Think Twice

Other than rock stardom, what do: Sammy Hagar, Justin Timberlake and Vince Neal (The Motley Crew), have in common?  They have all taken a “shot”, pun intended,  at the tequila business.  Celebrities have also invaded other liquor markets.  Grey Goose Vodka’s “overnight success”,  motivated Kevin Spacey to try his hand at upscale branding his own label of vodka.  If  you are a tequila fancier, the thought may have entered “su cabeza” of branding your own, especially after sipping a couple of your favorite añejos.  If that is the case – read on…..

The past 25 years I have assisted foreigners in establishing joint ventures with Mexican partners.  Most  clients,  establish  J.V.’s to exploit cheap labor and export  advantages provided by NAFTA.   Joint venture contracts for products manufactured by Mexican partners were mostly agreements for marketing rights in “the states” or Canada.  Separate business entities with mutual interests.  Often, mistrust over “real” production costs and market pricing  destroyed what should have been successful partnerships.  Rarely have these joint ventures resulted in a “one company” philosophy in which the Mexican manufacturer participates in the profitability of the U.S. firm.

For more than a year I have had the privilege of working with a man whose lifetime of success has been built on a strong belief in assuring mutual benefit for everyone he does business with.  An agrarian, he decided, ten years ago, to grow blue agave (tequila plants) in the Southwestern region of Jalisco – Tequila country.  In the year 2000,  ten year old agave plants  were selling for fifteen to twenty pesos per kilo.  Eight to ten years is  required before a plant reaches that appropriate sugar content for fine tequila.  During those ten years, an exploding worldwide tequila market, spurred overplanting and resulted in a huge market surplus.  Many growers simply plowed their agave under rather than pay the cost to harvest and transport.

My client spent twelve thousand dollars to care for, harvest and transport agave to the distillery.  The market price had dropped from a twenty dollar per kilo high in year 2000, to two pesos a kilo, this year (2010).  He  was paid $2,000.00 for agave that cost him $12,000.00 to deliver.  During this ten year period, he made repeated trips to check on his plants.  On these trips,  he began visiting artisan distillers of 100% agave.   In search of the beverage that most satisfied his palette.  Fortunately, his explorations led him to his now Mexican partner-distiller who places quality of product, integrity and fairness above profitability.  The opportunity presented itself to take a bad investment – agave; and turn it into a hopefully good investment – tequila.

The tequila distiller is Casta Negra.  Five generations of the Cisneros family have worked the fertile soil of the Mentidero valley where the distillery is located.  The family asked the “Consejo Regulador”, the association that authorizes the use of tequila on product  labels, to provide a list of plant improvements to satisfy regulator criteria for labeling their product “tequila”.  The list included: new oven doors for the cooking stage, new fermentation caldrons, a laboratory for product testing and an automatic bottling machine.  Estimates for the physical improvements was forty thousand dollars.  In exchange for plant investment, my client was provided an ownership position in the distillery.
After one year of improvements to plant and operations we are authorized to brand our 100% agave liquor as tequila.  To date, the total amount invested is approximately $125,000.00: planned and un planned for plant investment,  consulting fees,  barrels for ageing of product, travel and lodging.  Marketing of product in the United States will require another sizable investment.  Experts in the liquor business,  agree that the most important marketing decision is the choice of bottle and label design.  When you enter a major liquor retailer, and see 200 different tequilas to choose from,  you understand why an “attention getting” image is so important.

We have spent over 400 man hours in shopping for providers, comparing bottle designs, ,  label alternatives, bottle corks & tops, plus consumer feedback on our choices.  We chose blown glass over “off the shelf” factory bottles. The cost per bottle for blown glass, a burned on label (non paper), and a glass top is around two dollars and change.  The cost for 2000 six bottle cases for shipping is $3,500.00.  The custom mold for the bottle was $4,200.00.  The standard volume order for bottles is 12000, which represents a shipping container load.  Total costs for producing this first container of bottles, not counting the liquor,  is approximately thirty thousand dollars.  Now, the investment has risen to $150,000.00,  without selling a drop of tequila.

A major decision was whether to sell our product only to export markets or include Mexico as a secondary market. This would allow us to begin selling sooner to help carry the burden of production costs.  On the surface it seemed like a “no brainer”.  Lower freight costs, no customs duties or paperwork delays and less expensive to service clients close to the production site.  A market of over thirty million people  in Mexico City and Guadalajara,  less than a day’s drive away.  Our Mexican accountant gave us the reasons we needed to decide on an export market only business model.  Listed below are the taxes affecting liquor sold in Mexico:

(In this example we will assume a sale of $15.00 for a bottle of Casta Negra sold to a retailer-all of these prices and costs are hypothetical, the taxes are not)

Tax number one – a 50% tax on liquor sold from distiller to retailer- $15.00 now – (tax 1)  leaves $7.50

Tax number two – a special tax on alcohol equivalent to $17.5% of profit – Assume a cost per bottle is $4.00   selling at $15 we have a profit of – $11.00  X 17.5% = $1.93 tax

$5.57 is  now left

Tax number three – An excise tax “Impuestos Sobre La Renta” – translation: taxes over and above rent – another excise tax $29% = $1.62 tax

This leaves us with after taxes profit of $3.95 on a bottle selling for $15.  The government receives 75% of the sale and Casta Negra 25%.
But wait, there’s more: The retailer pays an excise tax of 16% to the government for his purchase from Casta Negra and then collects another 29%,  for the government when the tequila is purchased by the consumer.  My rough calculations tell me that the government is earning over 110% for every bottle of liquor sold in Mexico.

