La Union de Tepito and its microeconomic strategy

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La Union de Tepito and its microeconomic strategy

redlogarythm
Back in December 2019 I remember reading a pair of articles talking about the Union de Tepito, the most powerful gang in Ciudad de Mexico, which were about some killings which had happened during the last month of 2019. The victims had been some little level thugs who were involved in extortion. The most curious thing is that they had already been spotted for extorting in the name of high level organizations: the CJNG, the Sinaloa Cartel, the Familia Michoacana and also the Union the Tepito. They used to show up in shops, declare to the owner they were members of the organizations and even hand a personal card with the cartel name and a phone number on it.
This method is commonly used by street thugs in Mexico as an extortion practice. The power and brand awareness of the organization produces a big impact on the client which immediately pays fearing retaliation of such a big entity. Of course, the cartels used as a front react very violently against these imitators saying in most cases (as an excuse of course) that they have killed these racketeers for freeing the people of such rats. In fact they do so because they don´t want to attract attention, not to appear as a weak organization which enables imitators to use their name or because maybe the imitators have been extorting in an area owned by another organization against which they don´t want to fight. Nevertheless the cause for these killings wasn´t in this case fear of police retaliation or the fear of being involved in a conflict with other organizations: these imitators were killed because they used the Union de Tepito brand without paying a fee for doing so.
The Union de Tepito, born approx. in 2010, nowadays controls much of the street level drug trafficking in much sectors of the capital. It´s also specialized on the kidnapping sector and they control the extensive gun market which is based on the Tepito neighborhood street market, which is maybe the biggest illegal arms market of the whole country. Nevertheless, their most profitable activity is extortion/racketeering. Since they´re established in the old part of CDMX (one of the main hubs for tourists and social life) they have plenty of businesses to extort: restaurants, bars, discos, souvenir shops, street level merchants, the brothels of CDMX pink district (the zone for night live were prostitutes have their locals), etc. They have been doing so for nearly a decade and they´ve achieved a virtual monopoly in their area. The pressure derived from exploiting a little market made the Union to expand to new districts of CDMX facing of course competition of gangs and cells which were already stablished in the new areas exploiting the same sectors. After gaining so much attention for their brutal tactics (they were the first gang to use cartel-style tactics such as bridge hanging and spreading mutilated corpses as a warning/social awareness tactic) the organization has suffered quite big blows. It´s main leader, Roberto Moyado Esparza aka el Betito, was captured in 2018. The organization had suffered a split in 2015 after which another gang, the Fuerza Anti-Unión, joined the already big list of Union´s enemies. In October 2019 one of the Union´s hubs was raided in CDMX. Inside police found several hundred kilos of marihuana as well as a dozen ks. of meth and cocaine and a laboratory. The law enforcement officials found also a little arsenal which included several assault rifles and even an American made rocket launcher. Maybe the most disturbing discovery as an altar covered with Satanist paraphernalia which included human remains (skulls and bones) 31 people were detained and later released for legal procedure deficiencies. The leader of the Union at the time, Oscar Andres Flores Ramirez aka el Lunares, was detained last week.

Because of this events the Union de Tepito has been forced to search for money in a quick and easy way. If we use the cartel/organized crime economic perspective being involved in a market area such as extortion means the deployment of resources (men, guns, telephones, cars, etc) as well as a certain level of risk (it´s possible to be detained if you´re involved in street-level activities such as extortion) Thus, when a criminal organization suffers a certain degree of pressure from the law forces hard enough to challenge its daily operations the organization first of all runs out of money. Since the gangs like the Union de Tepito tend to operate in cells huge blows causes the flow of money to stop. Their racketeering, drug-dealing operations come to a halt and the infrastructure quickly suffers the lack of resources.
Logically when this happens the organization immediately starts looking around trying to find a quickly, easy and cheap option for obtaining resources. The solution a lot of organizations use to come up with is based in a purely economic logic: the franchise.
Imagine a real business such as Mc Donald´s. They have brand awareness and a big role in the fast food business. If an independent entrepreneur from, let´s say, Ontario, wants to enter in the fast food market he can try to negotiate a franchise with Mc Donald´s. The American firm will provide him the logistics, menu, products, food, employee training and even management personnel, but the main resource Mc Donald´s will provide the entrepreneur will be its brand. Everyone knows McDonald´s, everyone knows what a Big Mac is, etc, and the entrepreneur won´t have to penetrate in a market directed by big firms which leave almost no space for newcomers. Thus McDonald´s will obtain a big cut from the entrepreneurs annual profits and this businessman will benefit from the marketshare McDonald´s has already achieved.
This classical model applies directly to the Mexican cartels´ markets. The first ones to operate in such a way (at least in a global level) were the Zetas. Even before splitting apart from the Gulf cartel in 2010/2011 they already expanded their brand through the franchise tactic. The clearest example is the city of Monterrey in the state of Nuevo Leon. When the Zetas arrived early in 2000´s they partnered with the already existing gangs which were specialized at car theft, extortion, kidnapping and even CD bootlegging. After the Zetas became known for their brutal tactics and their no-mercy and predatory business model (this is, after they obtained brand awareness) a lot of little organizations started paying them fees in order to use their name. This option included sometimes training courses and even resources such as communication tools and guns. Their business model reached another level in the city of Veracruz. Here the Zetas partnered with the merchants who ran the local counterfeit market. The Zetas offered their brand and the merchants had the security that no one would bother them, not even the cops with their constant bribe demands. They even ended up adding to their fake DVD´s a stamp with the letter Z.
The Union de Tepito has engaged the same business model used by the Zetas a long time ago. In order to minimize the risk at a time in which it´s being weakened and to maximize its income level they´ve turned into a business model which at the same time enables them to expand their operations and brand awareness to territories at which they do not operate (other districts of the capital) without even having to deploy resources on the ground.
What would happen if an entrepreneur decided to open a fast food restaurant calling it McDonald´s without paying the fee or obtaining the permission of the real company? Mc Donald´s would of course sue this individual for theft of intellectual property. In the world of organized crime there are no tribunals were demands can be heard. The only way to enforce here is the use of violence. That´s why the Union has reacted in such a way killing the imitator who were using its name without paying the fee.
Business as usual in a world ruled by strictly economic logic.

