Mexico and the World
Vol. 7, No 2 (Spring 2002)
http://www.profmex.org/mexicoandtheworld/volume7/2spring02/international_integration.html

MODALITIES OF INTERNATIONAL INTEGRATION
AND EXPANSION PERSPECTIVES OF MEXICAN COMPANIES1

Jorge Basave Kunhardt
Institute of Economic Research, UNAM

INTRODUCTION

      At present, both in the case of Mexico as well as the rest of Latin America, the country’s companies represent the most immediate bridges toward its insertion in the new world economy, and in many cases toward the appropriation and/or development of new productive technologies and organizational systems that confer stability and an expansive dynamic to this insertion. Some bridges, albeit only a few, have already been constructed, others remaining to be built will require the participation of different economic participants in addition to companies, but always counting on the latter.
In addition to the two pillars of growth in which Mexican economic policy has explicitly sought to sustained its results since the end of the 1980s -foreign investment and the dynamism of the country’s largest business groups- we must also add other smaller business sectors, which represent close to 89% of the productive units and employ more than 60% of the workforce.
 
    The insufficiencies in the country’s industrial policies, which have been reduced to generally unconnected isolated measures in the framework of a rapid economic opening, maintain a large part of these sectors mired in inefficiency and backwardness in addition to being subject to an internal financial system incapable, for different reasons, of providing financial instruments and costs within their reach. It is here where the Mexican State is not able to perform the role of a more decisive participant in the agreed-on instrumentation of measures to promote the development of small and medium-sized companies and training for their workforce without illusions that everything will be achieved thanks to market forces.

      In Mexico two economies are evolving with very pronounced differences, that of the large foreign and domestic business groups, some of them multinationals and that of the rest of the economy. The gap is not new and it corresponds to an inherited economic structure, but it is tending to rapidly expand in the context in which 14 million Mexicans live in conditions of extreme poverty (averaging the different estimates), agricultural production has serious difficulties just surviving, and there are vast backward areas of the country whose economic and social problems are addressed only when serious political problems arise, such as in the case of southeast Mexico.

     The economic challenge currently being faced by a developing nation such as Mexico lies in finding a way to insert itself in the new world economy that would allow it to take advantage of all the growth potential that accompanies the advance of globalization. These include the appropriation and development of new technologies, training for its labor force, more efficient productive organizations oriented to an inclusive political and social development with an agreed-on participation that allows for regulating the blind forces of the market that today reign supreme. It also involves avoiding the exclusion of broad sectors of the population in vast regions of the country, decisively opposing what some consider to be the “unavoidable price of globalization.”

     Based on an appreciation that identifies the most dynamic business sectors as factors for growth and as potential generators of development, the objective of this study is to advance in the analysis of the different ways in which the main Mexican business groups are becoming inserted in the new internationalization trends in world production, in the process trying to evaluate their future perspectives. The effects within the economy and the resulting social consequences will not be discussed.

     I am using some of the results of another recent research paper (Basave, 1999-b) in which information was presented on the geographical orientation of foreign direct investment (FDI) by business groups during the current decade and a general reflection concerning the determining factors behind this investment.

    Due to the importance for developing countries of determining whether the process of internationalization of their companies can play an effective role in bringing the rest of the economy along with it, here we will proceed, with the limitations of the available information, with an analysis of the expansion strategies and the organizational structures that can be observed in some of the most dynamic domestic business groups operating internationally. We are mainly interested in their forms of integration and their spatial scope.

     We have adopt a general theoretical conception with regard to the recent changes in the world economy, which is the framework for our object of study. Althougho we are aware of the existence of a extensive polemic in this regard, it seems to us that the current processes of regionalization and globalization contain several components that constitute a new systemic configuration that is qualitatively different in international economic relations (Porter, 1986; Best, 1990; Reich, 1991) and that it is not simply the continuation of previous internationalization processes.