We realized our after tax margins were too slim to satisfy low volume sales.  Only the large volume tequila companies can afford to properly service their customers and maintain profitability.  The government’s deck is stacked in favor of “the big boys”.  The deck is also stacked by the “Consejo Regulador” (quasi government).   The agency that determines your use of the label tequila.  We must pay the agency the equivalent of a thousand dollars, in pesos, per month for the right to the tequila branding.  We must also pay a consulting “engineer”.  A certified inspector who charges another thousand per month for weekly quality control visits.  Two thousand dollars of fixed costs per month, whether or not we produce or sell tequila.  If we have a plant shut down we still must pay two thousand per month to keep our rights to “tequila” branding.

These fees, do not affect the large distillers to the degree they affect our small operation and others like us.  You would think the association (government) would try to help “the little guy” with lower fees, but no.  Jose Cuervo or Casta Negra, we pay the same to print tequila on our bottles, despite vast differences in sales volume.  The Consejo offers training and consulting in administration of the business and help with government agencies.  The association does not offer any sales or marketing classes or consulting to their members.  Yet, marketing is the key to success in this highly competitive industry.  A unique skill set unavailable to artisan tequila producers.

Despite all these obstacles, I am optimistic for the success of Casta Negra.   As I mentioned, at the beginning of this article, both parties are committed to a smart “win-win” business model between U.S. investor and Mexican product provider.  The plant will provide product “at cost”.   My client can then provide that product to the wholesaler/retailer at the lowest cost.  The result is the retailer’s profitability is maximized, instilling  incentive for providing prime shelf space and promotions.   The Mexican distillery gets 50% of after sale profitability.  Thus,  each partner is sharing costs and profit equally.  Everyone is involved in lowering costs through production efficiencies and providing an affordable, quality tequila to a price conscious public in the United States.

I’m not advising anyone to stay out of the tequila business.  But just remember, without a Rock Star budget you might want to invest in another Rock n Roll lifestyle product: medical marijuana.

(Secretaria de Economia) The Secretaria to Promote commerce and Industry in Mexico

Mexico did not enter the global marketplace until the mid 1980′s. Before then, most major industries were state owned and international competition, in Mexico’s domestic market, was insignificant due to prohibitive tariffs. Privatization of most government industries and NAFTA have revolutionized Mexico’s economy. Mexico must now compete gl obally in order to advance and become a “first world” nation.

In the 1980′s Mexican businesses rarely had an electric typewriter, much less a computer. Factories were out of date and “made in Mexico” meant inferior product quality.

Mexico had to implement a drastic “catch up” program and, in my opinion, the results are nothing less than economic and cultural miracles. Computers, computer literacy and the internet, for example, have taken the country by storm.

Factories have modernized with the assist of foreign capital and technology. Two of my favorite examples are the Fender guitar factory in Ensenada and the Daimler – Benz plant in Cuatla, near Mexico city . The quality they have achieved, when compared to their sister plants around the world, has customers requesting Mexico originated product as opposed to those produced in the U.S. , Asia or Europe .

Leading the quality revolution is a government agency, Secretaria de Economia. It is unlike any other in Mexico . In the sixteen years I have spent as an investor and foreign investment consultant, I have dealt with most of Mexico’s governmental bureaus. With relatively few exceptions, I found bribery, if not encouraged, to be “benevolently ignored”.

The bribe was either asked for directly or inferred..

Secretaria de Economia is a mandatory agency for registry and vital to foreign manufacturing. Without Secretaria de Economia’s approval, you cannot import raw material into the country or export finished product. With such a strong hand, in Mexico’s most vital economic sector, foreign manufacturing, you would think this agency to be rife with bribe seeking functionaries. Such is not the case. There is a true spirit of public service and ethical behavior is a source of pride in this agency.

ISO 9000

The entire basis for the 19th century industrial revolution is that the successful management of the manufacturing process can, as a matter of fact, be relegated to a science. A “scientific cookbook” for producing quality products efficiently and economically has, in this decade, become a reality. A detailed, globally accepted, standard for certifying a company’s compliance with “high quality” processes and procedures. There are many different production quality certification programs but the most universally accepted is the ISO 9000 and 14000 certification programs. One hundred of the leading manufacturing nations have accepted ISO as their standard for quality. The 9000 certification is quality driven. The 14000 registry is protection of the environment and worker safety driven.

Both 9000 and 14000 certification requires an independent audit by universally accepted certification agents. The 9000 certification compares a company’s management and procedures with proven models for producing acceptable levels of product quality. The 14000 certification audits insure necessary management processes for an environmentally clean and safe manufacturing facility.

Quality certification is a relatively new phenomenon. According to Satish Jain, a pioneer in ISO certification in Tijuana: “In 1993 there were only 38 companies in the U.S. that were ISO certified and now every major manufacturer in the U.S. is either ISO certified or seeking ISO certification”. Why this rush to adopt ISO? In this global market place, components, especially electronic parts, are manufactured and purchased from plants all over the world. Quality control and production processes must be standardized to assure consistency among suppliers, regardless of the plant’s national location. If a plant has been ISO certified the international buyer ( Europe , the U.S. , Japan or wherever) can feel confident that the supplier will produce a quality component.

Acceptability and credibility, in the global market, is the driving force for ISO certification. However, an important benefit, of going through the process, is that it really works to improve manufacturing efficiency, productivity, competitiveness and profitability. In order to pass an ISO audit a company must accept scrutiny in the following areas:. Management responsibility and practices, quality control processes, employee training, purchasing standards and procedures, statistical techniques, problem solving, documentation, inspection and test, storage, inventory and transportation. All these standards and procedures are evaluated and “state of the art” improvements are required to pass the audit.

Secretaria de Economia AND ISO 9000

ISO certification is not limited to industry. Hospitals and even government agencies can be ISO certified. Secretaria de Economia is the only Mexican agency that is ISO certified and the results, as mentioned, can be seen in the public service attitude of employees. Most agencies in Mexico greet requests for service as an imposition, they are “doing you a favor” by responding to your request. As for completing their work, the deadline is always manana. Not so at Secretaria de Economia. The emphasis is on service. They tell you your permit will be ready on a specific date and by god it is.

