THE BLOG
06/02/2014 01:05 pm ET | Updated Aug 02, 2014

La Michoacana Ice Cream: Stubborn Peter Pans or Viable Economic Model?

For me, one of the highlights when visiting Mexico is going to La Michoacana. Present all over the country, they feature delicious fresh fruit ice-cream and popsicles made with natural ingredients on the premises. You can bite into the chunks of cantaloupe, zapote, mango, guanábana, mamey or other fruits. To anyone far removed from the Wall St. titans of finance, it would seem that this huge chain of ice-cream stores is a model for successful business. This was my impression until a couple of weeks ago when I read "Business in Mexico: The Peter Pan Syndrome," published in The Economist.

The article recognizes La Michoacana as a "success story" and as "the epitome of Mexican small business." But, as the title already hints, there is a caveat to this success. According to the anonymous author these stores "also epitomize Mexico's stubborn attachment to smallness in business," representing what Manuel Molano of the Mexican Competitiveness Institute calls the "'Peter Pan system' in which firms prefer to stay small than to grow." The article goes on to quote a series of experts from think tanks and consulting firms such as McKinsey who see in this small business model obstacles to Mexico's growth, even blaming it for the entrenchment of inequality in the country. According to the experts, these companies are inefficient, avoid taxes and exploit their workers. They propose that the country would be better following the example of companies like Bimbo, "a thriving multinational."

This depiction of La Michoacana is very different from the one given by Sam Quinones in his 2001 book True Tales from Another Mexico. In his chapter titled "The Popsicle Kings of Tocumbo" Quinones provides a compelling alternative view of this business model. While many of its surrounding villages in Michoacán have become dependent on migration to the United States, Tocumbans have been able to develop an alternative:

"La Michoacana became a business model -- a cross between a franchise and a family business while being, technically, neither one. Built on two great Mexican comparative advantages -- cheap, luscious fruit and hard work -- the Michoacana model proved adaptable enough to allow illiterate rancheros to compete with multinational ice-cream companies and get rich in the process. It's also one of the few mexican businesses that consistently expanded during the recurring economic crises of the last twenty-five years." (268)

The model began in the 1940s, when the Bracero program was pulling many Michoacán residents to the United States. Two cousins from Tocumbo, Agustín Andrade and Ignacio Alcázar, migrated instead to Mexico City and opened the first Michoacana ice-cream stores in the city (according to Quinones, each claims to have been the first). Their business model was successful, and soon they started opening new branches, often lending money to employees and family members to open their own shops.

In making its case against the "Peter Pan system", The Economist's article argues that due to their stubbornness these small businesses remain out of the banking system, thus lacking the necessary credit to grow. Instead, the article continues, their "main financier was a villager who lent at extortionate rates." However, in her review of a 2006 book dedicated to the Tocumbo ice-cream business by Martín González de la Vara, Patricia Arias recognizes the high interest rates charged, but identifies the success of micro credits when these are opportune and specifically targeted (206).

According to Quinones, the Alcázars charged 2 percent a month, a rate at which a new business owner "could pay off the debt in a couple of years using the shop's profits." In this regard, Quinones turns The Economist's argument on its head. It is not that these "Peter Pan" companies refuse to interact with the banking system, but rather:

"These informal financing methods resolved for Tocumbans the problem small entrepreneurs everywhere have of obtaining money for their start-ups. In Mexico the problem is especially acute. Mexico's banks have long avoided loaning to working-class folks, preferring to court the large and powerful business groups... But Tocumbans in essence created their own private banking system: in doing so, they made Tocumbo one of Mexico's great finance centers, if measured by the numbers of businesses that grew from the little village." (271-2)

Not only was this method able to finance the early expansion of these businesses, but it even allowed for them to continue growing during the great economic crisis of the 1980s:

"During these crises, banks foreclosed on delinquent businesses. Many thousands of small businesses, started with life savings, simply closed. But since La Michoacana's financing was based on friendship and family ties, loans were forgiven or postponed. Loans rarely went unpaid for long, since the ties that bound Tocumbans remained strong." (275)

Quinones wrote his book over a decade ago, and things have been changing throughout Mexico. At the time of publication (2001) the Michoacana model was facing important obstacles attributable to its fast expansion. An oversaturation of stores and a new generation of owners who grew away from the Tocumbo community altered traditional relations. As Gerardo Abarca told Quinones:

"The older generation knew each other... They helped each other enormously, and that's how they got ahead. There was unity [among Tocumbans], like one big family, all used to dealings based on word of honor. That doesn't work among the younger generations. We don't know each other that well. Now if there's no contract, there's no business. And there's competition among the Tocumban families that there wasn't before. Now the new generation will put a paletería right in front of you." (281)

Yet, almost fifteen years since these words were recorded, the stores are still successful, both in Mexico and now in the United States.

Martín González de la Vera, author of a book on La Michoacana, sees the new economic challenges facing these enterprises, but remains optimistic about their resilience. For her part, Patricia Arias concludes her review of his book also recognizing difficulties ahead, but identifying the important example set by this alternative business model for rural Mexico:

... what remains without a doubt is that if there would have been more examples like Tocumbo there would probably have been less migration, certainly less illegal and dangerous options in the Mexican countryside... and less military operations in Michoacán... [B]ooks like Martín's are fundamental to unearth and learn from economic diversification initiatives that were promoted, with great effort, by Mexican rural societies, many of which were swept away by the wave of neoliberal reforms and NAFTA. (206)

By highlighting factors other than "profitability," "productivity," and "opportunity costs," upon which The Economist article focuses, and moving beyond the spreadsheets emphasized by the experts of McKinsey we get a very different perspective of the economic, social and cultural significance of these ventures.