     The conceptual framework that we are using in this study has two basic, closely tied reference points: integrated international production and business networks.
The first is a fundamentally economic notion closely tied to the sociological analysis that, based on the tendencies in the world economy since the 1980s, attempts to explain the new expansion strategies of the transnational companies that vary in their degree of complexity and in their repercussions on the geographical spaces that tie them together.
A copious bibliography is available on this question, ranging from studies that deal with the most general rules of integration of regional and global production from different theoretical and critical perspectives (for example, Porter, 1986; Dunning, 1993; Chesnais, 1996) to those that refer to more specific aspects concerning the consequences of business strategies in the concentration of production and the formation of subregions, or with respect to specific economic sectors integrated internationally (for example, Oman, 1994; Gereffi, 1999). Several international institutions use this concept for their analysis concerning the main tendencies in the current world economy (for example, UNCTAD, 1993 to 1998; OECD, 1994).

     The second reference point is a notion that refers to the type of business organization that responds to the need to identify and define the different organizational structures adopted by business conglomerates to implement more complex international production strategies. It is a concept that seeks to identify multinational economic organizational systems. It analyzes, among other aspects, the combination of intra and inter-company relations in the different points of the productive chains where value is added and that supercede national boundaries in the elaboration and distribution of an end product or perhaps a service. Different studies have been written, with varied theoretical premises, that use this notion (for example, Kotabe, 1992; Gereffi and Korzeniewicz, 1994).

     We are especially interested in the research Gereffi has conducted on commodity chains that are conceived as business networks on an international level involved in all the processes required for the production, commercialization, and distribution of an end product.

    Although the author has delved more into the analysis of the repercussions of the global chains impelled by the buyer driven global commodity chains in the developing countries (included Mexico), for the effects of this study we are interested in the analysis of the other modality of regional or global chains that are formed around a transnational manufacturing industry that becomes the pivot that stimulates the others and establishes the standards to be followed (producer-driven commodity chain). We feel that certain Mexican business groups have the productive capacities and the comparative advantages on a regional or world level to perform this role as a core unit in specific manufacturing branches.

     With the exception of those studies that process information on the recent transnational activity of companies in developing countries, there are still very few more detailed analysis concerning the characteristics that this activity assumes in terms of its modalities of integration and the repercussions that these have in the original national economies. To a large extent this can be attributed to the difficulties in accessing sources of private information on these topics and to the lack of reliable official data, with the exception of a few countries like Chile or India.
Nevertheless, in the case of Mexico there are several studies available concerning the new forms of organization of the largest Mexican business groups and their international expansion (for example: Peres, 1993; CEPAL, 1993 and 1998; Pozas, 1997; Garrido, 1998; Morera, 1998; Mortimer, 1998; Dabat, 1999; Rivera, 1999).

THE BOOM IN FDI IN LATIN AMERICA

     The context in which Mexican business groups have expanded abroad during the 1990s has been the boom in FDI toward the developing countries and especially toward Latin America. In this latter case, the main factor behind this phenomenon was the opening of all the region’s economies since the beginning of the decade, and more recently the Asian financial crisis that motivated a reorientation of investment flows within the developing countries as a whole, although this could possibly be a temporary elementi.

     Between 1990 and 1996 the developing economies went from receiving 16.5% to 36.9% of world FDI (IDB/IELAR, 1998, p. 26). During the above-mentioned period, these economies received an annual average of close to 80 billion dollars, mainly concentrated in south and southeast Asia (62.3%), with China absorbing about a third of the total and the Americas and the Caribbean (29.3%). Not including China, more than a third of the investment was concentrated in six countries: Brazil, Singapore, Indonesia, Mexico, Malaysia, and Argentina (IDB/IELAR, 1998, p. 26).

