Home' Trinidad and Tobago Guardian : May 22nd 2014 Contents Cemex has long been a household name in Mexico, its blue-
and-red colours emblazoned on soccer jerseys as well as
concrete mixers. The genius of Lorenzo Zambrano, who on
May 12 died unexpectedly in Madrid at 70, was to turn Cemex
into a name known and respected around the world.
In a 15-year blitz of acquisitions that started with Spain s
two largest cement companies in 1992, he bought rivals in
Australia, Britain, North and South America and the Philippines.
In the process he showed his historically inward-looking com-
patriots, who had barely begun to embrace free trade, that
Mexico could compete on the world stage and win.
His flair for dealmaking won him headlines. Even when he
doubled Cemex s size by buying Britain s RMC in 2005 for
US$5.8 billion, he defied the critics by turning around the
combination quicker than he had promised. He muscled into
a global cement gang alongside Heidelberg Cement of Germany,
Lafarge of France and Holcim of Switzerland, the last two of
which unveiled plans to merge last month, despite the fact
that, as an "emerging market" company, Cemex had more
difficulties raising funds for its conquests.
He was more than merely a Mexican conquistador, however.
During the 1990s, when the world was gripped by dotcom
fever, Zambrano cleverly sought to refashion an old-economy
business, literally as gray as they come, into something more
"Who wants a sack of cement?," he once said. "You want
a home or a bridge or a railway."
He was a technology nut, an early obsessive with the music-
sharing site Napster, who oversaw the development of infor-
mation-technology systems that allowed Cemex to deliver
ready-mix concrete as easily as pizza.
He also was a gentleman, however, described once by The
Economist as a blend of technocrat and aristocrat. His grand-
father founded the firm, which Zambrano joined after leaving
Stanford University in California in 1968. He worked his way
up, though, rather than taking a gilded position right away,
and did not become chief executive until 1985.
Like many cement companies, Cemex was clobbered by the
American subprime-mortgage crisis. He should have seen it
coming. Paying US$16 billion for Rinker, an Australian firm,
nearly brought Cemex to its knees in 2007. The violent drug
crime that traumatised his beloved Monterrey, the northern
industrial city where Cemex is based, also cast a pall in recent
years. He bravely exhorted residents of the city not to flee the
killings, however, and helped in efforts to restore order and
rebuild torn communities.
He died with Cemex on the mend. He appears to have left
no firm succession plan in place, however, which caused fluc-
tuations in Cemex s share price and is risky for a company
listed on the New York Stock Exchange. The board is likely
to name a successor shortly. Zambrano groomed his subalterns
by sending them to turn around his acquisitions.
With his death, Mexico has lost not its richest industrialist,
but arguably its most enlightened.
@2014 The Economist Newspaper Ltd. Distributed by
the New York Times Syndicate
BUSINESS GUARDIAN www.guardian.co.tt MAY 2014 • WEEK FOUR
In almost every town in Mexico, you will find
at least one garish La Michoacana ice-cream
parlour, or paleteria. The decor is generally pink,
and the ice-creams are a rainbow of colours.
Flavors include rice pudding, chewing gum and
La Michoacana is a Mexican business success
story, possibly as well known as Dunkin Donuts
is in the United States. It is not a corporation,
however, nor a brand, nor a franchise. It is a
confetti of independent, family-owned ice-
To find its roots, you must travel to Tocumbo,
a village in the southwestern state of Michoacan,
where, during a recent visit, one could witness
the funeral of two youths beheaded by a drug
gang the day before. Small consolation, perhaps,
that the locals are so proud of their cemetery
that they say it is a "joy to die."
Everything about Tocumbo, from the plush
graves to the towering ice-cream monument as
you enter the village, speaks to the wealth gen-
erated by La Michoacana ice creams since two
villagers started peddling them in Mexico City,
300 miles away, more than 60 years ago.
Through the decades people from Tocumbo
have set up ice-cream shops around Mexico,
and even in America, and sent money home.
Competition from global brands has increased,
boosted by the proliferation of convenience
stores, but La Michoacana stores mostly remain
true to their past. They are the epitome of Mex-
ican small businesses: not only independent
and family-owned, but also shabby, with only
a few people behind the counter, working on
and off the books.
