THE TORTILLA CURTAIN

por George Baker (g.baker@energia.com)
Albert Antebi

The former general manager of NCR's manufacturing plant in Puebla tells the story of how, when he first came to Mexico in the early 1980s, he was told by his staff that the weekly shipments of components and assembled products routinely passed the border without incident. "I decided to pay a call on the local customs official at the border, just to satisfy myself that there were no present or future issues that needed my attention. At the customs office in Nuevo Laredo there was a tough character out of the movies: the corpulent official, sitting behind his large desk is cooled by an old fan that groans and threatens to stop at any moment. At his side are two even tougher characters each sporting an Uzi machine gun. After some discussion the official says, 'I don't care what they told you in Mexico City. Here on the border you do what I say.' Clearly implied was the demand for extra-official transit payments--without which the plant's shipments would not arrived in a timely fashion, if at all."

The story is worth retelling, not because it tells us anything about border crossings in Mexico or anywhere else; but because it points to the set of ongoing communications problems--of crisis proportions, we will argue--facing the 1,500 or so international companies in Mexico. We identify two problems:

1. The local manager's story of how things really work in Mexico is simply not believed. (The information learned at the border in the example had no place to go in the corporation; certainly no one in the home office was prepared to hear it.)
2. The local manager gives an optimistic assessment for the recovery of the Mexican economy and the near-term solution to bottlenecks in the operating environment. This assessment is accepted by the home office despite any lack of structured evidence and argumentation. The inevitable result is losses--of time, human resources and millions of dollars. One thinks of the collapse of Mission Energy's proposed coal-fired electric plant in Coahuila in 1993, to say nothing beyond mentioning Valero's stalled MTBE plant in Veracruz and the GE-led consortium's nightmare with financing the Samalayuca electric power plant.

We want to better understand how falsely optimistic assessments get started, accepted and funded by corporate parents eager for profits or market share--if not now, in this year's P & L, then at some not-too-distant future year. (The not-too-distant profits philosophy is one that, during the Salinas years from 1988-94, cost the shareholders of major U.S. and European oil producers roughly $100 million dollars in staffing up for a policy opening upstream that never happened.) In other words, we want to understand how corporate expectations get wrongly framed and ultimately go unfulfilled. "Mexico," as some us say, "is a beautiful place to spend money, but a terrible place to try to make money." Why?

In her books on local and international management styles in Mexico, Eva Simonsen de Kras has already touched on many of the human issues, those involving the business education and cultural expectations of managers and representatives assigned to Mexico. Our view is that the problem is so serious that it goes beyond the power of the printed page to more than hint either at its character or at possible solutions.

Let's go back to the border fifteen years after the time described in our opening example. What has changed? The new customs official is in an air-conditioned room, there are no guards with Uzis, the official sports a Herm=E8s tie and a graduate degree from a U.S. university, and, most strikingly, appears to be perfectly bicultural. The plant manager now hears the same story that he had heard from this official's look-alike counterparts in Mexico City. Still, there's something wrong with this picture. What is it?

Part of what's wrong is the phenomena that we call the "Mexican ex-pat in Mexico." Where, in earlier years, Mexican government officials were in contact with the hard realities of local politics and interest groups (and that may or may not have spoken English), today the top several layers of the Mexican Government all speak English and in many respects are more at home in the U.S., Canada or England than they are in Mexico. Evidence of this lack of contact with local realities on the part of senior government officials is overwhelming in the matter of the stalled attempts to privatize Pemex's petrochemical plants during 1995-96.

The meaning of the so-called "Tortilla Curtain," therefore, needs to be revised. The problem is not, as Alan Riding told us, that the U.S. and Mexico are distant neighbors, but that Mexicans are distant neighbors from each other. The Tortilla Curtain is now not found at the border, but in every office of the Mexican Government and its de facto representatives in the U.S., Canadian and British embassies. The Tortilla Curtain is found in the mindset of local managers and reps who view Mexico as a "market" for their goods and services. If we have learned anything since January 1, 1994--and, to judge by Andr=E9s Oppenheimer's new book, Bordering on Chaos (1996), it hasn't been very much--it's that the term "North America" points to a fact of geography, not one of international commerce. The harder fact to assimilate is that Mexico operates basically by a command economy. Decisions to invest are rarely made by reference to market or pricing signals; they are made by what Mexicans call "concertacesi=F3n," which means back-room negotiations (now smoke-free in deference to the Mexican graduates from UCLA, Stanford and Berkeley).

What is the solution to this costly and inefficient culture of communication between local reps and the home office?

1. Allocate more human and financial resources to the assessment of risk, realizing that not only that there is a natural in-house bias to overvalue corporate staying power and undervalue the probability of failure but that nay-sayers about Mexico inside a corporation are likely to be ignored.
2. Learn the meaning of the Spanish word "arreglar," and be wary of anyone who uses it.
3. Restrict investment decisions to those with business opportunities associated with the present regulatory and legal frameworks. Banking on future changes in the regulations or public policy has been the source of huge losses and greater embarrassment. Example: Before it flamed out in a stream of smoke in January 1996, the business plan of Conoco and Nova to develop the natural gas resources of the Burgos Basin was contingent on a major change in federal energy policy, a change that neither Mexican public opinion nor Pemex was the least bit interested in making.
4. Realize that there are no words in either English or Spanish that adequately capture in narrative prose any present moment in Mexico, nor do statistical point estimates of macroeconomic performance serve any real purpose. The technique of scenario analysis has to be applied not so much to the future as to the present. Oddly, in Mexico the present moment is harder to identify and understand than the future.
5. The home office must be alert to symptoms of "clientitus" in its in-country staff, namely, the tendency on the part of an overseas manager to regard the officials and people of the host country as his "clients." A person afflicted with this form of culture shock will file reports defending the Mexican government and operating environment from criticism at home or abroad. Such personnel should be rotated out of Mexico immediately.
6. Rethink your entire business plan should you find anyone in the Mexican Government or U.S. Embassy who agrees with it. You have stumbled on the clientitus in others: these officials may think that it's a good idea , for example, if Mexican gas stations were to have convenience stores attached to them. That there is only full-serve gasoline service in Mexico, that consumer purchasing behavior at such convenience stores is dependent on the motorist getting out of his--in Mexico, forget about her--car, such considerations are not the concern of ministry or embassy officials. That a company may lose its shirt is less important than the news on Wall Street that an international company found the Mexican market suitable for such an investment.
7. Finally, and paradoxically, home offices must learn (a) to listen better to what local reps and managers are telling them about the current operating environment and (b) at the same time, the home offices must learn to ignore what local managers tell them about the likelihood for success of their projects. It is almost never the case that local reps have been trained equally as (a) managers, (b) industry economists, (c) political scientists and (d) lobbyists. Typically, local reps overestimate the effect of their lobbying and analytical skills on the outcome of a project. Local offices should seldom, if ever, be charged with collecting industry or economic data (especially if field interviews are required) much less with its analysis.

By following these rules, corporate parents can save several million dollars a year in avoiding false or premature starts, delays and staff burn-out. Local reps and managers will perform their jobs better knowing that (1) the home office no longer expects them to have a crystal ball about Mexico and (2) that having access to outside sources of information and analysis is not an admission of an inability to perform their jobs.
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George Baker, based in Houston, is directs Mexico Transnational Strategies (g.baker@energia.com).
Albert Antebi, based in Mexico City, directs the Petrochemical and Political Risk Advisory Services of Baker & Associates (74174.3375@Compuserve.com).

George Baker

Tel: 713-627-9390 Fax: 713-627-9391