Documents on Mexican Politics.

Where is Mexican Business Headed?

by Gerardo Benitez.
From The Wharton Journal.

Why does each country have a different business operating system? Which system is better? What is better? What will happen in Mexico, a country just undergoing the painful transition to modernity that we read about in text books? What shape will Mexico take? This article will attempt to give a brief overview of Mexican business and its developments; although Mexican business is close to an alphabet soup, I will try to simplify the subject as much as possible.

It was during the era of Porfirio Diaz, in the latter part of the 19th century, that business and industrialization in Mexico finally spurred. The federal government gradually managed to establish its control, systematically oppressing any caciques willing to resist. Massive amounts of capital poured in from Europe and the United States, revitalizing the mining sector and creating a national railway system. It was during this period that the basic conditions for industrialization were set; even in the 1980's Mexican manufacturing was still confined to the national market, the need for governmental protection and subsidies remained, oligopolistic production still predominated, industry remained technologically dependent on the exterior, and excessive bureaucratization was still the norm.

Following the Revolution in 1910, the rise of the PRI (Partido Revolutionario Institucional) fundamentally intertwined Big Business with the nation's political development. Industrial growth has been crucial to the maintenance of the PRI in power, providing decent rates of employment and an increased standard of living, and the PRI in turn provided a closed market in which industry could develop. Until the presidency of Miguel de la Madrid, no six-year presidency period had failed to provide an average 5% GNP growth rate. The CTM (Confederacion de Trabajadores Mexicanos, the nation's largest labor union and a crucial pillar of the PRI insured that fired workers received the equivalent of 3-4 months' wages, providing the workers with some security, the PRI with a massive proportion of the working-class vote, and the nation with a relatively stable unemployment to employment ratio. At the same time, this and other deals have given Mexico, and its big businesses, a long history of virtually no major labor conflicts.

In this atmosphere, Mexican big business has developed in a very peculiar manner. Large family-run oligopolies in the fashion of the Japanese prewar Zaibatsu have developed from the Garcia Sada family who holds CEMEX (the 4th largest cement manufacturer in the world), Grupo Alfa, Grupo Financiero Bancomer (the 13th largest bank in the world (predevaluation), Grupo Financiero Serfin and Grupo VITRO among other enterprises. That is just one of the families; others are the Harps with Banacci, the Slims with the mighty Grupo Carso, the Aranganos with Grupo CIFRA, the Azcarragas with Grupo TeleVisa, and the Aramburusabalas with Grupo Modelo. All of them run mighty empires, and the list continues.

However, the rapid developments of the 90's with the rise of the technocratic wing of the PRI and the North American Free Trade Agreement have caused fundamental changes in the rules of procedure, and there are many more changes to come. Where will Mexico find itself? Three main patterns have emerged: some ,like Grupo Modelo and Grupo Inverlat, have been absorbed by foreign firms; others, like FEMSA, the worlds single biggest Coca-Cola distributor, or CIFRA, Mexico's largest retail firm, associated itself with foreigners, and in so doing both have almost doubled in size in five years. However, there are those that have remained autonomous: CEMEX, the 4th largest cement manufacturer has remained autonomous and it is now a full fledged transnational with exports all over the Americas and Europe. The same goes for TELMEX, Televisa, ALFA, BANACCI, ICA, etc. companies which have managed to remain autonomous and are now competing freely in the open market.

The firms that have withstood the assault have been developing in a very interesting manner. Grupo ALFA has associated with AT&T, Banacci with MCI, GBM Bancomer with GTE, Grupo Iusacell with Bell Atlantic and Grupo Protexa with Motorola to compete with TELMEX. A far more dangerous monopolistic development was the announcement last week that Grupo ALFA had joined the biggest Mexican chemical firms (Grupo Girsa, Grupo Idesas, Grupo Cydsa and Celanese Mexicana) in a massive consortium to compete with Grupo Acerero del Norte to buy the largest ammonium plant in the Western Hemisphere from the Mexican government. This act symbolizes the clear rise of the Mexican oligopolist "Grupos" as main providers, and controllers, of the nation's wealth.

The "Grupos" are continuing to interact and interweave. Grupo TeleVisa just swapped 50% of its monopoly in cable television for Grupo TELMEX stock. This could mean a clear trend towards the corporate structure similar to that of the Japanese Zaibatsu. Banks are still not allowed to join the Grupos; Carlos Cabal, who used his banks Confia and Union to buy Del Monte Foods had his banks intervened by the government and his companies confiscated. However, considering recent developments, I doubt that the rule will remain for more than a few years.

What will happen in the future? The way business is developing, Mexican business will probably survive the present crisis, and as trade continues to develop they will certainly grow to sizes comparable to their cousins in America and Europe. These firms will continue to have a huge say in governmental policy, usually having a preferential special tax. As time goes by, what will happen? With the demise of the CTM and the CNC (the proletariat and peasant labor movements in the PRI), will the PRI find itself tied to their support for its existence? Will the Grupos be able to compete with the gigantic GM and GE? Will new Grupos emerge? If so, how? These are questions that would take more than a few pages to answer. However, what is evident is that the Grupos, with their Zaibatsu like development, will be a pillar of the Mexico of the 21st century. They will be to the Mexico of the 21st Century what the PRI was in the 20th and Profirio Diaz was in the 19th. They will be the paternalistic autocrats that have ruled Mexico since the times of Montezuma and the Aztecs.

Copyright 1995, The Wharton Journal. All Rights Reserved.