THE ECONOMIC CYCLE, SOCIAL CAPITAL, MANAGAMENT AND …

ISSN: 2737-6206 Año 2020 ● Volumen 1 ● Número 4 ● Páginas: 219-241

EDITORIAL

THE ECONOMIC CYCLE, SOCIAL CAPITAL, MANAGAMENT AND GROWTH OF THE MEXICAN FAMILY BUSINESS: AN

HISTORICAL PERSPECTIVE

EL CICLO ECONÓMICO, CAPITAL SOCIAL, GESTIÓN Y CRECIMIENTO DE LA EMPRESA FAMILIAR MEXICANA: UNA PERSPECTIVA HISTÓRICA

Javier MORENO-LÁZARO Departamento de Fundamentos del Análisis Económico e Historia e Instituciones Económicas. Facultad de Ciencias Económicas y Empresariales, Universidad de Valladolid. Valladolid, España. E-mail: [email protected] Received: September, 2020; Accepted: October, 2020; Published: 30/12/2020

Abstract: This article describes the institutional changes experienced by the Mexican family-run business from the beginning of the 1960s to the start of the crisis in 2008, which as a result, has acquired even greater strength than that of the state itself, in addition to a very significant presence in the global market and dimensions uncommon in the rest of Latin America. The article argues that government support, non-competitive agreements and smooth succession due to the remarkable educational qualifications of heirs, explains the success of the Mexican family business amidst enormous difficulties, which on a number of occasions and throughout this period of time, the Mexican economy has had to overcome.

Keywords: Family business; Business history; Mexican economic history; Generational change; Management.

Resumen: En este artículo se describen los cambios institucionales vividos por la empresa familiar mexicana desde principios de los años sesenta hasta el inicio de la crisis en 2008, que, como resultado, ha adquirido una fuerza aún mayor que la del propio Estado, además de una presencia muy significativa en el mercado global y dimensiones poco comunes en el resto de Latinoamérica. El artículo sostiene que el apoyo del gobierno, los acuerdos no competitivos y la fluida sucesión debido a la notable calificación educativa de los herederos, explica el éxito de la empresa familiar mexicana en medio de enormes dificultades, que en varias ocasiones y a lo largo de este período, la economía mexicana ha tenido que superar.

Palabras clave: Empresa familiar; Historia empresarial; Historia económica mexicana; Relevo generacional; Administración.

Moreno-Lázaro. Perspectiva Histórica de la Empresa Familiar Mexicana

Revista de Estudios Empresariales 2020; 1(4): 219-241. 220

INTRODUCTION

The formation of the large company constitutes, in all probability, the greatest institutional change experienced by the Mexican economy since the democratisation process that began at the start of Ernesto Zedillo’s term of office in 1994. Furthermore, Mexico’s position as an emerging economy at the beginning of the 21st century, its entry to the G-20 and the value attributed to its enormous potential for growth has much to do with the explosion of its incredibly powerful businesses into the global market.

Any consideration of Mexican business success inevitably evokes the name Carlos Slim, one of the richest men in the world. However, within Mexico, his business, Grupo Carso, has to contend with the equally accredited Bimbo, FEMSA, Cemex or Modelo in the bid for global recognition [1-7].

In such circumstances, albeit relatively atypical, in which the bulk of large businesses are family-run, meeting the characterisations and assumptions of such institutions by the scientific community; namely, those in which one or more families are principal owners who assume responsibility for management and leadership among other objectives, in order to maintain control of the business in the next generation, as, in the Mexican case explains Ginebra [8].

Of course, historiography has not overlooked this occurrence [9-12]. Be it either to highlight the growing power accumulated by a number of families who, in theory, manage the country’s economic and financial influence or to extol the virtues of business modernisation, with the goal of putting a stop to the paradigm of Mexican corporate negligence; in recent years, studies have surfaced with these firms as their protagonists [13].

Moreover, throughout the second half of the 20th and beginning of the 21st century, an own brand model of a large business has sprung up in Mexico, one characterised by high vertical integration and a strong family component, despite the cyclical oscillations the Mexican economy has experienced in this period. In this paper, I argue that the key to explaining this phenomenon lies in state support and the management virtues of family-run businesses that knew how to combine patriarchal management with innovative guidelines from the United States, in addition to the careful education and training of executive directors.

In order to demonstrate this assertion, I have availed of the solid documentary base provided by Mexican statistics, which are particularly generous in this case. I have used the rankings of large companies produced regularly since 1960, completed using the most recent company summaries, exceptional in their quality in Latin America [14]. While I have availed of a solid quantitative foundation that has allowed me to produce unprecedented indicators of the economic-financial situation of the Mexican business, as seen in the long term, and to compare them with those obtained for the rest of Latin America.

This paper is structured in four parts. In the first and third, I will offer a panoramic view of the Mexican business in two chronological periods: 1960 and 2007. In the second part, I will outline the current evolution of large Mexican firms in this time period and, finally, I will focus on the study of the explanatory keys mentioned of the singular role that the family has had in the corporate modernisation of Mexico.

In subsequent sections, I will try to offer to those scholars unfamiliar with the world of Mexican business and finance, an explanation that, integrating political conditions and employing quantitative indicators as simple as they are unprecedented, illustrates the causes of what can only be described as “the Mexican family business miracle”.



