A Star is Born in Mexico's Financial Reform

By , Staff writer of The Christian Science Monitor

Like the 16th-century Spanish conquerors who seized Aztec gold on the lake-dappled basin now called Mexico City, foreigners today bag riches from a new source: the "silver screen."

With foreign money playing a supporting role, cinemas are flourishing with "globalization."

Mexico in 1992 began deregulating the industry, allowing a new movie theater company called Cinemex to steal the spotlight in the privatization binge.

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Since its founding in 1994 by three recent Harvard Business School graduates - two of them local and one from the US - the company epitomizes gains from free market reform. It has also won 40 percent of the city's movie-house revenue.

The blockbuster Cinemex strategy: Blow away ramshackle, state-protected theaters with peerless sound and movie images plus such revolutionary concepts as cleanliness and fresh popcorn.

"The movie exhibition industry has come back thanks to privatization," says Miguel Angel Davila, a Cinemex founder. Since 1992, industry ticket sales have rocketed by about 70 percent to 100 million.

The cinema revival is a small wrinkle in Mexico's sweeping reforms, which have exposed inefficient, protected native businesses to potent, often foreign-funded upstarts. Thousands of companies have collapsed; tens of thousands of jobs have been lost.

But the free market cuts both ways. Tens of thousands of jobs have been created, especially in telecommunications, transportation, construction, and entertainment, say analysts.

US investors, no longer stymied by barriers, have stepped up direct investment in Mexico. US direct investment nearly doubled between 1994 and 1996, compared with the three years prior to implementation of the North American Free Trade Agreement (NAFTA), the sweeping globalization treaty.

That inflow benefits Mexican as well as foreign businesses. "Now smaller players can much more easily get access to cheap capital through the international capital market," says Jane Fraser, a consultant at McKinsey & Co. in New York. "They no longer have to pay punitively high interest costs so it's much easier for them to make a profit."

For example, Cinemex's three founders met for months with potential investors and came away varying degrees of "No thanks." Then a break: J.P. Morgan in October 1993 offered as much as $8 million for what had been a $6-million startup plan.

Morgan's blessing brought other investors, and Cinemex launched in 1994 with $21.5 million.

"NAFTA opened up the floodgates of capital. It created a mindset that Mexico was a good place in which to invest," says Matthew Heyman, a Cinemex founder. "After ... NAFTA, Mexico was on fire with people looking for places to put their money."

Fresh investment has also spawned a fresh business culture. Cinemex crawls with creative young workers, and many of its 1,100 employees enjoy duties that would have taken years to win at traditional Mexican firms. The breezy esprit has apparently given a lift to women employees.

"Mexican culture is very macho," says Alma Garcia, assistant director of programming, "and people in the industry and government say, 'You're a woman, you have nothing to tell us or teach us.' "

"But now women at Cinemex have proven we can give our opinions and be listened to," she says. She takes home five times the salary of her previous job.

Still, the Cinemex phenomenon - like globalization - may largely benefit middle class consumers.

The Cinemex audience ranges across the demographic spectrum. But the cinema charges more than any other. Its price naturally turns away lesser skilled workers who have seen their job security and real wages decline since the peso's collapse in 1994.

"It's hard to say whether NAFTA and free market reform have been good or bad," says Ms. Garcia: "The cost to us from companies that have failed is really high, but there are a lot of companies that have improved and created badly needed jobs."

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