The folks at Secretaria de Economia are believers in importing management practices, production quality and marketing from successful U.S. companies. General Motors has gifted Secretaria de Economia their management systems, procedures and methodology in order to assist Mexican manufacturers. The results are a program called COMPITE (The national committee for technological productivity and innovation). The success of this program is documented and the benefits are measurable: Average plant production (parts per hour) increases 113%, throughput time for finished product reduced by 65%, Inventory reduction of 66% and plant space required lessened by 33%.

As a foreign investment consultant, I appreciate Secretaria de Economia’s professionalism and desire to resolve my client’s problems.. I especially want to recognize the office directors for Ensenada, Lic Jose Alan Mendivil and Tijuana, Lic. Guillermo Castellanos Martinez . Tijuana is the main office for Baja California and Lic. Guillermo Castellanos should be especially proud of his team and the excellent leadership he provides. The employee who motivated me to write this article is Alberto Almazan, of the Tijuana office, who recently assisted me in expediting a maquiladora (foreign manufacturer) permit. This young man exudes enthusiasm for his work and pride in his agency. He is a true public servant who demonstrates caring for his client’s needs. A problem solver, not an obstacle creator. Never thought I would talk that way about a bureaucrat, but Alberto truly deserves praise.

A HAIL AND HEARTY BRAVO TO ALL YOU FINE FOLKS AT Secretaria de Economia.

Mexican Red Tape / Foreign investment law

Foreign entrepreneurs, who own businesses on both sides of the border, complain that their U.S. accountants charge them lower fees than their Mexicano Counterparts. Lower fees, despite the fact that their U.S. companies report higher corporate earnings and expenses than the firm operating in Mexico.

The reasons : monthly reporting to state and local tax collectors in Mexico versus quarterly reporting in the United States and a more complicated social security system that includes, medical, retirement and assisted housing. The number of bureaucrats in Mexico, per capita, is triple that of the United States. Mexico is a centralist government and Mexico City must duplicate almost everything that has already been reviewed at a state and local level.

The costs of establishing a corporation in Mexico is in the thousands of dollars. A Nevada corporation can be formed for $500.00. Here again is centralist control: corporations are registered in Mexico and subject to federal statutes unlike the U.S. where individual states mandate corporate entities.

President Fox´s campaign promise to cut the red tape has only resulted in more-not less-bureaucracy.

A glimpse into the day of a Foreign Investment Consultant

A client of ours has a bar, restaurant, hotel and tourist oriented housing development. He received a notice that he was late in renewing the bar´s liquor permit. We could not understand why his payment was overdue. Historically, the payment was always due in June of each year but in April 2003 we received a late notice.

We were informed by Ensenada County that they decided in 2002 to advance the annual payment date from June to February-March. We asked why we were not informed of the change and were told that it was published in the official journal of the state government.. Other than attorneys and ¨public notice freaks”- Who the hell reads legal notices? If you don´t, you were out of luck and must pay a late fine.

We thought, oh well it´s Mexico, let’s pay the fine and move on. No, not so simple. We were given a list of documents necessary to present before the county of Ensenada was able to receive our money:

1. Notarized articles of Incorporation. Why every year, after 30years of operation, must we prove we were legally formed? Wy not a simple copy? You have thirty years of notarized copies, ain’t that enough already?
2. A cash register receipt from the bar – I guess to prove we really are a bar. We wouldn’t want to give a liquor license to a funeral home, although not a bad idea.
3. A certification from the state government that the business has no unpaid obligations to them. If we did, I would think the liquor license would help us pay off the debt.
4. Power of attorney from the corporation authorizing the person presenting payment to complete same: What a travesty if the improbable (more like impossible) happened: somebody we don’t know payed our bill for us.
   Would “unauthorized person payment” invalidate the renewal? What consequences am I not realizing here?

The first day my client and I attempted to pay the license renewal fee we ran out of time in document collection. These trips from my client´s office in Southern California are expensive: ten hours of round trip travel time in addition to gasoline and tolls. Accustomed to Mexico, after many years of experience, my client graciously accepted the fact that another trip was necessary since my name is not included in the articles of incorporation ipso facto-could not pay renewal fees.

I calculate fifteen man hours to complete what should and could be a simple payment requiring 15 minutes of anyone’s time who was willing to pay the bill.

In order to complete the process we interacted with six different “authorization required” bureaucrats. As this same client, mentioned herein, always declares: “if you want to become a millionaire in Mexico, start with two million”.

Can rupture net worth

Small “mom & pop” foreign owned businesses in Baja are often a result of the phenomenon I call – RAPTURE OF BAJA. The same phenomenon that drives the foreigner to purchase Baja real estate without due diligence. As the Stevie Wonder song goes “Wouldn’t it be lovely?” . To answer Stevie’s question – yeah it can be lovely, so long as you don’t bet the farm. One of the biggest traps for a would be Baja entrepreneur is the “I’m sick of it in the U.S.” syndrome. Somehow “kick back Mexico” will be the answer to a saner and happier life. So anxious and so at the affect of their illusions that they quit a well paying job or dump a profitable U.S. business and move to Baja to start “a new life”. The majority speak almost no Spanish, and will often state: “I understand a lot but don’t speak it very well”. When they say that I know they understand enough to get them in trouble; thinking they comprehend what is being said but really don’t.

The enraptured know less about the Mexican business system than they do Spanish and typically set up shop without a marketing study or business plan. Remarkably, hundreds of otherwise intelligent people do this every year. Predictably, many lose their nest egg and disillusioned with Mexico return to the U.S. to “start all over again” . “Rapture of Baja” or rapture of any foreign populated area of Mexico is the cause for the behavior described as “leaving your brains at the border”. The extent of this phenomenon never ceases to amaze foreign investment professionals who daily witness the economic disasters that result from poorly constructed deals and illegal contracts.

The highest mortality rate I see among small foreign owned businesses is the same high failure sectors in the U.S.: restaurants, taverns and retail sales. Add to these tourism, including: real estate development, vacation home rental and sales.