1. THE MEXICAN FAMILY BUSINESS IN 1960

At the beginning of the 1960s, Mexico was enjoying the sweet economic miracle of stabilising growth under the presidency of Adolfo López Mateos, a native of Veracruz state. Four decades since the end of the Revolution, the executive continued the task of strengthening the state, creating a welfare system with the organisation Instituto de la Seguridad Social y Servicios Sociales de los Trabajadores del Estado [State’s Employees’ Social Security and Social Services Institute], the implementation of social housing programmes, among other measures) and in the vindication of national self-sufficiency and its capability as primary ingredients in the genuine policy of the Partido Revolucionario Institucional [Institutional Revolutionary Party] (PRI) in power [15].

However, this nationalist discourse had little to do with the corporate reality, given that practically half of large Mexican firms were foreign-owned [16] (Tables 1, 2 and 3). In Mexico, 1 in 3 large corporations was in the hands of American investors, a reality not entirely in keeping with the ideology of the political classes in power and of course, with the goals of the aforementioned revolution. With the beginning of the golden age of capitalism, at the end of the Second World War and the normalisation of diplomatic relations with the United States, which had deteriorated severely since the revolution (especially since 1923), the nationalist government message, on its business level, was reduced to pure rhetoric. Mexican heads of state had realised that economic progress and their continued positions of power implied allowing the influx of capital from their northern neighbour, however camouflaged by autarkic exordiums.

Table 1. Ownership of the 200 largest Mexican companies in 1960.

Ownership Number Porcentage Sales (*) Percentage

Mexico 104 52.0 20620 57.9

USA 60 30.0 8413 23.6

United Kingdom 6 3.0 584 1.6

Switzerland 1 0.5 190 0.5

Mixed Mexico-USA 19 9.5 3454 9.7

Mixed Mexico-EEC (**) 10 5.0 2345 6.5

TOTAL 200 100.0 35606 100.0

(*): In millions of pesos; (**): Members of the European Economic Community in 1960. Source: Ceceña [13].

The PRI Governments had entrusted exploitation of the country’s mineral resources and large iron and steel plants to large firms in the United States. With the financial help of the Mexican bank, they had created the automobile market, in a period of increasing demand due to GDP growth per capita, a reduction in petrol prices and an increase in urbanisation. American firms also took over tobacco companies funded by Spanish investors at the beginning of the revolution. They also controlled department stores, large beneficiaries of emerging urban areas and the consumption that brought with it growth without development. In summary, they controlled the strategic sectors of the country’s economy.

Nevertheless, the state was the country’s largest employer, due to a growth policy that aimed to substitute imports undertaken by the government using public funds [17]. This was particularly true following the nationalisation of electrical companies, which resulted in the incorporation of the state public sector of petroleum companies, begun in 1937 by Lázaro Cárdenas; However, in reality, state presence was limited to energy production.



Cárdenas’ ideas were rendered worthless. Strange as it may seem, the tenor of economic doctrine, the PRI Mexican public state sector, was much weaker and less diversified than countries in Western Europe.

Table 2. The 25 largest Mexican companies in 1960 in order of sales volume.

Rank Corporate Name Sector Nacionality Shareholders Sales *

1 PEMEX Pretrolum derivates Mexico Public 3532

2 Ferrocarriles Nacionales

Railways Mexico Public 1600

3 Altos Hornos de México Steel industry Mexico-USA Publ and BNM Armco' H Pape

841

4 Anderson & Clyton Cotton industry USA Anderson & Clyton 744

5 General Motors Motor industry USA General Motors 642

6 Mexicana de Luz Electricity Mexico Public 592

7 Ford Motor Motor industry USA The Ford Motor co. 563

8 Teléfonos de México Communicatioms Mexico-Sweden Banco de Comercio and H-Becman

479

9 Minería ASARCO Mining USA American Smilting and Reg Co.

455

10 Sears Roebuck Departament Sotres USA Sears Roebuck 454

11 Cobre de México Cupper production Mexico-USA Cano-Faro Family and Anaconda Copper co.

450

12 Cervecería Modelo Beer production Mexico Families Díez-Aramburu 450

13 Celanese Mexicana Chemestry Mexico-USA Banamex and Celanese co.

426

14 Cervecería Montezuma Beer production Mexico Signoret Family 405

15 Metalurgia y Minería Peñoles

Mining and steel industry

Mexico Banco Comercial and American Metal Climax

400

16 Tubos de Acero de México

Steel industry Mexico n.a. 398

17 Fábricas Auto Mex Motor industry USA Chrysler co. And Banamex

398

18 Colgate Palmolive Personal care USA Colgate Palmolive co. 393

19 La Consolidada Steel industry Mexico Public 371

20 Cigarros El Águila Tobacco USA American Tobacco 345

21 Hulera Good Year Oxo Chemestry USA Goiod Year & co. 332

22 San Francisco Mines Mining Mexico-USA Banco de Comercio and H.B. Hanson

319

23 Cervecería Cuauhtémoc Beer production Mexico Grupo de Monterrey 328

24 Compañía Hulera Esukadi

Chemestry USA B.F. Goodrich-Banco de Londres

324

25 Cigarrera La Moderna Tobacco USA Brown & Williamson 285

(*): In millions of pesos. Source: Ceceña [13].

However, this ownership, split between state and foreign corporations, would not differ greatly from that of other Latin American countries, had it not been because in Mexico, the family-run enterprise was able to fill the gap between these two large economic agents.

The state had already proven itself capable of bringing forth an elite group of entrepreneurs, the first generation of businessmen that grew up under the shelter of IRP economic policy



and its skill as a rent-seeking entity [18]. So was born what years would later be called (and to a certain degree were already) “the masters of Mexico” [19].

Table 3. Ownerhsip of the largest Mexican companies with Mexican capital in 1960.