They also epitomise Mexico s stubborn attach-
ment to smallness in business. Tocumbo s elders
have brushed off all attempts to organise La
Michoacana into something more structured
and profitable. The Organisation for Economic
Cooperation and Development says that Mexico
has more businesses with ten workers or fewer,
as a share of the total, than any other big econ-
omy in Latin America: 95.5 per cent, compared
with 80 per cent to 90 per cent in Argentina,
Brazil and Chile.
Manuel Molano of the Mexican Competi-
tiveness Institute, a think tank, calls this a "Peter
Pan system" in which firms prefer to stay small
than to grow, mostly because of tax and reg-
"It s easier to fly under the radar when you
are microscopic," he says.
Some, like La Michoacana, are small com-
panies that could be bigger. Some try to look
smaller than they are: The young men on tri-
cycles in the capital who sell corn tamales from
Oaxaca, a southern state, look like freelancers,
but they have a common boss and the same
prerecorded sales pitch is heard across the city.
In recent decades, despite Mexico s attempts
to build export industries such as carmaking,
this kind of low-wage micro-businesses has
been among the few sources of job growth. A
study in 2012 by the Inter-American Develop-
ment Bank showed that, between 1998 and
2008, employment in small, informal and "ille-
gal" firms, whose workers get no health or pen-
sion benefits, rose much faster than employment
in big, legal firms that add more value to the
This has hurt growth. Small firms are much
less productive than large ones, and only a hand-
ful are exporters or integrated into modern
supply chains. McKinsey, a consulting firm, says
that local bakeries, or panaderias, have only
one-fiftieth of the productivity of the largest,
such as Bimbo, a thriving multinational.
Having almost three-quarters of the work
force employed in such businesses also entrench-
es inequality, because on average they pay much
less than large firms, use less-educated staff
and are more likely to fail. McKinsey talks of
"two Mexicos" moving in opposite directions:
a modern, export-oriented one and a traditional
one of small businesses in which productivity
is plunging by 6.5 percent a year.
Staying small has other benefits, besides facil-
itating tax avoidance. Little firms legally can
pay employees in cash without contributing to
the official health-care and pension plans. It is
only when workers are put on salary that such
benefits become a legal obligation. Family-run
firms also act as an unofficial social safety net.
The opportunity costs of staying small are
high, however. Small and medium-sized enter-
prises account for less than eight per cent of
bank loans. That is low, as is lending overall.
McKinsey estimates that Mexico s ratio of loans
to GDP matches Ethiopia s. The Mexican Banks
Association says that of about five million small
and medium-sized enterprises, only 900,000
are sufficiently formal to obtain credit. Those
that do pay much higher interest than big firms.
Many companies choose to avoid banks alto-
gether. The banking association says that more
than half of small or mid-sized companies do
not want a loan. Few can grow to any size with-
out credit, however. Even La Michoacana bor-
rowed money in its early days, though its main
financier was a villager who lent at extortionate
rates, was murdered and now is memorialised
by a statue in the main street. Ambitious firms
today need more reliable lenders.
Other costs of the Peter Pan syndrome are
a lack of efficiency, technology and innovation.
According to Enrique Jacob Rocha, head of the
Economy Ministry s National Entrepreneur
Institute, Mexico s ubiquitous family-run grocery
stores, known as miscelanea, on average keep
28 days worth of inventory, compared with five
days at Oxxo, a fast-growing, modern con-
venience-store chain. Most lack electronic pay-
ment systems and have failed to branch out into
the sale of mobile airtime and other billing serv-
ices that are highly profitable for Oxxo and its
Furthermore, firms in the underground econ-
omy are prey to extortion by criminal gangs, as
well as to fleecing by corrupt municipal author-
"We have much higher quality than Haagen-
Dazs," he boasts, "at a much lower price."
Soon, he adds, he hopes to begin exporting to
@2014 The Economist Newspaper Ltd. Dis-
tributed by the New York Times Syndicate
Peter Pan syndrome
How Cemex's Lorenzo Zambrano changed the face of business
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