Social Enterprise
Making a DifferenceFall 2006
Mexico: Construmex, Constructing Bridges Between the United States and Mexico
Loretta Serrano and Consuelo García
In 1998, José left his humble shanty house on the outskirts of Morelia, the capital city of Michoacán state in Mexico. He was dreaming of a better life for his wife Laura and his two daughters, then only six and seven years old. Several years earlier, their infant son José Manuel had died of complications from pneumonia and hepatitis at a public hospital. Some months after the death of the seven-month-old, José’s relatives in California invited him to cross the border and join them. After several failed attempts by truck, he was able to reach the northern side of the border by foot.
In Mexico, José worked as a mechanic. In the United States, he was paid for demolishing cars. In one hour, he managed to make at this job the equivalent of what he used to make in a single day back home. José could not see his family for seven years since his lack of documents meant he could not easily cross the border back to Mexico. Nevertheless, as Laura relates, he religiously called home at least three times a day. His dream was to return to Mexico and to his family. But first, he was determined to save enough money to build a proper home in Morelia and to open a garage service center there that would serve as the main source of income for his family.
According to the Pew Hispanic Center, more than six out of ten Hispanic immigrants in the United States are of Mexican origin, that is, roughly 20 million. From these, about 10 million are first or second generation, that is, they or their parents were born in Mexico. Mexican immigrants. One out of every three young Mexicans enters the job market on the U.S. side of the border. That’s because of the lack of job opportunities and comparatively low wages in Mexico, coupled with increasing demand for low wage labor on the U.S. side. Traditionally, Mexican immigrants have faced a series of challenges to endure and adapt to these changes. Stories about abuse and commercial frauds abound. Against this backdrop, developing trust turns out to be one of the key elements when targeting the Mexican immigrant market.
Construmex: a social enterprise of CEMEX in the United States
Construmex was launched in 2001, backed by a million-dollar capital investment from CEMEX Mexico, the Mexican subsidiary of the multinational Cementos Mexicanos, as one of the company’s flagship social enterprises. That is, one that aims for the simultaneous creation of economic and social value. The experience of “Patrimonio Hoy,” a program promoting self-construction in Mexico’s disadvantaged areas through micro-credits and technical assistance, paved the way for the development of a new business idea targeting Mexican immigrants in the United States. The Patrimonio Hoy program organized low-income families into self-financing cells to construct their own houses, and Construmex capitalized on remittances to serve U.S.-based Mexicans who wanted to build a home for themselves or their relatives in Mexico. Remittances are the second largest foreign revenue generator for Mexico, second after oil exports. More than 60,000 Mexicans have expressed interest in the program, with its catchy Spanish slogan “Házla paisano” (You can do it, compatriot!). To date, Construmex has helped more than 7,000 clients buy, build or improve their housing conditions back in their hometowns. Strategy “Cash to asset”. Construmex began by facilitating the use of the remittances for construction purposes, through a model known as “cash to asset.” However, the company soon began to strive for a market share of the resources Mexican migrants actually spend within the United States given that their relatives back home needed the remittances to cover their day-to-day basic needs. Construmex now hopes to spread the word in those U.S. cities with more than 100,000 first-generation Mexicans. It offers a variety of housing options in Mexico, such as self-construction, remodeling or purchase of already existing homes. Payment options are attractive, and Construmex uses a cross-subsidy mechanism. This technique, common in the nonprofit world, allows clients—in this case, immigrants— with higher purchasing power to pay for construction materials received by relatives in Mexico.
Product portfolio. Currently, Construmex offers its clients construction materials, either in cash or through credit financing options. Since 2005, Construmex has diversified its portfolio of services by offering credit for housing sold by real estate firms in Mexico. Construction materials are provided by local distributors near the client’s construction site in Mexico. A medium-sized distributor, for instance, manages more than 4,000 products. Construmex also provides optional technical assistance delivered by experienced Mexican architects that tailor advice to the client’s needs.
Price structure. Initially, Construmex charged no commissions in an attempt to attract clients. Small orders, ranging from $20 to $50, were readily accepted to build a customer base. The client could request as many blueprints as he or she wanted from the architect and reject them without cost. As the business began to grow, the company established a $300 order minimum and also began to charge additional small commissions. Construmex executives initially feared decreased demand would result, but, that fear turned out to be unfounded.
