Abstract:
As of 2000, Mexico's Social Security System for Public Sector Workers provided a pension system for government employees, while running the fifth largest retail chain in the nation, comprised of nearly 400 supermarkets, convenience stores, and pharmacies. The chain, which for 40 years had sold goods at below--market prices, was an integral part of the broader Mexican concept of social security, which included pensions, medical care, affordable rental housing, low-cost mortgages, consumer credit, and even tourist services. But in an increasingly globalized economy--one in which Mexico had entered a free-trade agreement with the United States and Canada--the era of protectionism and state-owned enterprises was changing. Private-sector Mexican supermarket chains such as Comercial Mexicana, Gigante, and Soriana had spread and modernized during the 1990s. There was further expansion when non-union Wal-Mart took over a Mexican chain in 1997, capturing the lion's share of the market. Walmart they put intense pressure on the ISSSTE stores, whose permanent employees were members of public sector labor unions. The ISSSTE stores were overstaffed, used outdated technology and retail management, were rife with corruption, and ran a modest deficit of $20 million dollars in 1999. In July 2000, Vicente Fox of the National Action Party (PAN), running on a platform of political change and transparency in government, trounced the party that had ruled Mexico since 1929. In December 2000, President Fox assigned his team to state-owned enterprises including the ISSSTE stores, which, they discovered, were running huge deficits caused in part by fraud and theft.
Learning Objective:
This case details the efforts of new management to determine what was going on at the ISSSTE stores and, more significantly, their efforts to improve efficiency without privatizing. The case can be a vehicle for discussing how operating systems run in public enterprises, and the obstacles to their improvement. It serves a range of classroom topics: how information technology can be a tool for reform, how the management and political leadership needed to change state-owned enterprises, and whether state-owned enterprises should play a role in modern social welfare systems.
