises (SMEs), and discusses to what extent the firms created by former employees of the MNCs have larger technological and managerial capabilities than those whose owners did not have this previous experience. This paper focuses on the case of the MNCs that operate under the maquila regime in Mexico and on the machine shops industry, a sector of SMEs that is a supplier of these MNCs. The source of information is a census carried out between August and October 2002 on this sector in a Mexican locality. A classification of the firms in terms of their technological and managerial capabilities was carried out by means of two multivariate statistical methods: multiple correspondence analysis and hierarchical cluster analysis. Then, a comparison of the capabilities of these firms in each cluster is carried out, differentiating between those firms whose owners have had previous work experience in the maquila industry from those that have not.

The evidence shows an heterogeneous sector, grouped in 6 different clusters according to the technological and managerial capabilities of the firms. A positive relationship was found between the previous experience of the SMEs' owners in the maquilas, and between the specific job position occupied by the firms' owners, and the technological and managerial capabilities of the firms. The owners that occupied managerial job positions seem to have acquired technical and managerial skills that are required for their new firms.

KEYWORDS

technological spillover; managerial capabilities; local economic development; multinational corporations (MNC); small- and medium-sized enterprises (SME); employees; knowledge transfer; skill transfer; employee mobility; human capital; continuous training

1. INTRODUCTION

At international level, there is a consensus that the multinational corporations (MNCs) can function as a channel of diffusion of knowledge and technology, and they can contribute to accelerate the economical development processes in the countries where they have subsidiaries, by means of technological spillover effects. The technological spillovers are transfers of knowledge and skills (technical and organizational) from these MNCs that result in an improvement in the performance of partner, supplier or competitor firms, as well as of the other agents they interact with. They are considered to be an economical externality, they are not generated voluntarily and have no cost for those profiting from them. They are beneficial if they are captured by the domestic firms and institutions linked to the MNCs' subsidiaries.

In Mexico, foreign direct investment in the manufacturing industry carried out by MNCs under the maquila regime plays an important role. (1) The 3,200 plants operating in 2002 contributed with 48.6% of the total exports in the Mexican economy, and with 51.6% of their exports growth between 1993 and 2002. They generate 30% of the manufacturing employment, and in addition each direct job generates 3 indirect jobs.

The evolution of the maquila industry in Mexico was not limited to a growth in the number of establishments and employees, over time, a large number of the maquilas have modified the nature of their productive and technological activities toward more complex products and activities of higher technological content. (2) In addition, there was a gradual increase in the number of Mexican personnel that occupy technical and managerial positions, as well as an accelerated growth and renewal of the technical skills of the workers.

Even though most of the components have been provided by foreign suppliers located abroad, from the mid 1980s some foreign suppliers of different inputs began to establish facilities in Mexico, and a few domestic Mexican suppliers of indirect materials (machining, packaging, production related services, etc.) were developed. Most of these are small and medium-sized enterprises (SMEs). This is how local networks between maquilas and domestic firms began to develop in some localities. (3,4)

In spite of the fact that the maquila industry has had a limited impact in the development of the local SMEs suppliers, its presence in Mexico has generated some technological spillover effects. Human capital spillovers can be observed, associated with the continuous training of the employees and the mobility of these employees toward domestic firms, in particular there are several cases of former employees who created their own firms. (5) Other types of technological spillovers can be observed, such as some cases of backward linkages with local suppliers.

There is growing literature on technological spillovers. Three bodies of literature can be identified. The first body focuses on the relationship between foreign direct investment, technological spillovers and productivity; positive results of an increase in the foreign direct investment on the productivity of domestic firms suggests the existence of intrasectorial spillovers. (6) A second body of literature assumes the existence of spillovers and focuses on the absorptive capacities of external knowledge by the domestic firms. (7) A third body of literature focuses on intersectorial spillovers and analyses the conditions that stimulate the technological spillovers through linkages between MNCs and SMEs in developing countries. These linkages can facilitate the direct transfer of production processes, operation systems and managerial skills. (8) In these three bodies of literature, most of the works show that spillovers occur, but they do not explain the mechanisms of knowledge transmission, and there is a limited analysis on the effect of these spillovers on the accumulation of technological and managerial capabilities of the local firms.

Coming from a different perspective, there is a vast amount of literature on learning and technological capability accumulation of firms which has explored deeply the process of accumulation of technological capabilities, (9) but has not approached the issue of the effects of technological spillovers on these capabilities.

The aim of this paper is to explore the spillovers from the MNCs through worker mobility towards SMEs, and discuss to what extend the firms created by former employees have larger technological and managerial capabilities than the firms whose owners did not have this prior experience. The MNCs analyzed operate under the maquila regime in Mexico. The central hypothesis of this paper is that firms created by former employees of the maquila industry should have more technological and managerial capabilities than other firms without this characteristic; the previous experience allowed these owners to acquire technical and managerial knowledge, then when they leave the maquilas and create their own firms they can transfer knowledge into these firms, which would then contribute to develop technological and managerial capabilities.

Thus, this paper focuses on discussing how one type of human capital spillover arose and what its nature is, and on evaluating the technological and managerial capabilities of the SMEs, rather than quantifying the increases in productivity and the improvement in the levels of competitiveness of these local domestic firms. In doing so, this paper draws largely on the literature on absorptive capacities and on the linkages between MNCs and SMEs, but introduces ideas coming from the literature on learning and technological capabilities accumulation.

This work is based on empirical evidence gathered in a Mexican locality in the border with the United States, Ciudad Juarez, which concentrates approximately 8% of the plants and 20% of the employment of the maquila industry in Mexico. It is focused on a sector of SMEs that is a supplier of the maquilas, the machine shop sector. The source of information is a census carried out between August and October 2002 by the authors in the machine shop industry, formed by 158 firms, called also machine shops. (10) A classification of the firms in terms of their technological and managerial capabilities will be carried out by means of two multivariate statistical methods, the multiple correspondence analysis (MCA) and the hierarchical cluster analysis (HCA). Afterwards, a comparison of the capabilities of the firms in each cluster will be carried out, differentiating between those firms whose owners have had previous work experience in the maquila industry from those that have not.