Thursday, 30 August 2012

The Reconquista

Mexican oligarchs are expanding abroad

Mexico both benefits and suffers from its close proximity to the United States. When the ‘gringos’ on Wall Street trigged a financial crisis, Mexico was plunged into an even deeper recession than its northern neighbour.

Still, the benefits may be coming round again. Mexico houses a growing number of firms with global ambitions. Grupo Bimbo, a bread maker, purchased Sara Lee Bakeries in 2010 to become the US’s biggest baker. Another giant, Grupo Modelo, has long been exporting its wares abroad. Corona extra, one of Modelo’s most popular brands, sells strongly in the US but also in places like Hungary.

Not the only one with money to burn

It’s not merely bread and beer which are developing a Mexican taste. Cemex, a large cement producer, has grown from its Monterrey base to be one of the largest producers globally. A recent acquisition of Rinker, an Austrailian cement materials firm, for £15.3 billion has added to its global credentials.

What does Mexican beer, bread and cement all have in common?

The decision to expand a firm’s operations abroad often stems from a mix of opportunity and necessity. This doesn’t seem to apply to the likes of Cemex. The firm has a 35.7% operating margin in Mexico and a paltry 0.2% in the U.S. Bimbo doesn’t fare much better; a 9% Mexican margin is eroded to 2.7% in the U.S.

What allows these firms to expand is their dominance at home. Grupo Modelo holds over 60% of the beer brands Mexican’s are guzzling. Cemex and Bimbo hold over 80% in cement and bread.

Such control over captive markets provides the Mexican oligarch with security and room to focus on foreign expeditions without worrying about pesky Mexican consumers. The recent strong performance of the Mexican economy, growing at around 4% annually, has further lined the pockets of such firms.

The Reconquista excites many in the country as it is seen as about time Mexico exerted itself on those across the border. Yet the strategy of expanding with low margins abroad, whilst protecting entrenched monopolies at home, is likely to benefit foreign consumers more than Mexican ones. 

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