Ownerhsip Number Percentage Capital Percentage Size

Public 35 33.6 12342 59.8 252.6

Family-run 35 33.6 4447 21.5 127.4

Corporate 34 32.6 3831 18.5 112.6

Total 104 100.0 20620 100.0 198.2

(*): In millions of pesos. Source: Ceceña [13], passim.

However, the origins of this first generation of patriarchal entrepreneurs, being putative sons of stabilising development and the PRI, go even further back. For the most part, they took their first steps in the business world in the 1920s, in the period known as “Maximato”, under the shelter of Plutarco Elías Calles and who consolidated their fortune during the Second World War and in Korea, in which Mexico acted as a large supplier of prime materials of enormous strategic importance [20].

A common feature united all of them: their part ownership by foreign-born businessmen. This does not diminish (in contrary to that argued in the economic literature of the time) in any way the achievements of the Mexican family business. The aforementioned foreign companies are entirely unrelated to these businesses, born in the country primarily to meet the needs of very modest emigrants and just as Mexican as those founded by contemporary entrepreneurs (the minority).

Thus, the link between the establishment of large family-run firms to migratory movements was not a blow to the country’s entrepreneurial spirit or the governing PRI economic achievements. It could not be any other way in a country where the elite, because of the policy of Porfirio Díaz, the dictator who governed the country from 1876 to 1910, who processed a puerile fervour for all things European, egged on by his cabinet, made up of supposed “scientists”, Francophile technocrats, and the absence of social mobility, garnered sympathy in support of foreign human resources [21]. The corporate world was not far away, of course, from the very conditions of the construction of the country and its identity. These companies were born out of social capital created in the heart of the minorities of those who belonged to those that remained linked after becoming large corporations [22-24].

Indeed, I insist that this initially foreign investment does not do justice to the achievements of the family business. Rather, it explains their strength and plurality. Essentially, the Mexican family firm was nourished by experience acquired in two countries, Spain and France, where companies that were centred in the family institution had enormous importance in economic modernisation.

However, it cannot be argued that the Mexican model was the result of the conjugation of the singular nature of companies in both countries, in that these companies followed completely separate paths. Precisely the description of the large Mexican family enterprise abounds in its heterogeneity according to the origin of the founder. Firms originating in Spain or France have nothing to do with those of Greece, Israel or Lebanon, except for the latter, whose community already figured as a source of enterprise.



What is certain is that the majority had a Latin origin (in the strictest sense). Thus, the description of Mexican family enterprise must emphasise its relationship to the Mediterranean and for this reason, in characteristic fashion, its patriarchal nature, which had much to do with those agrarian businesses (although some and remotely) were natives.

In such firms, there was no distinction between family and business. The wealth of the former coincided with the assets of the latter. Not even in Latin commercial culture (Hispanic in particular) were both institutions seen as distinct. The company acquired an exclusively autonomous entity in tax payments or in exceptional cases where the trade name replaced the family surname. The patriarch assumed all management tasks and only partially delegated to his sons as they came of age. The founder did not always need to be the father, but could have instead been an older brother who, having returned from Spain, Greece, Lebanon or France with their fortune made, invited his brothers to join him (Table 4).

Table 4. Nationality of founder and proprietor of Mexican family enterprises in 1960.

Nacionality Number Percentage Sales (*) Percentage

Lebanon 1 2.8 58 1.3

Italy 1 2.8 58 1.3

Germany 1 2.8 106 2.3

USA 1 2.8 89 2.0

Spain 16 45.7 1954 43.9

France 7 20.0 1341 30.1

Mexico 8 22.8 851 19.1

Total 35 100.0 4447 100.0


Half of the owners of the country’s family firms came from Spain (especially Asturias). In relation to the French, the Barcelonettes conserved their almost century-long presence in the country’s business network, reflected in their domination of department stores (El Palacio del Hierro) and in textile factories in Puebla and Veracruz [25,26].

In the hands of the state and multinational firms, companies with intensive capital linked to the most dynamic and lucrative sectors, family-run companies, sought refuge in the production of goods for consumption, above all foodstuffs. The advantage of their businesses was that they did not demand high levels of financing nor access to particularly sophisticated technology, especially complex in a country that could practically avail of outside innovations through direct investment in foreign firms and agreements between multinationals and the state. Their initial refuge in markets that conformed to national minorities had much to do with their specialisation in the production of processed foodstuffs as this formed part of “niche economies” [22-24]. That of the Spanish constitutes an authentically paradigmatic case. They produced goods that were distributed in their grocery stores in neighbourhoods where the Hispanic minorities lived. In so far as the disposable income of Mexican families increased, they began to emulate European consumption habits, thus increasing their sales.

These companies found their strength in reliance networks woven according to common origin, which was vital in a country with weak institutions and enormous transaction costs. Amongst themselves, they overcame financing needs, subcontracted production of



intermediary goods and shared marketing networks. They formed cartels that not even Lázaro Cárdenas could defeat. Acknowledging its incapacity, the state decided to cooperate and entrust these businessmen with the production of a series of foodstuffs required by population growth with standardised consumption habits.

By the end of the nineteenth century, family groups maintained their traditional niche in two sectors in which they already excelled: paper manufacturing (San Rafael and Empaques de Cartón Tintán, the latter connected to Grupo Monterrey) and textile production (Compañía Industrial de Orizaba or Javelly-Brown’s Compañía Industrial de Guadalajara). In addition, the processing of low value added food products emerged as another important manufacturing sector, in which Servitje’s Bimbo already stood out as well as the powerful biscuit manufacturing firms (in particular Gamesa) and Industrias 1,2,3. But I must emphasize the presence of the country’s three largest breweries: Cervecería Modelo, founded in 1925 by Bercian Pablo Díez, Cervecería Cuauhtémoc, in 1890, by the Garza family in Monterrey and Cervecería Moctezuma in Orizaba on the outskirts of Xapala in 1894 by the French Signoret [6,27-31].