    In 1997, due to the relative stagnation of FDI revenue in the developing countries of Asia and as a result of setbacks in Africa, Latin America notably increased its participation as a receptor region for this type of investment, receiving between the 38% and 43.9% of the flows to developing countries, according to different informational sources (UNCTAD, 1998, p. 243 and CEPAL, 1998, p. 40).

    In the region, investments have been concentrated in the three largest economies: Brazil, Mexico, and Argentina, which in 1997 received 62% of the total, with an additional 26% corresponding to Venezuela, Peru, Colombia, and Chile (UNCTAD, 1998, p. 244). If we analyze FDI flows toward the countries that belong to the Latin American Integration Association (ALADI) we find that Brazil has become the most attractive country for international FDI, followed by Mexico (Chart 1).

Chart 1
FLOWS OF FOREIGN DIRECT INVESTMENT IN COUNTRIES BELONGING TO THE LATIN AMERICAN INTEGRATION ASSOCIATION (ALADI), 1990-1998
(in millions of dollars)

     Flows to Central America and the Caribbean (not including the tax havens), which we will pay special attention to as a subregion to which Mexican FDI has been channeled, have grown in importance, rising from an annual average of 1.16 billion dollars between 1990 and 1993 to 2.13 billion dollars (CEPAL, 1998, p. 42). This is a statistic that reflects an important effort by countries in the subregion to attract FDI, as in the recent case of Costa Rica, although in the area total they receive less than 10% (including the tax havens).

     The information concerning the forms of investment that can be found in different studies is only approximate, since to a large extent it is based on financial or specialized magazines that are not always exact and do not always apply the same methodology. However everything seems to indicate that up to 1993 the modality preferred by foreign investors in the region was the purchase of existing assets (private and public), which seems to have again been the case during 1997. On the other hand, between 1994 and 1996 the most important investments were in new assets related to large investments resulting from the restructuring of foreign companies in the area and modernizations of privatized government-run enterprises (CEPAL, 1998, p. 52). According a study (IDB/IELAR, 1998, p.31) this modality has been acquiring increasing importance in Latin America and in 1997 mergers and acquisitions (M&A) in the area represented 13% of the world total, surpassing Asia.

    Here we can add that this could represent a stage in which the intensification of competition forces several Latin American businesses to sell equity, or the totality of their investment, to foreign capital. This seems to most correspond to the Brazilian and Argentine cases, within the three largest countries in the region.

     With regard to the analysis of the transnationalization of the region’s companies, it is a fact that for FDI outlays, Latin America plays a very small role in relative terms, registering only 1% of the world total in 1997, while developing countries in Asia posted 3%. However the progressive increase in Latin American investment overseas is one of the most outstanding phenomenon in the recent regionalization and globalization processes.

     This is basically a process of regionalization of investment, motivated to a large extent by the different economic and trade agreements in the hemisphere, the most important of which are the North American Free Trade Agreement (NAFTA) between the United States, Canada, and Mexico, and the MERCOSUR, between Argentina, Brazil, Uruguay, and Paraguay. Although serious problems exist in registering FDI (which tends to underestimate the real flows) estimates indicate that in 1997 among nine countries in the region, included the three largest economies, 8.37 billion dollars in intraregional investments was registered (Chart 2). What we should emphasize in these data is that Chile and Mexico are the countries most active in investments in the region, very much above Brazil, which is, as we have already seen, the principal Latin American recipient of international FDI.

Chart 2
LATIN AMERICA AND THE CARIBBEAN: INTRAREGIONAL FOREIGN DIRECT INVESTMENT BY COUNTRY OF ORIGIN AND DESTINATION, 1997
(in millions of dollars) 