The highest probability for success I see among small businesses in Mexico are in the export sector; the manufacture or purchase of a product, typically for exportation to the United States. Most of these entrepreneurs come to Mexico to manufacture or purchase a product they presently manufacture or purchase for resale in the States. The goal is not to develop a market but rather to enhance profitability from an existing customer base by exploiting Mexico’s lower production costs.

In contrast, the small retail, service or tourist business is usually an untested “start up” with an entrepreneur whose desire for change leads him to an endeavor in which he has little or no previous experience. Add the surprises and “excitement” that a foreign business culture can provide and the “Escape from Gringolandia” turns into a financial and sometimes legal nightmare.

The primary cause for business failure in Mexico is the same for unsuccessful ventures worldwide - lack of sufficient capital. Here again the experienced manufacturer or exporter is typically well prepared to estimate start up capital and investigate the unknown variables, including transportation costs and export tariffs. The new retailer or service provider usually underestimates start up costs, the seasonal nature of revenue flows and the ramp up time necessary before adequate cash flow can support the business.

I personally like the exporting business in which the exporter acts as the intermediary between producer and customer. Unrestricted by a fixed manufacturing plant, the trader does not require a large capital investment nor is he locked into a given market. Aside from not being capital intensive and the freedom to shift with market trends the trader in goods is not enslaved by the demands of managing a manufacturing or retail operation.

If there is a product need in the U.S., Mexico can probably satisfy it. Once you have identified the product you want you can determine the resouces by contacting the following government agencies found in all major cities and towns: CANACINTRA (manufacturing chambers of commerce), Desarollo Economico (Economic Development Departments, state/fed.), and Bancomext (the Exterior Bank of Mexico). However, some products are made by artisans and are not listed in directories. In these instances you must identify regions of Mexico in which artisans specialize in the use of specific materials and processes, For example: Leon Guanajuato for leather, Guadalajara, Jaslisco for glass, Sinaloa and Baja California for wood furniture and baskets from indigenous groups throughout Mexico depending upon the type of basket. The fun of this business is shopping for what you want and then test marketing it in the states.

The biggest problem that faces exporters is product quality and meeting production deadlines. When resourcing your providers you must protect yourself from a sincere sounding supplier who will eventually miss important deadlines, provide shoddy product or both. The way to prevent this problem is to ask for references from international customers and not local references that are likely friends of the producer. If this is his first experience with a foreign exporter, “sit on” the supplier. Go daily to the factory or workshop as your goods are being produced and monitor production quality and quantity. Many entrepreneurs who begin by buying product from producers eventually establish their own manufacturing operation in order to assure desired quality and satisfy production deadlines.

Before moving to Ensenada in 1982 I was a management consultant to FORTUNE 500 multinational corporations in the U.S. , Canada and Latin America.

After ten years of this work, that kept me on the road 70% of the time, I realized, it was time to slow down. My career had a negative affect on two marriages. A twice divorced, burned out consultant I was. Tired and in need of a rest.

Unhappy with the changes in my beloved Oakland is an understatement. I grew tired of brandishing my weapon to scatter the drug addicts; who, for their cravings, created roaving bands of thieves, stealing everything left unprotected. I moved to Ensenada. After failing in my first attempt at doing business in Mexico I decided to do what all business failures do, and what I knew best – Consult!

Now, after years of providing legal and fiscal consulting to small foreign owned businesses in Mexico, I have renewed opportunites for my skills as an Organization Development Consultant.

In Mexico, most Personnel Services: Health benefits, Retirement, Severence pay, and Subsidized Housing are all paid by the employer (approximately 22% of salary) but administered and controlled by government agencies. The work culture of Mexico has never necessitated what we consider “standard” personnel practices found in large U.S. and Japanese firms: hiring criteria, written job descriptions, performance appraisals, earned pay raises, and “in house” training departments. Efficiencey was not seriously considered when workers were so inexpensive and you had “captured market” customers who would accept production delays and mas o menos quality of product.

All of this has changed with globaliazation and Mexico is embracing this change as quickly as they grasped the cell phone and the PC. If you are a Spanish speaking HRD professional and want international experience Mexico could be an alternative. Don’t, for a minute, think you are going to earn the kind of loot you make in the States-FORGET IT. If you want to enrich your life and learn more about your American culture Mexico needs your talent, but at peso prices.

If you are a Human Resources consultant you might hook yourself up with someone in Mexico who can open and exploit a fast growing market for you and your service.

We are now two very interdependent nations. Forced to cooperate in North America’s best interests to compete effectively in the global marketplace. I am encouraged that, for the first time, I am able to make a decent living at counseling foreign investors in Mexico. For fourteen years I have been diligent in my efforts to promote crossborder commerce. At times, I felt like quitting; considering the long hours worked which did not produce the income I had become accustomed to in the United States.

In any “fee for service” business it takes a good five years (on average) to develop a successful practice. So why did it take me fourteen years to see positive results? The answer, other than the fact that I’m slower than average, is that NAFTA has only had five years of successful implementation.

When I arrived in Ensenada, fourteen years ago, the only foreign investors I saw were retirees, whose biggest investment was a leased beach house. I made my living, in those early years, writing lease contracts and establishing an occasional bank trust for foreign ownership. The only foreign owned corporations I assisted were small “mom & pop” shops. Maquiladoras (foreign owned assembly plants) were only interested in Tijuana and I did not want to live in Tijuana. Nor did I want the long commute from Ensenada to Tijuana to work. I purposely chose to limit my income in order to maintain a saner lifestyle.

As mentioned earlier, in the Mid 1980′s, Mexico was still an isolated nation commercially. The largest corporations were owned by the government, along with the banks, the phone company, petroleum and the transportation industry. Mexico’s domestic market was protected by heavy import duty. This isolated economy and captive market created for Mexican owned companies the luxury of not having to concern themselves with modern business practices or, the most boring of subjects – efficiency.