Table 5. Production specialisation in the Mexican family business in 1960.

Sector Capital (*) Percentage

Food industry 804 18.0

Beverages 1579 45.5

Tobacco 100 2.2

Chemistry 165 3.7

Paper manufacturing 631 14.1

Textile industry 495 11.1

MANUFACTURING INDUSTY 3774 84.8

Commercial 278 6.2

Engeeniering services 395 8,8

SERVICES 673 15.1

TOTAL 4447 100.0


2. THE FAMILY COMPANIES AND THE CYCLICAL TRAJECTORY OF

THE MEXICAN ECONOMY, 1960-2008

Throughout the 1960s, large Mexican family-run corporations experienced the sweetness of the Mexican economic miracle, sheltered by a state that watched over their interests and a constantly growing market due to a demographic boom, an increase in urbanisation levels, commercial modernisation and a growth in disposable income [15,32-37]. In addition to easily accessible credit, this fostered the consolidation of companies cultivated in the greenhouse created by the PRI [38]. The events of 1968, which obliged the state to tackle social inequality and, with greater determination, display fierce repressive action, had little effect in economic and business spheres. In an environment of social peace, institutional stability, non-interference (at least not obviously) by the United States and armed forces neutrality, entirely unusual in Latin America, an unprecedented institution in the rest of the New World grew in stature, in spite of previous efforts in pursuit of this goal by populist governments: the large family business.



Mexican corporations knew how to take advantage of the exceptional circumstances offered by the appreciation of petrol in the first half of the 1970s. Large firms obtained outstanding results until the 1976 devaluation. Despite state efforts, relying on management support, the Mexican economy fell into an inflationary abyss and the mortal trap of foreign debt, which culminated in the 1982 crisis and the nationalisation of banks in September that same year. Except for the years of truce in the middle of the decade, which the 1985 earthquakes tragically put to an end, Mexican business experienced an authentic paralysis until 1988, seasoned with bankruptcy and the departure of foreign investors (Figures 1 and 2).

Figure 1. Economic profitability (ROE) of large Mexican businesses: 1974- 2008 (in percentage and triennial mobile measures).

Source: Basave Kunhardt et al. [37]; Economática database.

Figure 2. Economic profitability (ROE) of Mexican businesses and GDP growth in real terms: 1980 – 2010 (in percentage).

Source: Economática database.



The fate of Mexican companies since then is well known. Once again state involvement, by means of the income policy launched in 1988 and the refinancing of debt at the expense of public resources and consequent changes in income distribution given to Mexican businesses that did not suffer too great a shock until the “tequila crisis” of 1994-95 (Figure 3).

Figure 3. Mexican stock exchange quotation: 1993 – 2011 (in real terms).

Source: Mexican stock exchange.

The enforcement of the NAFTA in 1994 marked a before and after in Mexican business history. Indeed, results since then show family businesses outdoing larger corporations (Figure 1), an absolutely exceptional occurrence. This was due to the specialisation of such firms in food production. The so called “nostalgia market” facilitated the internationalisation of firms such as Bimbo, Modelo and Maseca and even their distribution channels, which explains why their profitability saw a marked increase [39,40] (Figures 4 and 5). In a relatively short space of time, they were able to fill a gap in the Californian market, previously off limits as was the East coast due to the dominance of the powerful Spanish company, Grupo Goya. Other food and drink manufacturing companies such as Gamesa and FEMSA also benefitted from United States financial support.

Figure 4. Economic profitability (ROE) of Mexican family businesses: Food production 1988 – 2010 (in percentage).




Figure 5. Profitability (ROE) of family-run food production businesses in Mexico and Latin America: 1988- 2009 (in percentage).


Immediately after assuming his post, President Ernesto Zedillo (1994-2000) had to confront the dramatic consequences of the “tequila crisis” (1994-95) and the equally damaging declaration of the free floating of the peso (which his predecessor and old mentor, now his greatest enemy, Salinas de Gortari referred to as “the December mistake”). However, his economic management, as seen from the interests of large family-run corporations, was impeccable. He avoided his downfall through the devaluation of the national currency as its assets were valued in dollars, at the expense of fiscal efforts that once again fell on the shoulders of Mexicans through the Banking Fund for Savings Protection and a drastic change in income distribution. On the other hand, Mexicans now had access to the United States market. After years of shortages, they could now boast about being the main producers of tortillas, beers, cement and sliced bread in America. Moreover, the opening of the global market made these companies much less vulnerable to the feared and frequent cyclical oscillations of the Mexican economy.

At the beginning of his term in office in December 2000, Vicente Fox de Quesada greeted more powerful and vigorous family-run firms than ever before. The Partido de Acción Nacional [National Action Party] (PAN) in power persevered in their policy of developing these large firms, many of them linked to families who, until then, had shown unshakeable loyalty towards the PRI. All institutions concerned, state, party and business plotted in unison the financial crisis of 2000-01, which began in Argentina. Once again, Mexico responded to the changing circumstances, asserting its institutional stability, while neighbouring governments fell like a house of cards, some immersed in profound political and social change. At the turn of the century, Mexico was as calm as a millpond. Its businesses took advantage of the weakness of their competitors in order to expand continentally, counting on the full support of heads of state such as Lula Da Silva or Néstor Kirchner.

