Friday, August 18, 2006
Mexico's rich build dynasties
America would have one think that all of Mexico is poor and knocking at their back door, but it would be wise to realize this is propaganda. Below is an article describing some of the rich and what they own. Mexicans should be looked at as a source of investors as well as workers.
Carlos Slim is rich. Insanely rich. Astronomically rich. If you took his $37.6 billion and laid the dollar bills end to end, they would stretch to the moon and back seven times, that's how rich he is.
That the world's third-wealthiest man is from Mexico, a country still plagued by poverty, is remarkable. But what's more remarkable is this: He's not the only ultrarich Mexican out there.
Mexico is quickly becoming a land of business dynasties, families that have grown fabulously wealthy through a combination of government favoritism and the privatization of hundreds of state-run enterprises in the 1990s. advertisement
"We have a huge concentration of capital in this country," said Celso Garrido, an economist at Mexico City's Autonomous Metropolitan University. "They're the superrich, the fantasticos."
These are the Mexicans who drive Porsches and live in mansions in Lomas de Chapultepec, the Beverly Hills of Mexico City. The kind of people who have no trouble getting U.S. visas and who fly into Scottsdale Municipal Airport on private jets for weekend shopping trips.
Other Mexicans refer to these people as "the 100 families" and know them from the social pages of the Reforma newspaper, where their sons and daughters appear playing polo, skydiving and sailing yachts.
These Mexican dynasties have also begun investing billions of dollars in the United States in the past decade. Americans buy and use their products, everything from cement to kitchen appliances, every day.
As these business conglomerates, often called grupos, grow, they face new challenges: greater scrutiny from foreign regulators, global competition and the advancing age of their patriarchs. But one thing remains clear: In Mexico, wealth is still a family affair.
The reach of these families and their businesses is enormous: Anyone in the western U.S. who ate a Thomas' English muffin, an Entenmann's pastry or a slice of Oroweat bread for breakfast already has contributed to the Servitje family fortune today. And tonight, countless American barflies will order up Coronas and make María Asunción Aramburuzabala, Mexico's richest woman, a little bit richer.
For these families, globalization has paid off handsomely. For example, 35 percent of stoves and refrigerators in the United States are made by a Mexican company called Mabe, founded and still led by the Berrondo family. They're sold under the Hotpoint and GE brand names.
Many of these families control the grupos that have so many kinds of companies they put General Electric to shame. Some are world leaders in their industries. They include the Bailléres family and its Grupo BAL, the world's biggest producer of silver. The Larrea family's Grupo México is the world's third-largest producer of copper and owns three mines in Arizona.
Cemex, controlled by the Zambrano family, is the biggest cement company in the United States, and its products are under eight regional brands, including Victor. Gruma, held by the González family, is the world's leading producer of corn products.
Meanwhile, América Móvil, one of Slim's companies, was named the top-performing technology company in the world by BusinessWeek this year. It beat out companies like Apple, Google, Dell and Microsoft.
Slim himself is now third on Forbes magazine's list of the world's richest people, right behind Bill Gates and Warren Buffett.
Many of the Mexican business dynasties took off in the 1990s, when President Carlos Salinas de Gortari began dismantling Mexico's centralized economy. Salinas sold off more than 1,000 state-run companies from metal foundries to railroads. Mexican tycoons snapped them up at bargain-basement prices.
Slim, for example, led a consortium that bought the Telmex telephone monopoly for $443 million, less than two-thirds of its true value. Ricardo Salinas Pliego, who is unrelated to the former president, bought state-run Imevisión and turned it into the TV Azteca network, which has affiliates in Phoenix and Tucson.
The families then organized the companies into voting and non-voting shares. That allows them to control companies with little investment, sometimes 4 or 5 percent of the shares.
Many of the companies are expanding their plants and warehouses in the United States. Gruma is buying up competitors, including the Cenex Harvest States tortilla plant in Phoenix. Televisa, the media and sports empire controlled by the Azcárraga family, tried but failed to buy the U.S. network Univision this year. Slim bought the CompUSA chain of electronics stores in 2000 and owns a big chunk of Saks Fifth Avenue.
In all, Mexican capital investments in the United States went from nearly nothing in 1995 to $6.7 billion in 2005. The numbers show that far from being just a source of illegal migrants, Mexico is increasingly becoming a source of investors, said Dawn McLaren, a research economist at Arizona State University.
"Here are we are, complaining about illegal immigration and saying Mexicans should get out of our country," McLaren said. "So it is extremely surprising for Americans to find that there is a huge amount of foreign direct investment coming in."
Some of the grupos have run into trouble when they've tried to take this clubby, family-based business model abroad. In 2001, the U.S. Securities and Exchange Commission charged one of Slim's lawyers with insider trading during the CompUSA purchase. Then, a Texas jury slapped Slim with a $454 million verdict for sabotaging a U.S. company's plans to open CompUSA stores in Mexico.
Slim and his lawyer won both cases after legal battles, but the controversies tarnished what was Slim's highest-profile venture in the United States.
Then last year, the SEC charged Salinas Pliego, the TV Azteca owner, with defrauding investors by not disclosing a debt deal that personally netted him $109 million. One TV Azteca executive already has paid a $200,000 fine, and Salinas Pliego is currently negotiating a settlement with the SEC.
Many analysts also are becoming more concerned about the near-monopolies that many of the companies enjoy. There are only two television networks in Mexico, six radio chains, two beer companies (though they own several brands) and two major food processors.
"Mexico is just suffused with obstacles to competition," said George W. Grayson, a Mexico expert at the College of William & Mary in Virginia. "It is still full of public and private monopolies and bottlenecks."
Televisa, led by Emilio Azcárraga Jean, has created the most controversy lately. In March, the Mexican Congress passed a law aimed at divvying up the radio waves. The law allows frequency-holders, mainly Televisa and TV Azteca, to freely branch out into digital services, while newcomers will have to bid for new bandwidth. The so-called Televisa Law outraged other broadcasters and may face a court challenge.
Soon, Mexico's business dynasties will have to face another thorny issue: the advancing age of their founders.
Carlos Slim is 66. The heads of Gruma, Grupo Famsa and Grupo BAL are all in their 70s.
With so many businesses to control, some families are starting to hire CEOs rather than doling out companies to sons and nephews. Other grupos, like glass manufacturer Vitro, have fractured as second- and third-generation heirs struggle for control.
The younger generations also tend to lack the boldness of their predecessors. The late Emilio "The Tiger" Azcárraga Milmo wielded Televisa's media power against enemies like a modern-day William Randolph Hearst. His 38-year-old son is known as "Kid Azcárraga" and is more reserved and technocratic.
Still, most analysts say Mexico's financial oligarchs are here to stay.
"The grupos may change because the kids lack that certain something," said José Martínez, author of a biography of Slim. "But the empires and the plutocracy live on."
Chris Hawley Republic Mexico City Bureau Aug. 16, 2006