Back in December 2019 I remember reading a pair of articles talking about the Union de Tepito, the most powerful gang in Ciudad de Mexico, which were about some killings which had happened during the last month of 2019. The victims had been some little level thugs who were involved in extortion. The most curious thing is that they had already been spotted for extorting in the name of high level organizations: the CJNG, the Sinaloa Cartel, the Familia Michoacana and also the Union the Tepito. They used to show up in shops, declare to the owner they were members of the organizations and even hand a personal card with the cartel name and a phone number on it. This method is commonly used by street thugs in Mexico as an extortion practice. The power and brand awareness of the organization produces a big impact on the client which immediately pays fearing retaliation of such a big entity. Of course, the cartels used as a front react very violently against these imitators saying in most cases (as an excuse of course) that they have killed these racketeers for doing such a thing. In fact the do so because they don´t want to attract attention or because maybe the imitators have been extorting in an area owned by another organization against which they don´t want to fight. Nevertheless the cause for these killings wasn´t fear of police retaliation or the fear of being involved in a conflict with other organizations: these imitators were killed because they used the Union de Tepito brand without paying a fee for doing so.
The Union de Tepito, born approx. in 2010, nowadays controls much of the street level drug trafficking in much sectors of the capital. It´s also specialized on the kidnapping sector and they control the extensive gun market which is based on the Tepito neighborhood street market which maybe is the biggest illegal arms market of the whole country. Nevertheless, their most profitable activity is extortion/racketeering. Since they´re established in the old part of CDMX (one of the main hubs for tourists and social life) they have plenty of businesses to extort: restaurants, bars, discos, souvenir shops, street level merchants, the brothels of CDMX pink district (the zone for night live were prostitutes have their locals), etc. They have been doing so for nearly a decade and they´ve achieved a virtual monopoly in their area. The pressure of exploiting a little market made the Union to expand to new districts of CDMX facing of course competition of gangs and cells which were already stablished in the new areas exploiting the same sectors. After gaining so much attention for their brutal tactics (they were the first gang to use cartel-style tactics such as bridge hanging and spreading mutilated corpses as a warning/social awareness tactic) the organization has suffered quite big blows. It´s main leader, Roberto Moyado Esparza aka el Betito, was captured in 2018. The organization had suffered a split in 2015 after which another gang, the Fuerza Anti-Unión, joined the already big list of Union´s enemies. In October 2019 one of the Union´s hubs was raided in CDMX. Inside police found several hundreds kilos of marihuana as well as a dozen ks. of meth and cocaine and a laboratory. The law enforcement officials found also a little arsenal which included several assault rifles and even an American made rocket launcher. Maybe the most disturbing discovery as an altar covered with Satanist paraphernalia which included human remains (skulls and bones) 31 people were detained and later released for legal procedure deficiencies leader of the Union at the time, Oscar Andres Flores Ramirez aka el Lunares, was detained last week.