Even though family-run enterprises seemed to have fallen into a period of suspended growth forced by the fall of the national GDP, time passed by relatively smoothly, until the



economic crash of September 2008 (Figures 1, 2 and 3). Family-run enterprises suffered a greater impact than other businesses. On this occasion, the crisis affected more intensely the once-all-powerful patriarchs in Mexico than in the neighbouring countries (Figure 5).

However, after the fall of PRI in the 2006 presidential elections and the weakening of the state during the drug-trafficking war waged by Felipe Calderón de Hinojosa, family-run businesses had become the most powerful institution in the country and did not take long to get back on track. This was also aided by changes in consumption habits amongst the population inside and outside Mexico; consumers were increasingly inclined to purchase products of low complexity levels resulting from labour-intensive manufacturing processes. This was precisely Mexico's speciality at the time.

3. THE MEXICAN FAMILY-RUN ENTERPRISE ON THE EVE OF THE

2008 CRISIS

In the weeks preceding the onset of the financial crisis, and as a consequence of the changes in the aforementioned social and political climate, the Mexican enterprise sector was able to boast greater clout and presence than in 1960 (Tables 6 and 7). Neither privatizations carried out by Carlos Salinas de Gortarí, nor better investment opportunities offered by the Free Trade Agreement with Canadian and US firms were able to diminish the presence of the national enterprise. Instead, the opposite was true.

Table 6. Ownerhsip of the 200 largest Mexican companies with Mexican capital in 2007.

Ownership Number Percentage Capital (*) Percentage

Germany 6 3.0 158 2.1

Canada 3 1.5 55 0.7

China 1 0.5 24 0.3

Chile 1 0.5 9 0.1

South Corea 1 0.5 7 0.1

Spain 8 4.0 286 3.8

USA 43 21.5 1433 19.2

Mixed Mexico-USA 1 0.5 21 0.2

Finland 1 0.5 15 0.2

France 3 1.5 35 0.4

United Kingdom 2 1.0 63 0.8

Netherlands 3 1.5 70 0.9

Italy 1 0.5 55 0.7

Japan 5 2.5 162 2.1

Mexico 118 59.0 5014 67.1

Swirtzerland 3 1.5 55 0.7

TOTAL 200 100.0 7462 100.0

(*): In millions of pesos. Source: Expansión [41], passim.



Table 7. Ownership of the largest enterprises of exclusively Mexican capital in 2007

Ownerhsip Number Percentage Capital (*) Percentage Size

Public 5 4.2 1418 28.2 283.6

Family-run 48 46.6 2337 46.6 48.6

Corporate 65 55.0 1259 25.1 19.3

Total 118 100.0 5014 100.0 42.4

(*): In thousands of millions of pesos. Source: Expansión [41], passim.

This very significant institutional change was a result of to the growth of the assets of family-run businesses, who became the undisputed beneficiaries of policies of economic integration and of the dismantling of public sector enterprises.

Family-run enterprises did not grow only in size, but also in terms of their investment plans, particularly in the area of telecommunications (Table 8). Doubtlessly, a determinant factor was the work of Carlos Slim, the humble son of a Lebanese immigrant, who went from managing a very small brokerage firm in his adolescence to running the largest business known in the history of Latin America, with exceptional economic results (Figures 7 and 8). The crisis came and it fitted like a glove for the Mexican-Lebanese businessman.

Table 8. Specialisation of production in mexican family-run enterprises in 2007.

Sector Number Percentage Sales (*) Percentage

Food industry 6 12.7 189 8.0

Beverages 6 12.7 435 16.6

Concrete industry 1 2.1 236 10.0

Steel Industry 1 3.1 31 1.3

Glassworks 3 6.3 55 2.3

MANUFACTURING 17 36.1 946 40.4

Commercial 19 40.4 493 21.0

Finances 2 4.2 29 1.2

Medical cares 3 6.3 110 4.7

Telecomunications 6 12,7 759 32.4

Services 30 63.8 1391 59.5

Total 47 100.0 2337 100.0

(*): In thousands of millions of pesos and percentage. Source: Expansión [41], passim.



Figure 7. Companies controlled entirely by Carlos Slim in 2010.

Figure 8. Carso Group Economic Profitability (ROE): 1988 – 2009 (in percentage).


The second pillar, upon which the majority of the power of the family enterprise sat, was that of the reorganisation and diversification of what was known as the “Monterrey Group”. This was a corporate conglomerate from Monterrey that emerged during the “Maximato” through the Garza, Sada and Elizondo families, who for a long time were the economic heart



of the north of the country and a pressure group, despite their peripheral position, of enormous influence in Los Pinos, the presidential seat.

Monterrey and its businessmen undertook the reconversion of its iron and steel industry, the modernisation of its food production industry through agreements signed with Pepsico and Coca-Cola, the appearance of new production commitments within this branch of activity at the hands of Maseca and Gruma, the authorisation of an alternative financial intermediate to foreign banks (represented by Banamex, BBVA, Santander and Scotia Bank) with the refloating of Banorte, the incorporation of new names into the corporate elite other than the Garza Sada family, such as the incredibly powerful Lorenzo Zambrano, among other tools that were returned to the Monterrey Group, the business regained the centre stage they had lost in the 1980s [42-47] (Table 9).

Table 9. The Monterrey Group in 2007.