TRANSNATIONALIZATION OF MEXICAN BUSINESS GROUPS

     The transnationalization undertaken by Mexican business groups during this decade represents the second attempt at expansion through FDI. The first was carried out in the 1970s in the framework of a closed economy, although some manufacturing branches posted increases in exports. Centrally involved were a reduced group of 15 companies in addition to the three largest private banks. Although some channeled their investments toward the south, most earmarked them to the United States, which was an exception in terms of the geographic orientation of the expansion modality undertaken by private companies of other developing countries during those years (Basave, 1999).
For that decade we can identify a first cycle of business transnationalization in developing countries, which had a generalized characteristic in that their investment flows were oriented to neighboring countries with the same or less development. This was the case not only for the most well known of the southeast Asian countries (Wells, 1983) but also for India (Lall, 1983), Hong Kong (Chen, 1983) and Argentina (Katz and Kosakoff, 1983), whose companies took advantage of a series of comparative advantages in the development of own their technologies for traditional industries to invest in neighboring countries or those very geographically close by, taking advantage of strong ethnic and/or cultural ties (Wells, 1983). The cycle was interrupted with the foreign debt crisis at the beginning of the 1980s.

     Focusing on the Mexican case, what we should first point out is that it was a constant that the companies involved were those associated with foreign capital and as in the other countries in the hemisphere, and in contrast to India, in all cases they were oligopolies.

    However the circumstances in which this new cycle is beginning for the Mexican groups is very different from 20 years ago. It is taking place in the context of deep going changes in the international economy and companies are in an intense process of productive and organizational restructuring. New determinants of their investments appear and the association with foreign capital reappears under the modality of “strategic alliances.”

The main factors that allowed for and spurred the new cycle of Mexican FDI were:

- Financial strengthening:
     The possibilities of a transnational expansion are generally poised for companies with high levels of productive efficiency and/or generation of services, with knowledge of foreign markets through export activity, and which in addition, have or have the possibility of rapidly acquiring organizational capacities to directly compete overseas. Although it is true that smaller companies, industrial or service enterprises, also compete, it is indispensable that they have enough financial resources to invest in new markets. When we’re dealing with large-scale production, the available resources must guarantee the acquisition of infrastructure, in certain cases mergers with other companies, and in general, major outlays that require access to international sources of long-term credit.

     In the case of the Mexican business groups that are the focus of this study, they achieved tremendous financial strength during the 1980s, which allowed them to adopt expansion strategies based on FDI.
This was because even though practically all the large private groups had confronted a “financial crack” around 1981 due to the foreign debt crisis, since 1983 they put a financial accumulation strategy into practice that allowed them to overcome their problems in about five years (Basave, 1996).
By 1987, after six years of critically slowing down their productive investments (with the resulting technological backwardness) and channeling their resources to the stock market, these private business groups were able to put their companies in financial order and relaunched their productive investment in the framework of an economic and political agreement with the State that provided them with broad decision-making power in designing the new economic policies.

    Thanks to the financial strength acquired and the doors to international financing for the Mexican private sector being thrown open again in 1989-90, several of these business groups could launch expansive strategies based on FDI. This capacity is also what allowed them, with some exceptions, to maintain control of their companies in the face of the onslaught of foreign capital. This has been combined with a broad policy of forging strategic alliances.

- The competitive pressure and the economic opening in the region:
     The need to modernize, following several decades of a model of protected growth, becomes a question of economic survival within the Mexican economy. But it has also been an indispensable requirement to compete in foreign markets.
With the signing of NAFTA, greater investment opportunities were also opened up in the United States. Furthermore, the economic opening of Latin American countries encouraged several groups to win a space for investments in markets that they had already penetrated through exports, with the risk of losing them to international competition if such a move was not undertaken immediately.

- The boom in manufacturing exports:
     As of the second half of the 1980s, Mexican business groups initiated export activity supported by the State’s promotional development policies. This activity would become very intense from 1994 onward. Export efforts were also a characteristic of the transnational companies located in Mexico, especially the automobile manufacturers who made important investments to transform their operations into export platforms, spurred by economic globalization.

