Competing in a Lean World: Responding to the Pressures of Free Trade and Lean Production

Abstract

Much of the literature on free trade in North America as dealt with two issues: first, the details of the Canada-US Free Trade Agreement(CAFTA) and the North American Free Trade Agreement (NAFTA) and the processes through which they were negotiated, and second, their likely microeconomic, macroeconomic and social impacts. Similarly, work on the shift from mass production to lean production has dealt with the components of lean production and how firms are affected by the shift to just-in-time production, zero defect quality, simultaneous engineering, etc. A less studied topic has been how North American firms and industries will respond, and are responding, to the opportunities and threats represented by free trade. Similarly, little work has been done on how firms in North America are responding to the pressures and opportunities of lean production. What work has been done tends to focus on US multinationals, such as the Big Three auto assemblers, firms that already are diversified into the three NAFTA countries. Our work shifts this focus to look at auto parts suppliers -- firms who sell to the Big Three -- in Canada and Mexico. These firms tend to be smaller firms, domestic rather than foreign owned, and less engaged in trade or investment outside of their own country. As such, these firms face different opportunities and threats from regional integration than do US multinationals. In addition, auto parts suppliers tend to be reactive to the pressures, rather than initiators, of lean production techniques, as they respond to demands placed on them by downstream auto assemblers. Therefore this paper attempts to examine firm responses to the pressures of the 1990s (free trade and lean production) through a nontraditional lens; that is, not through the lens of the responses of veteran multinationals such as the Big Three US auto multinationals, but through the lens of the responses of their upstream smaller suppliers, in the host countries, Canada and Mexico.