Because of this events the Union de Tepito has been forced to search for money in a quick and easy way. If we use the cartel/organized crime economic perspective being involved in a market area such as extortion means the deployment of resources (men, guns, telephones, cars, etc) as well as a certain level of risk (it´s possible to be detained if you´re involved in street-level activities such as extortion) Thus, when a criminal organization suffers a certain degree of pressure from the law forces hard enough to challenge its daily operations the organization first of all runs out of money. Since the gangs like the Union de Tepito tend to operate in cells huge blows causes the flow of money to stop. Their racketeering, drug-dealing operations come to a halt and the infrastructure quickly suffers the lack of resources.
Logically when this happens the organization immediately starts looking around trying to find a quickly, easy and cheap option for obtaining resources. The solutions a lot of organizations use to come up with is based in a purely economic logic: the franchise.
Imagine a real business such as Mc Donald´s. They have brand awareness and a big role in the fast food business. If an independent entrepreneur from, let´s say, Bourdeaux, wants to enter in the fast food market he can try to negotiate a franchise with Mc Donald´s. The American firm will provide him the logistics, menu, products, food, employee training and even management personnel, but the main resource Mc Donald´s will provide the entrepreneur will be its brand. Everyone knows McDonald´s, everyone knows what a Big Mac is, etc, and the entrepreneur won´t have to penetrate in a market directed by big firms which leave almost no space for newcomers. Thus McDonald´s will obtain a big cut from the entrepreneurs annual profits and this businessman will benefit from the marketshare McDonald´s already has developed.
This classical model applies directly to the Mexican cartels´ markets. The first ones to operate in such a way (at least in a global level) were the Zetas. Even before splitting apart from the Gulf cartel in 2010/2011 they already expanded their brand through the franchise tactic. The clearest example is the city of Monterrey in the state of Nuevo Leon. When the Zetas arrived early in 2000´s they partnered with the already existing gangs which were specialized at car theft, extortion, kidnapping and even CD bootlegging. After the Zetas became known for their brutal tactics and their no-mercy and predatory business model /this is, after they obtained brand awareness) a lot of little organizations started paying them fees in order to use their name. This option included sometimes training courses and even resources such as communication tools and guns. Their business model reached another level in the city of Veracruz. Here the Zetas partnered with the merchants who run the local counterfeit market. The Zetas offered their brand and the merchants had the security that no one would bother them, not even the police with their constant bribe demands. The even ended up adding to their fake DVD´s a stamp with the letter Z.
The Union de Tepito has engaged the same business model used by the Zetas a long time ago. In order to minimize the risk at a time in which it´s being weakened and to maximize its income level they´ve turned into a business model which at the same time enables them to expand their operations and brand awareness to territories at which they do not operate (other districts of the capital) without even having to deploy resources on the ground.
What would happen if an entrepreneur decided to open a fast food restaurant calling it McDonald´s without paying the fee or obtaining the permission of the real company? Mc Donald´s would of course sue this individual for theft of intellectual property. In the world of organized crime there are no tribunals were demands can be heard. The only way to enforce here is the use of violence. That´s why the Union has reacted in such a way killing the imitator who were using its name without paying the fee.
Business as usual in a world ruled by strictly economic logic.

SOURCES:

- https://www.eluniversal.com.mx/metropoli/cdmx/union-tepito-renta-su-nombre-para-extorsionar-en-la-cdmx
- https://laotraopinion.com.mx/la-union-tepito-s-a/

I strongly recommend chapter 6 from Narconomics, a book by british economist Tom Wainwright which precisely discusses the use of franchises by the Zetas.
MX
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Re: La Union de Tepito and its microeconomic strategy

MX
Another excellent read. Thank you for your recent posts!

I think another big factor here is that the franchise organized crime model has low barriers of entry. As long as you pay fees to the head group, you can pretty much run part of the show. That’s an issue for authorities because dismantling a cell won’t affect the core operations of the head group. Since the Zetas want to be feared and (generally) don’t care about messing with civilians, these cells that pay fees to them are virtually free to do as they please as long as they bring revenue. At least that was my understanding of what happened in Veracruz.

(Update): Borderland Beat translated a piece back in 2011 about the similarities between the Zetas and McDonald's:

http://www.borderlandbeat.com/2011/11/what-do-los-zetas-and-mcdonalds-have-in.html
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Re: La Union de Tepito and its microeconomic strategy

redlogarythm
Thank you for your commentary MX. Absolutely agree with the low barriers of entry. Didn´t know about the 2011 post, it´s in my opinion extremely accurate.
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Re: La Union de Tepito and its microeconomic strategy

canadiana
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This post was updated on .
In reply to this post by redlogarythm
That is interesting.For us narco armchair observers that's a good comparison to the McDonald's franchise(after all they are all business models).I always thought these thugs were killed over territory (not for the good of the people that they claim) but now I understand better what's behind it but I also wonder if the gang that pays the fees to the big honchos then who is responsible for enforcing if a business doesn't pay?I guess it might depend on the gang and if the big cartel who collects the franchise fee from the gang does I,m sure there is an extra fee to pay for the hit or is the hit included in the franchise fees?
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Re: La Union de Tepito and its microeconomic strategy

Chava
This article outlines some of the most recent heads to fall, so to speak.

https://www.eluniversal.com.mx/metropoli/ellos-son-los-cabecillas-capturados-de-la-union-tepito