KidZania and a New Generation of Entrepreneurs in Mexico

MEXICO CITY, Mexico. Forbes. July 18, 2012. (English). -A few weeks ago at a mall on the south side of Mexico City, KidZania CEO Xavier Lopez hosted the grand opening of his company’s third facility in Mexico. The operation, a unique children’s play space that exposes children to “edutainment” in the form of role playing as employees from companies such as Coca Cola and Domino’s Pizza, also provides free access for low income students. KidZania strives to be a “business with a real social commitment,” Lopez said at the event’s opening. A few weeks earlier I met Lopez at KidZania’s original facility in the wealthy Mexico City neighborhood of Santa Fe.

Inside KidZania, children put on miniature uniforms of journalists, pizza chefs, painters, police officers and private security guards. They are given assignments and asked to play out roles, interacting with one another. “It’s educational,” says Lopez. “They learn they have to work.”

I wrote an article about Lopez for Exceptional magazine.  The magazine can be downloaded as a PDF here.

I explain in the Exceptional article “For completing tasks in their jobs, the children (they are called KidZanians) earn a play currency called KidZos that they can spend on snacks or use to open a bank account.”

Inside Kidzania children pretend to work at miniature versions of McDonalds, Domino’s Pizza, DHL, and the Mexican Federal Police Force. They earn and spend kidZos. Children acting as security guards visit each of the businesses, picking up cash deposits and delivering them to a secure storage facility. To the right, at the entrance, there is a row of real life ATMs that dispense Mexican pesos rather than paper kidZo bills.

A few minutes before Lopez arrived, a team of adult armored truck guards visited the facility to pick up cash. They carried compact machine guns, a reminder of the fact that although street crime has fallen dramatically in Mexico City in recent years, security issues are still a factor. “Crime is still a concern [for parents],” Lopez said. On the counter in a room labeled as the city’s “mayor’s office,” there was a sign that said “Water is like your Family, PROTECT IT!”

Inside the KidZania facility, children wear electronic bracelets that allow parents to keep track of their kids remotely. There’s a lounge for parents that features leather couches, a giant flatscreen TV, as well as computers that feature GPS tracking. When Lopez launched the company in the late 1990s, there was nothing like it in Mexico. Back then, the city was a lot more dangerous, and there were few safe entertainment facilities available for children. One of his friends had an idea for a daycare center that used role-playing. “It a favorite game of children,” Lopez explained. At that time he was working in private equity and had already completed his MBA at Northwestern. “It was a good opportunity,” Lopez said. At first, he worked part-time, collecting information, making contacts, and developing a business plan. He asked for six months leave from work. “We didn’t have money and there was no other business like us, it was a new idea,” he said.

“There was a fair bit of risk,” he added, smiling, speaking in a robust, deep voice.

Lopez needed a few million dollars to launch his plan. “We didn’t have four million [dollars], and at that time, there were no seed capital investors in Mexico,” he said. “It was really difficult to get financing for the project,” he explained. Making matters worse, Mexico’s economy was hit hard by the 1997 recession, and banks were reluctant to lend. In the end, Lopez turned to friends and family to get the money to launch the business. Seeking to reduce his financial risk and bring in outside experts, Lopez reached out to major businesses such as PEMEX, Mexico’s national oil company, HSBC, the bank, Wal-Mart, the retail company, and BIMBO the bread company, the big players in Mexico’s economy, to help him build his city.

At first, businesses were reluctant to sign on. Nobody had done anything similar before. “It was difficult,” Lopez said. Then, he convinced Grupo BIMBO to partner with him. In the weeks that followed, he signed deals with American Airlines, Coca-Cola, and Nestle. His goal was to form partnerships with 40 companies. By the end of the year, he had 70 partners.

“It was a new idea, but it was a good idea,” he explained, smiling confidently.

On the first floor, a new group of children lined up outside the Domino’s restaurant. Other children squeezed frosting onto cookies in the candy factory. “In Mexico, there are very few entrepreneurs,” Lopez said.

The country’s economy continues to be dominated a group of billionaire oligarchs.

Awhile back Kathryn Rooney Vera, emerging markets analyst and senior macro economist at Bulltick Capital Markets, told me that “Mexico is replete with monopolies and oligopolies.”

“It’s a different market,” she said.

Mike Lubrano, the Managing Director of Corporate Governance at Cartica Capital, a Washington D.C.-based emerging markets investment specialist, told me that in Mexico the owner-CEO model used by Carlos Slim, Emilio Zambrano, Ricardo Salinas and other billionaire businessmen is the “dominant form.”  As an investor in Mexico, he explained, “you have to be confident in the controlling shareholder or you wouldn’t be there.”  In comparison to the U.S., start-up entrepreneurs play a much less prominent role in the economy.  Controlled companies such as America Movil, Cemex, and Televisa, owned by Slim, Zambrano, and Salinas, respectively, continue to dominate the economy.

For instance, when KidZania opened a location in Japan, it was just the second Mexican company to do business there. (Cemex was first.)

Mexico, the world’s 14th largest economy, sits at #53 in the World Bank’s Doing Business Index. Although Mexico’s environment for entrepreneurs has improved in recent years, the country still receives particularly poor marks for challenges related to starting a business and enforcing contracts.

Mexico’s current president, Felipe Calderon, has taken steps to increase competition in the country’s economy.  The country’s new president-elect, Enrique Peña Nieto, is likely to continue these efforts to make Mexico a more business-friendly country.

Now, Lopez and his team are franchising the KidZania model and bringing it to their target market- major cities with more than one million children. They already have launched franchise deals with local partners in Japan, South Korea, and Portugal. They have plans to open franchises in Chile and China, and will also open multiple locations in the U.S. starting in 2013. Total, Kidzania is working with teams of investors to bring in local corporate partners and design safe, educational place spaces in 16 countries across the globe.

“It’s a winning idea,” Lopez said, smiling, furrowing his bushy eyebrows.

Contribution by: Nathaniel Parish Flannery.

Follow him on Twitter @LatAmLENS

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