    Between 1990 and 1994 the average yearly growth rate for all Mexican exports was 10%, rising to 22.1% between 1994 and 1997, while growth in exports of manufactured goods (not including maquiladoras) was 15.0% and 27.9% for the two periods respectively (Basave, 1997). Since 1995 exports of manufactured goods exceeded the value of those of the maquiladora industry. (Graph 1).

     In addition to the increase in exports to the United States, the country with which Mexico traditionally sustains most of its trade, the growth of exports to the Latin American region should also be emphasized. From 1990-1995 such exports increased 153.1% (Basave, 1997). Although in value terms, foreign sales to the United States are vastly superior, the greatest dynamism in export activity is south of the Mexican border. With FDI undertaken, export activity has been reinforced.

    The export momentum of the transnationalized Mexican groups can be observed in the increasing tendency to earmark a greater part of their production for foreign markets. Five of the groups that we have analyzed (CHART 3) have more than 50% of their net sales in foreign markets and several of them have seen their exports rise from minimal levels to double digits by 1990.

Chart 3
EXPORT ACTIVITY OF SELECT COMPANIES
Exports/Net Sales (%)

     At this point it is necessary to point out that, just as in the case of other Latin American economies, exports of Mexican manufactured goods are highly concentrated. This also occurs with transnational companies, particularly auto manufacturers, as exporters of domestic capital in which between 13 and 18 business groups have taken control of more than 50% of the export market in recent years (Basave, 1997).

MODALITIES OF INTEGRATION
     To proceed to attempt a classification2  of the modalities of integration followed by the 27 Mexican business groups whose FDI we have information on3, we will base our analysis on the three different integration schemas that the UNCTAD has used in its reports on international investment (UNCTAD, 1993, cap. V) and which are widely accepted.

    The three modalities are: a) establishing independent subsidiaries, “stand alone affiliates”; b) simple integration; c) complex integration.

     The first represents the form of traditional investment employed since the 1950s and 1960s by the North American transnationals with the establishment of overseas subsidiaries relatively independent of the central offices of the mother company. FDI in the developing countries was carried out in the context of closed economies. This modality continues to be generalized in the case of services.

     The other two imply the development of a vertical-type integration that supercedes the horizontal integration that characterizes the first modality. Simple integration is characterized by a system developed to a greater or lesser degree through outsourcing, either in the host country for FDI or in third countries. This means that some of the activities (of production, marketing, and the research and development of products, etc.) that comprise the production chain are located in one or several countries outside the country where the company’s central offices are located. This type of vertical integration has been possible especially as a result of the development of new technologies in communications and computers. The modality of simple international integration is not new and the first cases go back to the 1960s and 1970s in industries with an intensive use of labor and capital (UNCTAD, 1998, p. 109).
In many cases it is difficult to differentiate between simple integration and complex integration; in any event, the former is a step on the road to the latter.

     The modality of complex integration has experienced huge growth in the past 10 years. It is based on the capacities within the business group so that any affiliate operating in any part of the world can carry out functions, alone or in combination with other affiliates or outsourcers, that correspond to the productive chain as a whole. Complex integration has recently been distinguished, for example, in assigning functions such as product research and development in countries different from that of the mother company’s central offices. Until recently this had not been the case.

       In terms of the configuration of business networks, it is precisely the factors mentioned in complex integration that have recently attracted the attention of specialists. In Gereffi’s conceptual development, the transnational evolution of economic business processes encompasses all the points of the chain of producing goods: production, inputs, outsourcing, exports, purchases, distribution, and marketing. And the business units involved can be subsidiaries of transnational companies or different sized enterprises independent  of the group, distributed in different countries (Gerefi and Korzeniewicz, 1994).

