Teaching Case - The Mexican Government's Retail Chain: Politics, Social Welfare, and the Bottom Line

The Mexican Government's Retail Chain: Politics, Social Welfare, and the Bottom Line


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  • Product Description

    As of 2000, Mexico's Social Security System for Public Sector Workers not only provided a pension system for government employees but also ran 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, formed an integral part of the broad Mexican concept of social security, including pensions, medical care, affordable rental housing, low-cost mortgages, consumer credit, and even tourist services. But in an increasingly globalized economy--and one in which Mexico had entered into a free-trade agreement with the United States and Canada--the era of protectionism and state-owned enterprises ws changing. Private-sector Mexican supermarket chains such as Comercial Mexicana, Gigante, and Soriana had spread and modernized during the 1990s, especially after non-union Wal-Mart bought into a Mexican chain and then took it over in 1997, capturing the lion's share of the market. They put intense pressure on the ISSSTE stores, whose permanent employees were members of strong public sector labor unions. Overstaffed, decades out of date in their retail management and technology, and rife with corruption, the stores nevertheless broke even through 1998 and ran a modest deficit of $20 million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 political party that had ruled Mexico since 1929. In December 2000 President Fox installed his team not only in ministries but also in state-owned enterprises such as the oil company, the electric companies and the ISSSTE stores. The Fox administration found ISSSTE stores were running huge and spiraling deficits, caused in part by fraud and theft. This case tells the story of efforts new management took to determine what exactly was going on at the ISSTE stores and, more significantly, its efforts to make them run much more efficiently, without going so far as to privatize them.

    Learning Objective:
    The case can be a vehicle for discussion of both how and why operating systems in public enterprises run and can be improved, as well as the obstacles to their improvement. It can serve a wide range of classroom roles, setting the stage for discussion of how information technology can be a tool for reform, of the management and political leadership needed to change state-owned enterprises, and of the basic question as to whether, or how, state-owned enterprises should form a part of a modern social welfare system.

  • Other Details

    Publication Date: June 14, 2006
    HKS Case Number: 1842.0
    Case Author: Jonathan Schlefer
    Faculty Lead: John D. Donahue
    Pages (incl. exhibits): 18
    Setting: Mexico
    Language: English
    Funding Source: EDS Government Industry Case Study Fund
    _year: 2000-2009
    _pages: 16-25
    _geography: Latin America
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