Luis Enrique Martinez, Construmex general director based at the company’s Los Angeles headquarters, observes that receiving free service in the U.S.—where almost everything involves a fee—tends to arouse suspicion and distrust. Some clients were left out, but the ones remaining began to appreciate the services received. The company charges a $150 fee when a client applies for credit, or a $5 fee per transaction under a cash scheme. Distributors, on the other hand, are charged 1.5% per transaction. Interest rates on loans for materials range from 18 to 23% over periods of 6, 12 and 29 months and, for the sale of homes, interest rates vary from 9.9 to 14% over a 10 to 15 year period. The only references requested are those from two relatives, one in Mexico and another in the United States, as well as proof of income and expenses. Construction materials are offered at Mexican market prices.
Making a Difference for José. Two years ago, in 2004, Jose discovered Construmex, thanks to some Mexican friends in California. Laura had also heard about the initiative from one of her neighbors in Morelia. They both identified the service as a great opportunity to improve their housing conditions. At that time, Jose was sending money home to buy the land on which their plywood and corrugated metal home was located. While living in that single-room house, the family suffered constantly from flooding and cold. On one occasion, the water levels reached about three feet, and they lost all their furniture and belongings. Laura used to have frequent nightmares.
José began to buy from Construmex by sending materials to Mexico in the form of cash-to-asset transactions. Later, he applied for two credits of $2,400 and $2,600 over periods of 6 and 12 months, respectively. A Mexican architect from Construmex designed the blueprint for the house. After each payment, José received a reference number that he communicated to his wife in Mexico, allowing her to order the materials directly from the local distributor. Simultaneously, the Construmex staff ordered the material from the distributor, providing him with the reference number and name of the intended beneficiary.
After two years—during which Laura’s relatives have been assisting on-site as bricklayers—a three bedroom home with two full bathrooms, a living room and kitchen is half built. So is the foundation of what will become a garage service center in the future. Construmex has helped José invest his resources in building a home and business locale designed by a U.S.-based Mexican architect. Together, José and Construmex have contributed to the Mexican economy through consumption and job creation, and have radically improved the quality of life for José and his family.
Key factors to reach –and help create– a new market
Developing trust. Construmex’s Martinez admitted that at the outset, the company’s approach was characterized by an excess of confidence, “We thought, we are CEMEX, it will be easy. There are many Mexicans in the U.S. and they are earning money, so we will open our doors and that’s it.”
The plan was to capitalize on a business opportunity and to do it as fast as possible. Nevertheless, as he also explained, the market in Mexico is seen with a completely different perspective than in the U.S. Over time, the Construmex team came to understand that the company’s core business wasn’t just the sale of materials, but more importantly, attaining a level of trust from immigrants who had been victims of previous abuse and fraud. Construmex also faced another unexpected challenge from beneficiaries, who often demonstrated a preference for receiving cash, rather than the delivery of materials. To enhance trust, Construmex worked hard to establish strong relationships by providing high quality service tailored to its clients’ needs.
Collaboration. Collaboration with diverse actors proved fundamental in this new and unknown market, with Construmex partnering with Mexican immigrant associations and Mexican Consulates. Working directly with the communities through immigrant clubs, such as those from the Mexican states of Jalisco, Michoacán and Zacatecas, in different markets hasn’t delivered massive commercial results. However, it has resulted in the construction of credibility and trust and, most importantly, assistance to these organizations in the development of community projects. Moreover, because many Construmex staffers have gone through the migrant experience themselves, they are sensitive to clients’ needs.
Market research studies, including focus group studies and survey interviews, are frequently co-conducted with Mexican consulates in each city where Construmex has an office. In exchange, Construmex provides customer service training or remodels or constructs additions for consular headquarters. Construmex also has other networks in Mexico: more than 2,000 small- and medium-sized local material distributors as well as some of the most prestigious real estate firms.
Dreams and challenges
It’s been eight years since José left. Laura has seen him only once—when he traveled to Mexico a few months ago for one of his daughter’s quinceañera, or fifteenth birthday party. Laura dreams of enjoying a second honeymoon in their new home, when José finally returns from California in a couple of years to work in his own garage service center.
Construmex has nourished Laura’s dare to dream; nonetheless, it still remains a business initiative subsidized by CEMEX. Its main challenge is to reach its equilibrium point and financial sustainability, in order to become profitable. Undoubtedly, this innovative enterprise is creating social value and it seems to entail an enormous potential for generating economic value as well.
Loretta Serrano, M.Sc. is an Associate Researcher for the Social Enterprise Knowledge Network based at EGADE, Tecnológico de Monterrey in Mexico.
Consuelo García, Ph.D is a Professor and Researcher on Marketing and Social Development for EGADE, Tecnológico de Monterrey in Mexico.