     Due to the limitations on information concerning international operations of Mexican business groups, we will have to restrict ourselves in this study to a reduced number of variables for our classification, all pertinent to the pre-established methodological criteria. However for the purposes of this study we feel it will be sufficient to infer the integration modality that they are following. These variables or research analysis guidelines are:

  
     In accordance with these criteria, we find three variants of internationalization followed by the Mexican business groups:

     Before moving on to the analysis of the different modalities, at this point we can point out that a constant in the great majority of the Mexican business groups, not only those with FDI, has been the adoption of strategies based on alliances with foreign capital, mainly North American. This, as was previously pointed out, allows them to finance their modernization processes, confront new competition in the domestic market and, depending on the case, strengthen the bases of their internationalization efforts.
Proof of this is the series of strategic alliances involving most of the groups considered in this category (CHART 4).

Chart 4

STRATEGIC ALLIANCES OF SELECT GROUPS

- Simple integration of a regional scope:
     Most of the business groups are to be found in this modality: two companies in the food industry (DESC-Food Division and HERDEZ) three in textiles (SYNCRO, PULSAR-Textile division, and SELTHER), a paper producer (G. CHIHUAHUA), two chemical product manufacturers (ARANCIA and PEÑOLES-Chemical division), a basic metal company (TAMSA), five companies that manufacture metallic products, machinery, and equipment (CAMESA, DINA, EPN, GIMSA, and LANZAGORTA), a transportation and communication company (QUADRUM), and the company ELEKTRA, in the retail sector (GRAPH 2).

     Except in the cases of ARANCIA, which invested in Ecuador; DINA, which in addition to the United States invested in Canada; and ELEKTRA, which has made investments in four countries in Central America and the Caribbean, the rest of the companies have earmarked their capital to the U.S. market.

     When analyzing the expansion of the Mexican business groups that can be classified as simple integration strategies of a regional scope, it is necessary to make some important observations that modify some of the parameters that condition the traditional schema that is generally used to describe this expansion modality.
   
    In the first place, we should consider that the extensive North American market -in these cases that of the south/southwestern United States- is the main determining factor for where to place investments. This market had been previously penetrated through exports and it is the one with which relations were broadened with the signing of NAFTA.
 
     That is, we are not dealing with the type of strategies in independent subsidiaries or the simple integration commonly followed by North American and European transnational companies when they invested in the 1960s to 1970s in developing countries, in order to reduce labor costs or to assure raw materials, but in which the markets where their investments were located were secondary or were taken advantage of for protectionist purposes (import substitution phase). In our case, it was an open market and it was the main determining factor. Nor are we dealing with the type of strategy followed during the 1970s by companies in developing countries that were internationalized through FDI made in countries of equal or lesser development, exploiting the comparative advantages but also cultural and/or ethnic similarities. We are now witnessing what is the predominant case in south-north FDI, that is, toward a country with greater development.
 
     In second place, and in agreement with has previously been said with respect to the United States, the advantages of geographically placing investments are also related with physical infrastructure and high-quality inputs, including the workforce. That is, the quest for productive efficiency is an additional determining factor of great importance.
 
     Lastly, everything seems to indicate that the process of vertical integration through outsourcing in different parts of the productive chain is carried out by Mexican subsidiaries in the United States, in the same country in which they are located and where there are better opportunities for outsourcing.
In the case of ARANCIA, in the chemical industry, the determining factor of raw materials in Bolivia could be considered essential.
On the other hand, the retail group ELEKTRA comes closer to what could be investments of stand alone type subsidiaries, due to the nature of its activity.
 
- Chained complex integration of a regional scope:
       Those corresponding to this modality include a company in the food and beverage industry (FEMSA), a company specializing in non-metallic minerals (VITRO) and a firm producing metallic products, machinery, and equipment (IMSA).
 
     FEMSA, a Coca Cola concessionaire, is naturally located in this category due to its investments in Argentina. VITRO has diversified the geographical spread of its investments, toward the United States, (some of them recently failed), Guatemala in Central America, and Peru and Bolivia in South America. Meanwhile, IMSA made investments in eight countries: the United States, two countries in Central America and the Caribbean, and the five largest economies of South America (GRAPH 3).