All of that has changed. With the demands to compete globally a viable market now exists for consultants who can help Mexican organizations become more “results” oriented and customer friendly. On my monthly business trips to Mexico City, I am meeting fellow consultants with incredible frequency. This is a marked change from the past when I had to explain to fellow Mexican passengers what a consultant does and why it is important to hire folks from the “outside”.

Some wags have suggested Saint Patrick (San Patricio), after San Felipe’s patron – Patrick Butler, developer of El Dorado Ranch and San Felipe’s largest employer. Obviously Pat is no more a saint than most kindly folks whose mamma’s brought them up right. But he has done some saintly things to advance the livelihood and well being of a lot of people both Anglo and Mexican.

Pat’s company pays a significantly higher wage for workers when compared to the rest of San Felipe or anywhere else in Mexico. A decent wage that has allowed a large number of Mexican families to buy a home and enjoy, what most cannot: discretionary income.

I was personally the recipient of his generosity when he was the sole sponsor of my radio program – Mexico Today. I didn’t ask Pat to cover the production costs. He offered the help to keep alive a program he liked and to assist a friend in need..

El Dorado Ranch, because of Pat’s marketing genius and the skilled sales folks at Rmack, properties, account for six out of every ten new visitors to San Felipe. Visitors who also go to other developments and realtors to buy properties. Thus all the realtors and developers in San Felipe owe a debt of gratitude to Pat and the huge marketing budget he absorbs. Most folks in the San Felipe real estate industry acknowledge that the barrage of seminars in California and Arizona, conducted by El Dorado, contributes significantly to their business success.

Pat also contracts with a wide variety of small businesses in San Felipe and is considered a good and generous client. Many entrepreneurs in San Felipe owe their success to El Dorado Ranch. A large number of young Mexicali and San Felipe professionals also owe a debt of gratitude to Pat – El Dorado provided scholarships to cover their university costs. One beneficiary of Pat’s generosity became a lawyer and then sued Pat. Fortunately it was a spurious lawsuit and was overturned.

The young attorney is not the only ingrate that has attacked Pat. After converting 5000 leases into bank trusts, without charging lease holders a dime, a group of dissidents defamed Pat in the press and in public meetings. They claimed the lease to trust conversion was a fraud. Other ejido lease conversions in Cabo San Lucas charged the lessees $100,000.00 for the privilege of trust ownership.

I recently had the opportunity to handle an El Dorado master trust purchase for a client. I can state that the master trust developed by El Dorado’s attorneys, protects the trust beneficiaries better than any I have seen in my 22 year career as a foreign investment consultant.

It is a strange human trait to look a gift horse in the mouth and Pat’s detractors do just that. Many ex sales people, who advanced their careers with his help, disparage him and The Ranch. But no matter, those of us who know him, marvel at what he has created and applaud his tenacity and hard work. Success for Pat came about because of vision and an entrepreneurial zeal that must be sustained by bigger and better projects. When detractors talk trash about Pat they almost always add to their criticisms a “but” – “But you have to admire what he’s accomplished”.

When I first met Pat he was just starting to build the El Dorado Dynasty and frustrated in trying to negotiate with 216 peasant families for the purchase of the land. I asked him why he was attempting to do what seemed to be impossible and endure the stresses of same. His response: “I have been a successful developer in the United States and that would be a safer business environment to stay in. However, here I can make such an incredibly positive contribution to a community that really needs it. In the states, I could not make the contributory impact that I can in San Felipe”.

I know that contribution is the driving force in my friend Pat Butler’s life. It isn’t money that drives Pat Butler, he’s already got enough. And thousands of folks, whether they admit it or not, have been the lucky recipients of his contributions to San Felipe. Keep on keepin on home boy.

Making a difference in San Felipe

Pat Butler is the owner and operator of El Dorado Ranch in San Felipe. A huge subdivision of over 300,000 acres adjoining the Sea of Cortez, seven miles north of the village of San Felipe. This is clearly the most successful real estate story in Baja California . El Dorado ranch has 5000 U.S./Canadian lot owners and thousands of homes have been completed by Butler & company.

A new section of the san felipe ranch is currently in development that includes 500 beach and ocean view homes, a 250 room hotel and a couple of golf courses. Mr. Butler’s company also purchased two additional hotels in town for a total of another 200 rooms. These rooms are very much needed to house the over 200 prospective buyers who came every weekend to buy property at El Dorado Ranch.

A soft spoken man, who carefully chooses his words, he is typically attired in western vest and jeans. His halting speech pattern and informal dress creates an illusion of a laid back, country boy. The truth is Pat is a sophisticated and highly competitive, former pro football player turned businessman. A hard driving entrepreneur who earned an M.B.A. from Loyola and led what was perhaps the first management buyout of a Fortune 500 company in U.S. corporate history.

I looked up entrepreneur in the dictionary and, just as I suspected, there was Pat’s picture. At age 24 he bought his first company, a food distribution business in Puerto Rico. He took that business from bankruptcy to success in five years and sold it at a handsome profit.

Pat, like so many successful folks, is driven by dreams and the desire to contribute. Money is only a way of keeping score and the engine that drives the dream. In 20 years of living in Baja I have watched the majority of Baja developers, both U.S. and Mexicanos, fail. Given the poor success rate, I asked Pat why he was willing to give up a comfortable career in the states for the high risk of doing a huge real estate venture in San Felipe Mexico . His response was he knew of no other place in the United States where he could make such a major difference to a community.

San Felipe is a fishing village of 17,000 people. El Dorado Ranch employs over 600 folks, making it the town’s largest employer. The ranch provides millions of dollars in contracts to local product -service providers. Pat provided the funds to establish the not for profit internet café, operated by volunteer gringo retirees. The café maintains the official San Felipe website and provides free computer literacy instruction for students and adults. Pat’s philanthropic efforts, along with the “Amigas of San Felipe”, have resulted in 225 scholarships a year to worthy San Felipe students.

