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Mexican Businesses Push North of Border

Expansion: Lured by the Latino market and aided by NAFTA, companies are building a presence in the U.S.


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.

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