The New Entrepreneur Class Writes Its Own Ticket

Time was when being close to the government was the only possible way for Mexican businesses to be profitable. In today’s world, the only way for Mexicans to make money is to beat their Japanese, Brazilian, Chinese or American counterparts.

And this is precisely what the new breed of Mexican entrepreneurs is doing. Whether it is in steel, cement, glass, chemicals, auto parts or processed foods, the new generation of innovators has turned around the Mexican economy and become the core of its success. It is they who lead the rapidly growing export industry, creating a new phenomenon: the Mexican multinational. The most promising development is that the 30% of the country’s firms, producing 70% of the goods, have become world-competitive. Above all, the new entrepreneurs are all a living example that Mexicans can in fact make it.

What is interesting is that most of these firms are fairly small, even by Mexican standards. While there are several billion-dollar companies that are growing fast, 80% of the 15,000 companies that export and that are very successful by any yardstick are small. This is not the way it was before the process of liberalization began about 12 years ago.

Although there are a few industrial groups that have celebrated a century in business, modern Mexican industry was developed largely in response to the scarcity of imports caused by World War II. Suddenly, Mexico found itself without tires, processed foods, cars and most manufactured goods, which were being diverted to the U.S. war effort. The Mexican government launched a program of industrialization by substitution for imports. The war shielded those businesses from foreign competition, and Mexican entrepreneurship was born. When the war ended and imports became available once more, the government, under the auspices of the U.N. Economic Commission for Latin America, introduced legislation to protect those firms and develop home-grown industry.

But the essence of the new industrial thrust lay in its origin as a government program that led to the development of government-owned banks, utilities and plants producing steel, fertilizers, petrochemicals, cars, trucks--all the essentials. By controlling raw materials, by exerting extraordinary influence in the availability of credit, granting discretionary subsidies and managing the flow of imports, the government ended up having full powers to determine the profitability of private firms. Businessmen found themselves spending most of their time in the corridors of government offices rather than looking after their factories and customers. Just like the famous thief’s explanation for why he robbed banks, Mexican entrepreneurs made money by staying close to where the money was.

That breed is dying out now. Though there are many ways that government can influence how firms fare, it is the market that determines whether they succeed or fail. And most of Mexico’s entrepreneurs have failed the market test. More than 150,000 firms used to produce the country’s goods; today barely one-third are still capable of satisfying consumer demand. Countless firms have gone under, and more will follow if they don’t develop entrepreneurial talent.

Twelve years after imports began to be liberalized, the business scene has been thoroughly transformed. The results, both good and bad, are impressive. On the one hand, Mexico’s industrial exports have increased from just under $7 billion in 1986 to more than $60 billion in 1996, almost a ninefold increase in a decade. Those exports did not come from a vacuum, but from an ever stronger private sector that has become as competitive and successful as the best in the world. By the same token, 70% of Mexico’s traditional industrial firms are dying and a whole era of Mexican business leaders and practices is dying with them.

What differentiates the successful companies from their earlier brethren is not size but entrepreneurship. In fact, there’s not a single company among them that is not led by an exceptionally skillful individual. It is entrepreneurial drive that has succeeded in transforming this impressive sector of the economy. Only this can explain amazing things like the relatively tiny firms, worth a few millions of dollars, that represent more than 10% of the world capacity in their product and, often, 20% or more of the U.S. market.

By liberalizing imports, negotiating a free trade arrangement with the U.S. and Canada and welcoming foreign investors, Mexico made a daring challenge to Mexican businesses: Become competitive or else die. It’s the rule of the entrepreneur class all around the globe.

To read this and previous articles in the Soundings on Mexico series, visit The Times’ Internet Web site: http://ukobiw.net/HOME/NEWS/COMMENT