Company Subsidiaries Foundation Company Purpose President Owner Family

Cemex 1909 Concrete industry Lorenzo Zambrano Tremiño

Zambrano

Femsa 1890 Beverages José A. Fernández Varbajal

Garcia Sada

Alfa 1974 Dionisio Garza Medina Garcia Sada

Alpeck Petroleum produits

Sigma Food proccesing

Nemak Aluminium production

Onexa Telecomunications

Banorte 1899 Finances Luis Peña Pegel

Imsa 1936 Aluminium production García Sada

Hylasa Steel production Poalo Rocca García Sada

Xignus Wire production Eugenio Garza Herrera García Sada

Gruma 1946 Food proccesing Roberto González Barreda

González Barreda

Grimsa Food proccesing

Maseca Food proccesing

Vitro 1936 Glassworks Federico Sada González Sada

Cydsa 1945 Textile industry Tomás González Sada González Sada

Soriana 1968 Supermarkets Ricardo Martín Bringas Martín Borque

Deacero 1945 Steel production Segio Gutiérrez Muguerza

Proeza 1956 Guillermo Zambrano Zambrano

Metalsa Steel production

Proeza Salud Medical cares

Ti Software

Citofruit Beverages

Arca 2002 Beverages Manuel Barragán Morales

Garza Elizondo

Source: Estado de Nuevo León [48].

However, with its contribution being decisive, it would be a mistake to exclusively attribute the modernisation and growth of the family enterprise to Carlos Slim and the Monterrey Group. Other entrepreneurs made a decisive contribution to the phenomenon, such as the



Azcárraga family (Televisa) in the media sector, relatively close to the business interests of the man considered to be the richest in the world.

The “commercial revolution” initiated by the entry of Wal-Mart in 1999 through the purchase of Aurrerá and its subsidiaries (in which Slim actively participated with his Sanborns and Dorian and Sear chains) has also contributed to the diversification of the family business, now the owner of the most powerful supermarket chains in Latin America. It is important to mention the Chedraui and Coppel families and Martín Borque (of Soriana) so as to refer to the profound transformation and growth of two department store chains founded by Barcelonettes: El Palacio del Hierro and El Puerto de Liverpool.

Figure 9. FEMSA Group in 2009.

Mexico persevered in its specialisation in foodstuffs, with two new firms that followed the exemplary trail set by Bimbo: La Moderna, involving the Servitjes, and Gruma, which in 2010 operated hundreds of factories in America (34 in the US), Europe and the United States. The growth strategy of both companies through horizontal integration and vertical



combination established the brewery duopoly around Modelo and FEMSA (Figure 9), now also the owner of the powerful Jugos del Valle. It is in the development of this sector where Mexico, the sixth global producer at the beginning of the century, has best demonstrated its capacity for development and business innovation, in that its production does not represent a competitive advantage in a country with relatively low beer consumption per capita. Another example is the exceptionally strong cement industry.

Figure 10. Salinas Group in 2009.

One must also make reference to the incursion of large family-run firms in the health sector, especially the PROEZA group and the Galician, Olegario Vázquez Raña [49]. The mining industry is represented by Grupo México (Mexico Group) at the hands of Germán Larrea Mota-Velasco, Mexico’s second fortune in 2010 and the 39th richest man in the world, according to Forbes. Alberto Baillères González embodies the continuity of French businessmen whose businesses extend to mining, the Palacio del Hierro and the country’s most powerful insurance company, businesses that are integrated in the Grupo Bal. The brilliant growth of Ricardo Salinas Pliego (Figure 10), whose origins in the business world are to be found in the development of a small department store in Monterrey under the company name Salinas y Rocha, is today the owner of a commercial empire centred on the Elektra supermarket and Tele Azteca. Other authors have already dealt with the Spanish-Mexican Joaquín Arango, developer of Aurrerá [50]. For this reason, I feel it appropriate to go into greater detail regarding Sertvitje and Bimbo [7].



Family-run businesses from Jalisco, a priority industrial enclave, such as Veracruz and Mérida, to mention some business nests almost always overlooked and often removed from the financial upheavals of the 1980s and who, having taken cover through their excellent relationship to local officials, also contributed to the phenomenon which I will now explain.

Parallel to this growth, in all aspects, of the family enterprise, equally striking growth was also taking place in the form of “nationalization” (Table 10), in part a result of the transmission of property from fathers to sons who claimed Mexican nationality. The conformation of a strong community of Lebanese family-run businesses is also especially unusual. Such businesses emerged through figures such as Slim and Chedrahui, whose greatest exponent is Alfredo Harp Helu, the cousin of the former and who was made rich by the stock exchange speculation of the 1970s.

Table 10. Founder and proprietor nationality in mexican family enterprises in 2007.

Nacionality Number Percentage Sales (*) Percentage

Lebanon 9 19.1 483 20.6

Spain 12 25.5 444 18.9

Germany 1 2.1 32 1.3

France 2 4.2 64 2.7

Mexico 23 48.9 1314 56.2

TOTAL 47 100.0 2336 100.0

(*): In millions of pesos. Source: Expansión [41], 93, passim.

However, while the large Mexican family business triumphed in the private sector, the entirely outmoded public enterprise model collapsed. Both governing political parties possessed awful business management skills and the Mexican public business was shown to be increasingly useless and inefficient. Almost daily blackouts in Mexico City were the most obvious example of the inefficiency of the public monopoly over the electrical energy supply which, with the telephone service dismantled, had already lost its meaning. The petrol company PEMEX, an icon of the Mexican growth model yet burdened by corruption, trade union abuses of power and limited access to technology, languished (it even reported losses during the Gulf War), while the Brazilian public PETROBRAS expanded throughout the continent. In the polemic 2006 presidential campaign in which Felipe Calderón de Hinojosa, former Secretary for Energy in the Fox government, beat Andrés Manuel López Obrador by a handful of votes, emerged in the political arena, favouring the possible privatisation of PEMEX, what had been until that point considered sacrilegious.

