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An implication of the model presented above is that the goods coming from Mexico and the Caribbean should be composed primarily of products that are more subject to ongoing replenishment orders by lean retailers. In contrast, those products coming from Asia should be primarily composed of items where replenishment is currently not being practiced, and therefore where traditional cost considerations dominate the issue of variability in demand.
In order to examine this issue, we analyze the product specific composition of apparel goods originating in China and Mexico (the appendix provides detailed information on the data used throughout the chapter). If the growth in Mexico as a source of imports during the 1990s arose as a result of broad changes in trade policy (e.g., lowering of tariffs under NAFTA) or from exchange rate shifts, one would expect all product categories to move in the same direction (that is—all product categories should be moving up). Similarly, if national factor productivities rose (or relative wage levels fell), one would expect to find an increase in the volume of imports from that nation, all other things being equal, with the basic composition staying the same. If, on the other hand, replenishment has become a more important factor in sourcing products in Mexico, as we would expect given the rise of lean retailing and growth in product proliferation, one would expect to observe a shift in Mexico’s product composition from the beginning to the end of the decade. Similarly, if China is not being used as a source of replenishment and sourcing decisions remained driven by traditional factors, one would not expect to see a broad based shift in the composition of goods over the study period, except arising from significant shifts in consumer taste.
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