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Family affair: The family business in Mexico

Ilya Adler

Both friends and enemies of Nafta predicted the treaty would bring increased investment crossing national borders, and in the case of Mexico, a significant new presence of U.S and Canadian firms. This has been the case, and although it could slow down if global financial woes persist, the tendency in the near future will be expanded economic integration within the Nafta bloc.

The new Mexican business landscape will increasingly feature U.S. and Canadian players. They are and will continue to challenge the traditional stronghold of key families in Mexico. The family business in Mexico can no longer survive only on the basis of social networks or on ties to political power or both.

The family-based firm is the basic business unit of Mexico, on both the large and small scale. The tradition generates resources while maintaining the nation's social fabric. As a culture, Mexico is characterized as family-centered, as opposed to the individual-centered cultures of both the United States and Canada. For this reason, the new challenge to the family business unit is as much social as economic.

According to Francis Fukuyama, senior social scientist at the Rand Corporation and author of "The End of History and The Last Man," societies with low levels of trust, such as Mexico, are less likely to spawn large corporations, whereas societies with high trust levels, such as the U.S. and Canada, are more capable of organizing themselves into large, private enterprises. In low-trust societies, businesses tend to be family-centered (precisely because others cannot be trusted), and large enterprises often are created by government, either in the form of direct ownership or through subsidies.

In Mexico, the government is pulling out of its traditional role as the large investor. At the same time, local businesses are increasingly becoming transnational, and thus adapting traditional ownership structures to global standards.

It's too early to predict the complete demise of the family business as an institution. As stated earlier, family firms serve an important social role, and will not fade away easily. But the institution is undoubtedly changing form as it struggles to survive.

Many family-run businesses have been forced to establish partnerships with large U.S. and Canadian multinationals. This is the case, for example, with the Telmex-Southwest Bell partnership (Telmex is controlled by Carlos Slim, head of Mexico's richest family), or Bell Atlantic's association with Alejo Peralta's Iusacell. Through these associations, the family business assures itself a future, but it also implies a loss of control, or to say it differently, it loses some of its family image.

Other family-run businesses attempt to survive by expanding their operations overseas. But in doing so, they are forced to enter into partnerships with other business interests who have a greater know-how of those markets. Once again, the family look changes. Another tendency is the internationalization of the family, with branches of the same clan living in the United States and Canada, and establishing business operations with Nafta coverage. This was the story of the Rothschilds who established family branches in key European countries and in the United States.

But any of these possibilities requires significant cultural changes within the family-run business. Since it can no longer survive only on the basis of nurturing social and political ties, it will have to produce professionally prepared members, able to manage businesses in a fiercely competitive environment. From now on, family membership will not suffice to work in the business. Incompetent family members will no longer have a say in operations.

The challenges to the family-run business are many, but as long as families continue to be the central social unit of Mexico, expect them to make the necessary adjustments in order to survive. They may change in focus and style, but they will not disappear easily.

Published or Updated on: October 1, 1998 by Ilya Adler © 1998
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