Evolution of capabilities in agribusiness: the case of the Mexican dairy sector

The aim of this thesis is to investigate how capabilities are created, accumulated and evolved as dairy farmers and dairy processors interact with other actors (e.g. suppliers, government organisations, research organisations, universities, MNCs, etc.) in three Mexican dairy regions in the Mexican dairy sector (MDS). The MDS plays an important part in mitigating the social problem of malnutrition in low-income families and reducing peasant migration. In particular, this thesis analyses the processes of capabilities building to integrate the value chains of those firms in complex socio-economic and technological systems. In these processes, regional actors, their networks and institutions have played major interdependent roles during globalisation following the signing of the North American Free Trade Agreement, NAFTA (i.e. 1994-2004), which ended a long period of imports substituting industrialisation regime. This thesis proposes the concept of sector-specific regional capabilities (i.e. regional capabilities) and an analytical framework based on this concept in order to fill gaps in the literature on evolutionary economics, firm, organisation and strategy and regional innovation systems. The thesis investigates the integration of the micro (firms) and meso (regions) levels of capabilities development in agribusiness in a developing context. The research builds upon four main theoretical approaches: 1) dynamic capabilities of firms; 2) regional system of innovation, including regional capabilities, 3) sectoral systems of innovation; and 4) a function-based approach to comparing regional performance in capabilities building aimed at improving policy making. By combining elements of these approaches, this research articulates the logic of the coevolution of routines into improved and new capabilities within farms and dairy processors (i.e. intra-organisational capabilities) and between these actors and other organisations (i.e. inter-organisational capabilities), which carried out collective activities and processes involving learning. A cross case research employed involved a set of 120 in-depth interviews with the main actors in three dairy regions, which differ in climatic conditions, socio-economic features and the technology of their milk production systems. Interviews were designed to identify and assess (qualitatively) the interactions that led the processes and development mechanisms that changed routines, which provide the basis for new and improved capabilities, as well as the factors that constrained their development. Secondary data from research of academics and practitioners provided complementary evidence related to the operation of government programmes affecting the MDS. This research shows that sector-specific regional capabilities are built as the result of the learning that occurs when firms and different organisations interact in formal and non-formal transactions. Regional capabilities comprise intra organisational capabilities (i.e. dynamic capabilities) (e.g. R&D, marketing capabilities, etc.), and inter organisational capabilities (e.g. production, alliance-making, research capabilities, etc.), which are shown to coevolve over time with regional institutions influencing this co-evolution process. Comparison shows that the creation, accumulation and evolution of regional capabilities using a specialised milk production system between the three dairy regions is markedly different. Regional capabilities in La Laguna region became strategic, allowing regional firms to reach national and international markets. Firms in the Los Altos region accumulated operational capabilities and are in transformation, not yet reaching national and international markets comparable to La Laguna firms. Firms in the Tabasco region accumulated basic capabilities and still lags behind the other two regions. These results have implications for improving policy making. National policies should be tailored by regional dimensions to develop small dairy farms and firms capabilities in all regions. Regional institutions with targeted policies may help regions obtain and develop resources to build capabilities and remove constraints for long-term sustainability in the dairy regions.