I personally, have been the recipient of Pat’s generosity. For five years I struggled to maintain a radio program called Mexico Today. At the height of our success we had 33 U.S. radio stations and three in Mexico broadcasting the program. It was a hit with a small audience but not successful enough to cover all the production and administrative costs.

Pat liked the program and its objective of informing and educating the English language listener about Mexico. When I could no longer afford to “carry” the show, Pat began giving me the one thousand dollars a month I needed. I did not ask Pat for help and he asked for nothing in return. He did it because it seemed the right thing to do.

While Pat’s right brain keeps on dreaming his left brain is focused on business success and above all on MARKETING. Pat likes to point out: “Where else in the world can you find a spot like San Felipe?: 10,000 ft. Mountain ranges adjoining a warm sea with unending miles of white sand beach. Within a 10 hour drive radius of the ranch exists a market population of 35 million people.” It sounds so easy when Pat explains it. That is what makes him such a pro. He talks and acts like “everyman” with his easy, slow manner. But no other developer has been as successful in selling “the baja real estate” to wary gringo buyers. Pat’s marketing genius includes a clear understanding of the U.S. – Canadian buyer’s needs and most important, fears about Mexico .

Many of Pat’s prospective buyers are developed in R.V. and Home Shows where his U.S. sales staff present the Ranch at over 45 shows annually nation. During the course of the show, El Dorado Sales People offer attendees a caravan led trip to El Dorado direct from the show’s location. RV and Home show enthusiasts are a demographic made up of mostly retirees or soon to be retirees. Pat points out that Mexico leads all other nations with 600,000 U.S. ex patriots living in Mexico, most of them retirees.

Understanding the gringos fear of driving a $50,000 – $500,000 vehicle into Mexico , they are provided Mexican auto insurance and a Mexicali police escort crossing the border and through the city. At the Mexicali city limit the caravan is met by the “Green Angels” who provide escort for the continuation of the trip, including a return trip back to the U.S. border at the end of their visit.

The Green Angels are well known by grateful motorists who are veteran Baja travelers. They patrol the highways and byways of Mexico with fully equipped vans to do vehicle repairs for stranded motorists. If they can’t fix the problem, on the spot, they will tow you to the nearest garage. This is a free service to all travelers in Mexico. Butler, a first rate salesman, you can’t discern when he’s selling, convinced the police and Green Angels to offer these special escort privileges as a boost to tourism.

Pat and the Ranch’s good citizenship are appreciated by Baja officials who recognize El Dorado’s community develpment efforts. The economy of San Felipe is enriched by the Ranch bringing 50,000 extra tourists a year to the village. Aside from more tourists, it is estimated that one half of the 7,000 retired U.S. citizens, living in San Felipe, discovered the village via an El Dorado promoted getaway.
These 7,000 U.S. retirees, in a pueblo of 17,000, have made a big difference to the economy.

In developing the ranch into a major subdivision the County of Mexicali and The State of Baja California realized a huge windfall of tax revenue. Taxes, that did not exist until the ranch became formalized with each lot registered under the bank trusts designed for foreign ownership in Mexico.

Always ready to risk losing money to make money Pat hass expanded the tourist caravan concept by refurbishing a DC-3 airplane with service from San Francisco. Risk taking, marketing skills and, most import to Pat’s success, is his commitment to everyone winning in every deal.

Recipients of his win-win way of doing business in San Felipe are the peasant land owners who sold the Ranch to Butler. Each of the 216 families received a generous cash amount and still maintain ownership of more than two thousand acres per family.

San Felipe’s business people are treated with professional respect and marketing assist, in addition to lucrative contracts with El Dorado. Students win from his monetary and internet contributions and Baja’s political leadership win from his commitment and genius in promoting the state.

In addition to Mexicanos winning – U.S. retirees received resources and infrastructure from Pat that enabled them to be more involved in helping their adopted community of San Felipe. Retirees who are contributing to the education of San Felipe’s young people with time and money. Pat states it this way: “I love the integration we have been able to achieve here in San Felipe of the gringo retirement community with the local Mexicanos. This is a platform from which we can greatly contribute to Vicente Fox’s stated objective of providing the skills and resources to improve the future for the poor and disenfranchised of Mexico.”

Yes Pat you succeeded in “Making a Difference”. Thanks pal, for being a dreamer with a talent for success.

Finally bustin loose

“I missed buying property in Cabo San Lucas 20 years ago and have always regretted it. San Felipe is the next Cabo, I’m not going to miss the boat this time.”

A recent buyer of property in San Felipe

I have been representing foreign investors in San Felipe since the early eighties, when a few adventurous Yanks and Canadians established businesses in the then sleeping village. The pioneering foreigners did not make much money. Business was slow, including sales for the first gringa realtor in San Felipe, Margaret Sullivan. In the mid nineties, I wrote an article expressing my difficulty in understanding why folks would pay the outrageous Los Cabos prices for property when they could buy in San Felipe at a fraction of the cost. San Felipe offers snowbirds and retirees the same warm climate, beautiful Sea of Cortez beaches, but with the added advantage of border proximity.

The inevitable has happened. Property values have tripled in San Felipe, within the last two and one half years. Century 21, Remax and now Margaret Sullivan’s offices in San Felipe are full of prospective buyers.