4. THE REASONS FOR THE SUCCESS OF THE FAMILY BUSINESS

Until now, that mentioned has centred on how, avoiding the fateful and unfounded predictions that condemned the family business to death by the third try and refuting the theory of Max Weber that disputes the Hispanic entrepreneurial spirit, claiming that theirs is the realm of spiritual matters, the Mexican family business has gained a presence in the global market [51]. It has grown by means of vertical integration; in order to reduce inheritance transaction costs and institutional traps brought about by a weak and inefficient state, with complete integration of the national market yet to come.



In previous paragraphs, I have interpreted the continuity of the family business, unlike that which has taken place in other Latin American countries, in terms of state protection. Large businesses and large families became one and the same in both PRI and PAN administrations. The Chapultepec Agreement, signed amongst others on 29th September 2005 by Gastón Azcárraga Andrade, Carlos Slim and Lorenzo Zambrano Treviño, embodies the strong overlap between business and state. However, this time, it was the former that came to the rescue of the latter.

The second explanation drives at the collusive practices implemented between large businesses. The consideration of boards of directors is enough to reveal the proximity of the community of interest, as old as the businesses themselves, manifested in the membership of such people of the Consejo Mexicano de Hombres de Negocios [Council of Mexican Businessmen], an institution whose nature went further than a mere management association, that established cooptation and non-competitive commercial endogamy. Suffice to say that marital unions reinforce such links given that, generally, the rich marry amongst themselves, even in the birthplace of soap operas, where such a thing does not happen. That as it was, these cooperative practices, permitted and encouraged by the state, created social capital that guaranteed the permanence of the Mexican family business [23,24,52-54]. However, I understand that both explanations must be reinforced by the formative qualities of Mexican heads of state and management changes coming from the United States that they facilitated.

The developers of these large corporations wanted to give their children an education based on the purest empiricism, learning all they knew on the shop floor and everything else through fleeting trips to Spain. However, this was not an easy task. Young heirs could receive very sophisticated technical training in the Lasallian college in Mexico City or, as was the tradition among the most Francophile oligarchies of Catalonian origin, to finish their secondary studies in Québec.

However, they could only pursue management courses in the Universidad Nacional Autónoma de México [National Autonomous University of Mexico] (UNAM). The opportunities to study Economics and Business Administration were few. The former was a mere division, since 1929, of the Faculty of Law and Social Sciences, while the latter could be studied in the Faculty of Business and Administration. In the latter, one could acquire (as did Lorenzo Servitje) the necessary skills to direct a company. However, the hostility (which the aforementioned businessman lacked) towards Catholic students, the increased distaste for public education during the Second World War and the distance from Mexico City to other industrial enclaves dissuaded outstanding figures from sending their children to study in these centres.

Thus, Mexican businessmen, using their own resources, decided to organise a made to measure higher-level education system, an absolutely exceptional occurrence in Latin America. In fact, the vertical integration in the formation of management is a genuinely Mexican business achievement in that, previously, the students of the world of business in the New World had been overlooked. In 1943, the Monterrey Group, at the request of Eugenio Garza Sada, founded the Instituto Tecnológico de Monterrey [Monterrey Technological Institute] (ITM). Only three years later, a replica emerged in the Federal District at the hands of Raúl Baillères, the driving-force behind the Instituto Teconológico Autónomo de México [Mexican Autonomous Technological Institute] (ITAM). Prior to the peak of these private institutions that eroded the much loved state monopoly in higher education, President Miguel Alemán Valdez reorganised and relocated the UNAM in order to compete with these universities, with confessed elitist vocation [6]. By 1957, the Universidad Ibero-Americana [Ibero-American University], an institution linked to the



Compañía de Jesús, established an Industrial Relations programme, unprecedented in Latin America.

At that time, it was common to pursue postgraduate courses in the United States, in particular in Ohio at the National Cash Register Company (1879), run by the Patterson brothers. With time, this somewhat prosaic training was substituted by masters courses in more established universities in the United States. If the first generation of businessmen was composed of self-taught immigrants, the second was one of businessmen trained in accountancy and sales techniques, born in the 1960s, it was composed of highly and painstakingly qualified businessmen who guaranteed a smooth transition within a business.

To demonstrate this assertion, I have used a sample of 123 entrepreneurs active in 2009 (of whom, through no fault of my own selection, there are only two women) for whom I have provided detailed educational information which I believe to be very significant. The figures I have reproduced in table 11 corroborate that expressed in such a way that businessmen without a university qualification correspond to eighth-generation Spanish immigrants still in charge of their companies, as is the case of Olegario Vázquez Raña or Antonino Fernández.

However, the group of those born since 1950 onwards had the opportunity to pursue university studies (especially Law and Business Administration) in the four institutions mentioned (UNAM, ITAM, Ibero and ITM) and in some cases, the Universidad Autónoma Metropolitana [Metropolitan Autonomous University] (UNAM). None of the businessmen in the sample studied in their state autonomous universities.

Proximity to the United States meant that a third of businessmen pursued studies in the country’s most prestigious universities. Few did so in Mexico and only one in Spain (in Barcelona). Carlos Slim had a relatively atypical education: having studied at the NAUM, he completed a postgraduate degree in Chile. Only one businessman, curiously of Spanish origin, studied at the prestigious Ecole Nationale d’Administration (ENA) in Paris. Only three submitted doctoral theses, all in Economics, in universities in the United States.

While I lack comparative references to other Latin American countries, it is not an exaggeration to say that Mexican management enjoyed a privileged education, with an Anglo-Saxon foundation, which not only facilitated the continuity of the business but also its managerial innovation [55].