TNCs: Transnational companies

Source: own elaboration based on company data, BMV. Monthly reports on industrial groups, Grupo Financiero Banamex-Accival, several issues.
 
     It should be noted that in addition to the difficulty that we already mentioned in terms of distinguishing when a simple integration becomes complex, there is another problem. The various industrial divisions of the business groups can be structured differently and this prevents us from engaging in a more precise analysis without having more concrete information on each of the products involved. This is the case, for example, with VITRO, where we would have to differentiate between its production of glass for the construction industry and its production of containers and windows for motor vehicles. In the latter two cases, the company becomes a supplier for the large transnational producers of soft drinks and automobiles that are the leading companies in the linkages; this is not so in the former case.
 
     The same can be said for IMSA, which in terms of its production of storage batteries for vehicles and sheet metal, is linked with the automotive transnationals located in South America. On the other hand, in the case of the company’s production of galvanized metal plates, it would be necessary to identify the specific markets in which it is located in order to specify IMSA’s classification4.
 
     In the cases considered involving VITRO and IMSA, they do not produce final consumption goods. This leads to their integration, in the case of some of these products, in chains where other transnational companies are leaders (core industries). In some of their other products, which are also intermediary goods, this is not the case because their markets are diversified and they do not depend on a few clients.
As for IMSA, it is clear that it is taking advantage of the expansion of the market resulting from the MERCOSUR agreement, in which major competition been transnational companies from the United States, Europe and Asia is being posed, especially for automotive production (UNCTAD, 1998, p.247).
 
- Nucleus of complex integration of a regional or global scope:
     In this modality it is possible to identify two companies in the food industry (BIMBO and GRUMA), one in biotechnology (PULSAR-biotechnology division),one in non-metallic minerals (CEMEX), one in construction (ICA), and three in the communications and transportation sector (TMM, Televisa, and TV AZTECA).
 
     BIMBO and GRUMA have earmarked their investments to the United States and Central and South America. BIMBO has a presence in three Central American and four South American countries. GRUMA has investments in five Central American and two South American countries. This is an integration of regional scope in the Western Hemisphere based on a complex vertical integration. The same can be said for TV AZTECA.
    
     In the case of the other five groups: CEMEX, PULSAR, ICA, TMM, and TELEVISA, their integration is global in scope. Although TELEVISA is limited to Spanish-speaking countries, which imposes limitations on its expansion strategy due to the specific product that it offers (production of television programs).
 
     In all the examples, the companies’ expansion strategies combine three key determinants for their FDI: markets, resources, and efficiency. As a result, they distribute key aspects of their productive chain in different countries, especially through acquisitions of already established companies or by establishing new ones.
BIMBO and GRUMA placed their investments directly in markets in which they take advantage of nutritional habits similar to those of Mexico, such as Central American and Caribbean countries and the U.S. southwest, which has a growing population of Mexican origin. At the same time, they also placing corn and wheat flour processing plants in the United States, and therefore among their basic determining factors are the quality of raw materials and efficiency, which they tie in with their know how in the production and distribution of bread and tortillas. This is one of the company’s comparative advantages (GRAPH 4).

     TELEVISA and TV-Azteca have determinants similar to the above-mentioned companies, although in terms of cultural similarities of television audiences mainly based on the use of the same language.
ICA maintains a comparative advantage due to its experience in the construction of large-scale highway infrastructure projects, dams, etc. in uneven and difficult to reach terrain, similar to that of the mountainous areas of Mexico, which allows the company to develop projects in Latin America, several African countries, and Russia.
Pulsar’s Agrobiotechnology division, in a strategic association with the transnational Monsanto, has clearly earmarked its FDI globally, as is the case with TMM in the transportation industry.
 