Why has San Felipe finally awakened to robust investment? In speaking with local businessmen, developers and foreign residents the following reasons are given:

1. Pat Butler is the number one reason, super marketer and developer of El Dorado Ranch. It is estimated that six out of every ten new visitors to San Felipe are a result of Pat’s ten year effort at marketing the community. He flies prospects in on his refurbished DC 3 from San Francisco and Orange County . He buses them in from his San Diego sales office. . He has a 75 salesperson marketing team providing seminars on San Felipe throughout the Western states. He caravans R.V. folks from R.V. shows around the U.S. and Canada . Caravans have been as large as 250 R.V.’s at one time. Pat is the single largest employer in San Felipe (300). He has sold over 5000 ranch properties and has expanded his development activities to include a san felipe hotel, a golf course, three restaurants and a condominium development South of San Felipe.
2. Baby boomers San Felipe are now at retirement age. Southern California/Nevada boomers, are like the 600,000 U.S. , citizens already living in Mexico – desiring a less expensive and more tranquil retirement. Despite the boom, you can still find beach properties for 150 thousand dollars and ocean view properties under $65,000.
3. Thanks to the philanthropy of Dr. Duke Sommers and nurse practitioner/wife Caroline, San Felipe now has a “state of the art” hospital.

Before the, bilingual/bi-national hospital, acute care patients were taken by ambulance to Mexicali , a three hour drive. The hospital advantage helps realtors sell retirees on San Felipe’s ability to meet t heir health care needs in a facility that surpasses even some of the best U.S. hospitals.

Speculation! Remax and Century 21 are in San Felipe because they see the future and it is bright. The highway to Puertecitos, 100 kilometers South of San Felipe, much of it unpaved and requiring 2 extra tires for assured arrival, is scheduled to be paved.

Puerto Penasco, in the neighboring state of Sonora , is the closest beach community to Phoenix and Tucson . Arizona buyers are willing to travel the extra 2 hours to San Felipe to take advantage of real estate prices that are one half of those charged in Puerto Penasco. Last year Penasco prices were triple those of San Felipe.

The nautical ladder (sp. Escalera Nautica), is a joint project between the three states, adjoining the Sea of Cortez , and the Federal Tourism development office, FONATUR. This project includes a string of marinas around Baja that will allow mariners to arrive in one day from one marina to the next. This will make sailing around the Penninsula more accessible and safer for yachtys. A coast to coast Baja road has been built in the middle of the Penninsula. It allows for easy transport of vessels from the Pacific to the Sea of Cortez and back – eliminating the long trip around the tip of Baja.

Many U.S. citizens are expressing a desire to leave the stresses of the United States . They are looking for a more tranquil lifestyle: free of traffic, rush rush agendas and high crime rates. And a haven from terrorist threats. San Felipe is very much a quiet and well protected fishing village. A population of less than 24,000, including snowbirds, it is definitely pueblo living. One U.S. citizen, living on an isolated stretch of beach, runs nude every morning. He sees no other humans on his early morning runs.

Because of the internet and digital, satellite technology, folks can work from home anywhere, including remote beaches North and South of San Felipe. The fiber optic phone system in San Felipe allows high speed data transmission

As an Ensenada resident, San Felipe Mexico is a comfortable two and one half hour drive across one of the most beautiful desert regions in the Southwest. A great getaway, in which the air and water temperatures are 10 to 15 degrees warmer than our brisk Pacific coastline. Maybe I’ll see you in San Felipe. I’m an extremely attractive and modest, bald headed guy. You can usually find me wolfing down large quantities of shrimp tacos and Negro Modelo cervezas on the malecon (board walk).

Turning 50 was traumatic enough but 60 (last November), WOW, that is old in anybody’s book. I now get the senior citizen rate on San Diego buses. At least they ask for my id to prove I am 60.

I don’t feel 60. I can still run a “kick ass” 10K through the Ensenada hills and paddle my kayak, four and one half hours, to Todos Santos Island. But, according to life expectancy tables, I have less time to live than I have lived.

Age 60 has caused me to take time more seriously. Am I doing what I should be doing and living where I should be living? My kids, unbelievably in their 30′s, are now more important to me than ever before. I laugh with them in a way I laugh with no one else. God, how much precious time I lost when they were children. Time that was invested in striving to be “successful”.

My kids are not going to move to Mexico. Their lives are centered around the San Francisco-Oakland Bay Area where they grew up. I still love my O’Town, Oakland – Home of the West Coast Blues, and like my friend Troyce Keyes (Eli’s Mile High Club) would say, “I sho do love da blues”. Unfortunately, I had to leave Oakland when they changed the city’s name to Cokeland. Chocolate City got too tough for this ole homey.

Why do I stay in Mexico ? A nation so corrupt that even the mighty Vicente Fox may not be able to successfully control the problem. A country whose bureaucratic systems are unfriendly to small Mexican owned businesses, let alone my clients who don’t understand the laws, language or culture. They often “stress out” over the country’s cumbersome investment climate. It makes my job, as their guide, stressful. Caught between two cultures, unable to fully explain one to the other.

I have been accused, by U.S. retirees in Mexico, to be anti American. I am not anti American anymore than I am anti Mexicano. I simply reflect what I see, the defects and strengths of both countries. I only ask that my paisanos be more understanding of a young country with a newly emerging democratic politic. A poor nation that is in the early stages of global competitiveness.

I ask my fellow norteamericanos to respect and learn from our south of the border brothers and sisters. They have taught me a whole lot about family, humility, and healthy living values. I am eager to defend my adopted homeland from unfair criticism that begs the question: why can’t they be more like us? In other words, why can’t those damn Mexicans advance to gingohood?

Why not move back to my beloved Oakland? Close to my children, lots of blues, jazz, soul food, beautiful black women, a damn decent Chinatown, and don’t forget the beautiful black women. The Oakland hills have great trails for running and mountain biking. Stinson beach is where I leaned to surf and the San Francisco bay and coastline are ideal for kayaking.

One word keeps me south of the border: Congestion. Too many folks in too many cars who must keep moving to keep ahead of the high cost of living. This same magna quantity of people requires a plethora of rules, regulations and restrictions to keep all those people from hurting each other and themselves.

You can’t take your dogs or alcohol to the beach, must wear a helmet in a variety of circumstances and 25% of the world’s lawyers on 5% of the planet’s landmass are lurking and waiting to sue your ass. Most incredulous to me, is the creation of a society that deprives you of enjoying a good cigar after a fine meal in a restaurant.