Thus, a Mexican business model emerged as a result of the overlap between the Latin patriarchal business (Spanish in particular) and that of the United States. Basically the large family groups came together around a holding presided by the founder of the company, while each one of his children oversaw one of the subsidiaries. To a certain extent, one can speak of management professionalization at the heart of the family, due to the high level of qualification and commitment to the management of the company, which went beyond a mere presence on a board of directors.

Bimbo was the first to adopt this management system in 1965. Subsequently, almost immediately afterwards, Gamesa, Aurrerá and Modelo followed suit. Since then, this hierarchical regulation in large Mexican corporations has become commonplace in new vertically integrated corporations, the most recent being Grupo KUO.

Precisely due to this influence from the United States, the level of stock market penetration by Mexican companies is particularly high. In fact, all those mentioned with large volumes of assets are quoted on the stock exchange, despite many jumps since 1982. Notwithstanding, the “public” percentage, as it is known in Mexico, exceeds 25 and never



29 per cent. Indeed, some corporations, such as Grupo Bal, of Baillères, follow one house on the stock exchange. This presence within this institution has not only facilitated financing, but rather has reaffirmed the ties that link the largest family corporations [56-58]. These companies also learned from USA logistical techniques for distribution. In Bimbo's case, these were copied from none other than the army, because of their high-level organisation operations in the daily supply of units.

Finally, the development of marketing techniques in Mexico also is due to the influence of professionals educated in the USA. The United States was a pioneer in marketing promotion in Latin America on TV, both in the creation of adverts and broadcasting sponshorship. This marketing tradition has persisted through time. The Palacio de Hierro campaigns at the start of the century got the company out of an imminent ruin. The adverts broadcast by Modelo during the South Africa Football World Cup in 2010 are the most expensive ever commissioned by a company in the history of publicity in the world.

CONCLUSIONS

Mexico is the cradle of the most powerful family-run businesses in Latin America. It would be inconceivable for the country to have experienced progress from 2000 to 2008 with annual GDP levels, which surpassed 5 per cent without the growth and internationalisation of this sector.

The great business set up by Spanish, French, Lebanese and Italian pioneers immediately after the triumph of the Revolution have survived, with few exceptions, to today. This high survival rate is an extra indicator of enterprising success. After suffering confiscations of assets and persecution between 1920 and 1921, Barcelonettes, Lombards, Asturians, Chinese and Catholic Arabs were able to enjoy a positive public opinion concerning their enterprising projects. This eventually materialised in the creation of small-scale manufacturing and commercial firms, whose assets grew exponentially from 1940 onwards, in the wake of the demand generated by the World War then, and the Korean War later.

From this time on, these firms have displayed strong competitiveness internationally. Supported by public funds and by the strength of the family unit, these businesses have resisted the charge of large US firms, with the only exception of some companies belonging to the Monterrey Group, such as Gamesa. Family-run businesses have even been able to survive a series of financial crises (1976, 1982, 1988, 1994-95, 2000-01 and 2008), which have been stronger and more frequent than those experienced by any other Latin American country (with the exception of Argentina). These two kinds of obstacles (international competition and crashes in the market) have been overcome in such a way that the volume of output of these companies surpasses that of many countries in the continent, and its international presence is more effective than Mexican consular representation itself.

A key role in the above was played by governmental support which, from the times of Porfirio Diaz, achieved the strengthening of the State through the formation of a powerful business elite. For 70 years IRP ruled the country inspired by this belief, despite the misgivings and sense of threat suggested by the towering growth experienced by this sector. Further, and in line with popular thinking, only IRP (if not the administration), the Church and Bimbo were able to reach all corners of the Republic. In spite of the suspicion towards a business class which did not hide its Christian Democrat sympathies, all presidents, from Cárdenas to Zedillo, knew how to reconcile their corporatist policies with the interests of



the large family business groups. NAP, in power since 2000, had, of course, a much easier task because of this.

However, state backing does not guarantee the continuance of the ownership of a business within a family. The heirs' education was also a determinant factor. In this regard, Mexican firms, due to their proximity to the United States, found this much easier. The children and grandchildren of the first pioneers enjoyed an enviable education, thanks to the efforts of the same families in developing their own higher-education centres -an entirely exceptional situation. Nearly half of CEOs in Mexico completed Masters degrees in the United States.

As a result of this professional education the new leaders were able to implement new management approaches in their companies, adapting them to the family-patriarchal nature of the businesses, and thus were able to face the challenges of integration into the US economic space since 1994. Moreover, Mexican family-run companies have been able to survive to so much upheaval. And thanks to this also, Servitje, Zambrano, Elizondo, Slim, Salinas, Arango, Bailleres and Vázquez Raña, the owners of the largest family-run businesses, continue ruling as masters of Mexico. This paper also questions two deeply-rooted and incorrect ideas: the sovereignty of Mexican businesses and the indisputable weight of public sector businesses.

Much before the signing of the Free Market Agreement, the major US firms had not faced significant obstacles in breaking into the Mexican market, where from the end of WWII they have always been represented. Of course, public companies, protecting themselves behind the exploitation of energy resources, poorly managed and eroded by corruption, were unable to compete with them or with the Spanish and Canadian companies which arrived in the country in the 1990s.

If foreign companies, unlike in the rest of Latin America, have not been able to establish themselves significantly in the areas of telecommunications, distribution, food production, health care or tourism, it has been thanks to the Mexican family-run businesses. It is the strengths and reasons of their success which I have to explain in these pages.

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