Mexican Businesses Push North of Border

When furniture and electronics retailer Grupo FAMSA opened the first of 14 planned stores in Southern California last month, it joined a quiet procession of Mexican companies planting roots north of the border.

Founded more than three decades ago in Monterrey, Mexico, FAMSA, or Fabricantes Muebleros, was lured by the purchasing power of Latinos here, a market second in size only to that of Mexico City. So was Grupo Gigante, a supermarket chain that has opened three stores in Los Angeles County in the last two years and plans three more in 2001.

Other Mexican companies have built their U.S. presence through acquisitions. They include Grupo Bimbo, Cemex and Grupo Mexico, among the world’s top producers of bread, cement and copper, respectively.

The steady march of companies northward in the last few years is an outgrowth of the North American Free Trade Agreement. Some firms benefited directly--from reduced tariffs on imported goods, for example. An even bigger factor: The trade agreement forced a higher level of competitiveness and sophistication on companies long protected by the insular Mexican economy.

Consumer electronics manufacturers such as Sony and Philips flooded the market, enabling FAMSA, for one, to raise quality and lower prices on goods it sold throughout its 250-store chain. Forced to go head-to-head with U.S. competitors, others such as bread maker Bimbo have become more efficient by adopting new technologies. That kind of savvy has enabled a growing number of Mexican companies to compete in foreign markets for the first time.

Though U.S. investment in Mexico still far outstrips investment from that country here, the increase in Mexican corporations entering the U.S. market turns early perceptions of the North American Free Trade Agreement upside-down.

“People thought that we would see an invasion of U.S. companies into Mexico and Mexican companies disappearing,” said Jose Felipe Garcia, an economic-development specialist with the Tucson-Mexico Project, which helps facilitate cross-border deals. “It’s going both ways now.”

The value of Mexico’s mergers and acquisitions abroad in 1999 tripled over the previous year, exceeding those made by foreigners in Mexico by about $1 billion. That made it the only Latin American economy to become a net purchaser that year, according to the United Nations Conference on Trade and Development.

The trend has continued. Last year, Mexican billionaire Carlos Slim Helu’s Grupo Sanborns bought CompUSA Inc. Cemex, the world’s third-largest cement producer, acquired Southdown Inc. of Houston--the second-largest cement producer in the U.S. And Grupo Bimbo, whose Texas-based Bimbo Bakeries USA already accounts for 18% of its $3.3 billion in annual revenue, has bid for the U.S. baked-goods unit of Bestfoods from consumer product giant Unilever.

Companies such as FAMSA and Gigante, which are building U.S. subsidiaries from the ground up, don’t show up in data on mergers and acquisitions. But investments by Mexican companies in the U.S. have climbed over the years as well, according to U.S. and Mexican data.

“The first three or four years of NAFTA, these companies were protecting their local turf,” said Carlos Valderrama, who manages the Mexico practice for Los Angeles law firm Carlsmith Ball. “As they began to get efficient competing with imports, they said, ‘Now we can go abroad.’ ”

With $600 million in revenue last year, Grupo FAMSA is still one of the smaller players to push north. Chief Executive Humberto Garza, whose father founded the company in 1970, said NAFTA offered the opportunity to carry a new array of quality imported products at reasonable prices, helping to power rapid growth across Mexico. The decision to establish a presence in Southern California, however, “is all for the market.”

FAMSA executives began studying the region’s demographics 18 months ago and committed to the move last March. And they kept a close eye on supermarket chain Grupo Gigante as the Mexican conglomerate opened stores in Pico Rivera, Arleta and Covina.

FAMSA’s first U.S. store, in San Fernando, imports some furniture from Mexico, but most goods come from the U.S. Its electronics and appliances, because of NAFTA, are the same internationally known brands now sold in Mexico, giving the stores in both countries some consistency.

Consumers can shop by catalog for relatives in Mexico, where goods are delivered from the chain’s local stores--warranties and service contracts included. Grupo FAMSA International Director Ignacio Ortiz, who is president of the U.S. operation, said response to the service has exceeded expectations.

The company also offers credit and has partnered with Texas-based DolEx Dollar Express Inc. to offer money transfers to Mexico for $1, well below the market rate.

FAMSA is betting that competitive pricing and service will sustain it. A Santa Ana store is scheduled to open next month, followed by stores in downtown Los Angeles, Huntington Park, Panorama City and other communities with dense Latino populations.

“Coming from Mexico gives us an opening,” Garza said. “The Latino market here appreciates the fact that a Mexican company is growing and expanding to serve them. There’s an affinity with the FAMSA brand.”

Still, the company is sensitive to differences between Mexican consumers and the multi-generational Latino market here. Almost all company executives were hired locally for their U.S. Latino market expertise, Ortiz said.

Gigante also has adapted to those differences. Since it opened its first 58,000-square-foot store in Pico Rivera, it has added gourmet flavored tortillas--popular here and in northern Mexico--and created a U.S.-style deli. It also has battled fierce opposition from organized labor, which is pushing the chain to unionize. Both companies have been blindsided by the scarcity of real estate and the complexities of government permitting.

Gigante USA, based in Santa Ana and Tijuana, was formed in 1998, joining a long list of Grupo Gigante Mexican holdings. Among them: 194 Gigante, Bodega Gigante and Super G supermarkets, Toks Restaurant and joint venture ownership of Office Depot and RadioShack.

For Mexican-born shoppers here, the store brings a variety of familiar brands from home such as Ariel detergent, Bimbo sandwich bread and gallon jugs of Tampico juice.

Gigante USA President Justo Frias said lower tariffs on imported goods have enabled Gigante to price products more competitively.

Gigante also benefits from fresher products and lower delivery costs as Mexican food manufacturers move production facilities here, closer to their U.S. customers. Key among them is Bimbo, which recently began supplying the Southland with bread from local plants.

Grupo Bimbo holds a 95% share of Mexico’s packaged bread market. The company began exporting in 1984, and by the early 1990s it had acquired tortilla companies in California, Ohio and Texas and an Escondido bakery.

The company decided to become a player in the U.S. bread business with the 1998 purchase of Fort Worth-based Mrs Baird’s, Bimbo Bakeries USA President Juan Muldoon Barrena said. After acquiring Los Angeles-based Four-S Baking Co. the following year, the company pulled its 14 U.S. manufacturing plants together under the Bimbo Bakeries USA umbrella.

It was only then, Muldoon said, that Bimbo began targeting Latino consumers with its Bimbo and Marinela name brands, familiar throughout Latin America.

If Bimbo succeeds in acquiring the baking arm of Bestfoods, its U.S. presence will grow dramatically. To increase competitiveness, it is adopting a multimillion-dollar resource planning system that will coordinate worldwide operations--which now extend to the Czech Republic and Austria.

“The whole integration of Mexico into the modern economy has been a big driver toward that,” Muldoon said. “Before NAFTA, Mexico was a very closed economy. We had a captive market internally where companies didn’t have to be too efficient.”

Also pushing companies north are long-standing weaknesses in Mexico’s financial markets, where capital is expensive and hard to get, said Garcia of the Tucson-Mexico Project. A U.S. presence not only opens the door to better financing opportunities, it also ensures a flow of dollars that can protect a company from Mexican currency fluctuations.

Still, only the biggest Mexican enterprises have made the move so far, as countless others are held back by Mexico’s still-developing economy, Muldoon said. But the push of high-profile Mexican companies into the U.S. nevertheless is changing long-held perceptions here.

“We’re playing a different role than we have traditionally played,” Muldoon said. “If anything, it’s made the U.S. business community more sensitive to the fact that there can be Mexican capital coming in.”