The list of don’ts seems to get bigger and more onerous each year.

Here in Mexico, especially Baja, rules are minimal. Take your dogs to the beach without a leash? Hell, you can drive on the beach. I enjoy premium hand rolled, Mexican cigars at a dollar apiece and can smoke them anywhere. My canines and felines can accompany me wherever: hotels, on walks through the streets or parks, all sans leash. I also enjoy affordable, high quality, local wines and the seafood is fresh and also affordable.

Affordable: A family of four can go to the movies for $15.00 in Ensenada . However, $15.00 is close to a day’s pay for lots of folks. The daily experience of knowing neighbors and friends who can’t afford the fiftteen bucks; that consciousness keeps one connected to the real world.

“Keep it real” is the hip-hop motto. Oh yeah, yo all be keepin it real a’wright! Where multi millionaire music mogul, Punk Puffy Combs can play gangsta and get away with it. Throwin Saturday Night Specials outta limoisine windows? Thanks, no thanks. I take the bus to Tijuana , that’s when “yo keepin it real” ya all.

The thing I most enjoy about Baja is the open space. Like the old cowboy song, “Don’t Fence Me In”. I don’t feel “fenced in” physically, emotionally or spiritually in Mexico. In my beautiful Bay Area I feel trapped, all the elbow room has been sold at “silly cone” valley prices. My auntie’s California bungalow, on a huge lot, in a once working class, San Jose neighborhood, would now sell for upwards of a million dollars.

Many bay area working class cannot afford what my blue collar family could in the 50′s, 60′s and 70′s. The U.S. has become a nation of spectators. They sit at home, in front of the TV, watching athletes and the rich and famous, enjoy what was once affordable to the average wage earner: A night on the town, a ball game or a concert.

Catchin Lou Rawls and The Whispers at The Sportsman’s Lounge in Oakland in the early 60′s cover charge, seventy five cents. Smokey Robinson and The Miracles at a small bistro in San Francisco for a $3.00 cover charge. Smokey (without the Miracles) appeared at Humphrey’s in San Diego last year. The cheapest ticket was $68.00 and you needed binoculars to see the stage. A movie in San Diego is now $8.00. I can see the same film in a surround sound cinema in Ensenada for $3.00.

Thank God for cheap air travel along the Pacific Coast . I can still fly home to see my kids for under $200.00 round trip. That’s the best I can do to remain healthy and sane in a place where everybody knows my name.

A Medical Treasure by The Sea of Cortez

Doctor Lowell Somers (Duke) and his wife Caroline, a nurse practicioner, have realized a twelve year old dream: A San Felipe Hospital for their adopted home, in San Felipe – The “St. James Infirmary“. Dedicated medical professionals, they ran a clinic for farmworkers in Cochella California before moving to San Felipe. Cesar Chavez, the great campesino leader, lauded the Somers as true friends of migrant farmworkers. The Somers hoped for a quiet and comfortable retirement, but those plans quickly evaporated.

Doctor and Mrs. Somers could not sit idly by when they realized the pressing need for medical technology and infrastructure in San Felipe. First, they donated needed medical equipment to the area’s doctors. The first X ray machine in town was donated by the Somers.

Most U.S. retirees in Mexico stay within their gringo ghettos, speaking only Engish and content to “do nothing” but relax. Duke and Caroline are not typical. They learned Spanish and assimilated into the local community. Their love for Mexico motivated them to study Mexican history and culture. Duke can sing an impressive list of songs from the Mexican revolution while accompanying himself on guitar.

Doctor Victor Abasola, a respected San Felipe physicion, whose practice has served the community since 1990, became personal physician and close friend to the Somers. Dr. Abasola is now chief of staff for St. James Infirmary.

It did not take long for the Somers to realize the great need for a hospital with full trauma care in San Felipe. Seriously injured or sick patients were at risk because of the three hour drive for treatment at Mexicali hospitals. Patients died who could have been saved by more immediate care. Unable to accept this lack of a hospital in their community, they committed all of their life’s savings to build the one and one half million dollar facility. They also loaned St. James an additional $350,000 dollars to sustain operations until the hospital’s revenue is sufficient to be self supporting.

The Somers were not content with just a “run of the mil” hospital. St. James infirmary is a small facility but with “state of the art” technology for diagnosis and treatment that is found in only large urban hospitals. Since opening a few months ago they have treated eight myocardial infarctions, four emergency C sections and have developed a much needed pain clinic. The hospital has a doctor on duty 24 hours a day.

St. James Infirmary is a not for profit hospital. I believe it is the only not for profit hospital in Mexico; not for profit hospitals in the U.S. are not uncommon. What not for profit means is that It is not subsidized by the government and therefore must charge patients in order to sustain itself. It is not a private hospital committed to making a profit. The intention is to provide the highest level of care at the lowest cost.

The primary objective is to save lives and not deny care because of a patient’s inability to pay. All patients with a life threatening condition will be treated, regardless of their ability to pay. Committing all the hospital’s resources and staff to treatment without monetary considerations. Being outside the governmental health care system, payment for services from patients is essential to the hospital’s existence. Therefore, all patients who can pay or have medical insurance will be charged for their care. The Somers have also committed ten percent of the hospital’s revenue to DIF (aid to dependent families).

In addition to satisfying the communities health needs, the hospital has been a boom to real estate sales people in San Felipe who boast about the facility to prospective retirees. Good health care is vital to senior citizens. As a result of St. James Infirmary, more U.S. retirees are choosing San Felipe. This is important to the communities economy that is heavily dependent on tourism, including retirees. They are the best tourists, build homes, pay taxes and buy goods and services throughout the year, not just tourist season.

I am proud to say that Duke and Caroline Somers are friends of mine. They are definitely friends to anyone needing medical care in San Felipe. I suggest you visit St. James Infirmary and give the Somers a “fuerte abrazo”: they deserve it.