     CEMEX, the most successful Mexican group in its expansion strategy, occupying third place among the largest transnational companies in developing countries according to the U.N.’s transnationalization index (UNCTAD, 1998, p. 48), has the competitive advantage of high entry barriers due to the volumes of investment in infrastructure required for the production of cement and concrete. But one of CEMEX’s most important comparative advantages is its experience in the distribution and sale of its products in the retail markets and its financial capacity that has allowed the company to absorb practically all its competition in the Mexican market.
 
     Of particular important in CEMEX’s international expansion strategy is the trading system that allows it to respond to world market demand from any of its production and distribution installations through the use of large-capacity tankers. (GRAPH 5).

 
Graph  5
CEMEX
 

PERSPECTIVES AND CONCLUSIONS
     As can be observed, the greatest integration in geographical terms is occurring in relation to the United States. Most of the business groups have channeled their FDI to the United States and that’s where the greatest number of production plants for goods and services (without counting distributors) are located: 38 plants of 23 different business groups. South America follows with 26 plants corresponding to 12 groups and then Central America with 15 plants of six groups (Basave, 1999).
    
     Everything seems to indicate that, as has thus far been the case, it has especially been the southern United States which has been the recipient of investment that most lends itself to future expansions under the modality of simple integration or perhaps as the corporate headquarters of subsidiaries of groups with complex vertical integration. The United States’ own characteristics make the possibility of being linked with high-efficiency suppliers through outsourcing and being near industries that are leaders in productive chains extremely advantageous.
 
     With the exception of the groups mentioned as characteristic of either regional or global complex integration, it doesn't seem that at present there are many other business groups in the Mexican economy that can follow their steps in this integration modality. However those that have already done so have the capacity to continued expanding either in the region or in the world, especially those that have very defined comparative advantages. However the perspectives of groups in the food industry, such as BIMBO and GRUMA is to tend to remain with a regional perspective and they are subject to scenarios in which competition can worsen.
    
     This latter factor is because when dealing with entering markets with final consumer products, everything will depend on entrance barriers characteristic of their type of investment, which in these two cases are not as high as, for example, for CEMEX, VITRO, or even TELEVISA.
 
     In the cases of investments in manufacturing intermediate goods, this also depends on entrance barriers, except in cases of scarce raw materials (for example, oil and mining), which represent natural advantages for certain developing countries.
 
    The greatest future possibilities are thus for those business groups that become dynamizing centers of productive chains even if they produce intermediate goods, but which, as in the case of cement, do not depend on a few international clients and they themselves impose the standards on the generated chain.
 
    It seems to us that therefore it is the investment sector or branch and the integration modality that it is possible for them to adopt, which are the major variables on which their possibilities of future expansion revolve.
 
    To the degree that the expansion of these groups leads to additional productive linkages within the Mexican economy, the fruits of their transnationalization processes will be able to be taken advantage of in Mexico. Thus far, these seem insufficient with respect to their potential. Research into the conditions that will have to be generated in order to promote them remains to be undertaken
 
Endnotes 
 
[1] Prof. Martín Ruíz participated in this work, locating data and preparing the statistical charts. Some of the data from business groups were obtained through the Interinstitutional Agreement between the National Autonomous University of Mexico’s (UNAM) Institute of Economic Research (IIEc) and the Mexican Stock Exchange (BMV).
 
2 Such classification has a provisional character since to achieve a more precise classification it would be necessary to obtain more detailed information on their outsourcing strategies and in general on their productive linkages.
 
3 I believe that the number is conservative for reasons related to the difficulty of obtaining such information, as was previously pointed out. In this study two groups were left out of consideration (La Moderna and IUSACEL), which at the beginning of the decade, and still under private domestic control at the time, carried out FDI, although recently they have come under majority foreign capital control.  
 
4 Recently IMSA signed an agreement with the group that controls the Altos Hornos de México steel mill, and it now controls all the galvanization plants located in Mexico. With this operation it notably increased its expansion possibilities, including internationally, in this productive turn (Reforma, Tuesday, October 19, 1999).
 
 
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