what businesses can learn from drug cartels

What we can learn from drug cartels for business innovation

Less and less people are going out (thx Corona Covid-19) which inevitably means I got more time to netflix (yes, I’m making that a verb). Quite a few of my favorite shows over the years have often been somewhat related to drugs. Not sure if that speaks for me to be honest. Some of the shows and movies I enjoyed included Breaking Bad (of course), Narcos (of course), Traffic (oh that’s old), Better call Saul, The Queen of the South (most underrated), or even How to sell drugs online fast (with lots of pop culture references).

With all that drug ‘knowledge’ in the bag and the passion for what we do here at KITE (business innovation, entrepreneurship, marketing and digital transformation) it then became quite clear that drug cartels don’t just ‘wing it’, but actually follow rather progressive business plans which leads me to believe that we can actually learn quite a bit from the likes of the Sinaloa Cartel and the other ‘innovators’ in the industry.

Background

Looking at the history of drug cartels we can see that authorities in China tried to fight opium smoking already back in 1729 and has increased the crackdown (ha) on it ever since. The west followed during the 19th century and has also been embroidered in the war on drugs ever since.

When things are prohibited, the urge to posses them, and hence to trade them, increases which in this regard lead to the emergence of the illegal drug trade. By the mid 19th century there were about 12 million opium addicts in China. China tried to increase the ban on opium which lead to the first (yes, there was a second) ‘opium war’ between China and the UK (how dare they!) and already shows us how important drug trade was even back then.

Ever since drug trade became lucrative new drug cartels and dealers have emerged and governments tried to shut them down. This article doesn’t try to hail drug lords as some inspirational deities or cartels as something you should consider as your start-up choice, but tries to find commonalities between how drug cartels innovate (forced and voluntarily) and what average businesses can learn from that.

Types of Drugs

When talking about drug trafficking in this article I will refer to the following (but focusing on Cocaine mainly as that’s the drug of the ‘famous’ stories mentioned above):

  • Cannabis
  • Alcohol
  • Heroin
  • Methamphetamine
  • Temazepam
  • Cocaine

Known Drug Routes

South America Route

This is the famous route that you see in most movies and tv shows. Venezuela is said to be the gateway to the US and Europe for drugs that originate in Colombia and are shipped via Central America, Mexico, and the Caribbean.

The UN states that Venezuela has seen an increase in drug trafficking ever since Chavez took over as his government didn’t want to play ball with the US and the DEA anymore. The DEA established better connections with Colombia which in return made Venezuela more attractive to drug traffickers. This is a great example for the importance of negotiations in business development.

As time passed president Maduro’s nephews were found guilty of trying to ship drugs to the US and down the road even a few MLB players were suspected to be involved into drug trafficking (influencers!).

Even terrorist organizations such as the Hezbollah are said to use the South American route to smuggle drugs into Europe and to make money off cocaine trade to support their terrorist business. Diversification right here.

West Africa Route

Besides South America, this one is the second most famous route I believe as we all heard stories of drug lords in West Africa. There’s a statistic that says that the drug smuggling value of Guinea-Bissau is almost twice the value of its GDP. Insane. Quite frequently money seems to be laundered via real estate deals. Houses are being built using dirty money and then being sold for legal money.

Other options, just like in the cases before, are that drug smugglers cooperate with terrorist organizations to move their products. Again: I’m not condoning that but it shows us how business decisions are being made here as well.

Eastern and Southern Africa Route

The ’emerging’, yet difficult, path as heroin use on this route seems to be troublesome plus the instability of the intermediary African nations could often times provide problems as cartels need to adjust to who needs to be bribed.

Asia Route

As we’re based in Bangkok we obviously also have to look into the Asian route. Thailand seems to still be quite on top of the list as the location is just too good to give up. We’re quite central within the region and having great and easy flight (or land) connections to all countries around the world. You might have heard of the golden triangle (Laos, Myanmar, Thailand) – yes, we’re famous. Unlike the first two routes however the Asian routes mostly sees product coming in from Afghanistan rather than from Colombia which probably makes sense when looking at the map.

Drug Smuggle Disruption

Thanks to the emergence of the internet it’s easier than ever to sell anything online. Also drugs, of course. The dark web (darknet) is full of places that offer connections to drug dealers. It’s not just The Queen of the South (or ‘how to sell drugs online (fast)) doing it!

Moving drug sales online opened the door to lots of business opportunities. Now even ‘big’ drug cartels can sell smaller amounts without any hassle. You don’t need to find a middle man (‘foot soldier’) anymore, you just sell it yourself to anyone in the world and simply ship it via the local postal service.

Business Innovation can be so exciting! More on all this in a bit though.

Money Money Money

It’s obviously hard to keep track of how much money is being made via drug trades due to its illicit nature. However the UK home office reported 2007 that they estimate the drug market in the UK at 4-6 billion GBP. The UN office on drugs and crime director even gave out a statement in 2009 claiming that illegal drug money saved the banking industry from collapsing in 2008 during the financial crisis as drug money was ‘the only liquid investment capital’ at hand. Crazy! Apparently lots of the illegal drug money was then absorbed into the economy. Smart move!

How drug cartels operate

Research suggests that most of the drug cartels (at least the ones that are known) have business models in place that very often resemble big box stores or even franchises.

Some cartels maintain exclusive relationships with their suppliers (see “Queen of the South: Sinaloa Cartel with the Colombian suppliers”). This allows cartels to keep the price of their product stable even if production might be disrupted once in a while. This is often referred to as ‘monopsony’ – a monopoly on buying within a certain area.

According to the writer of the amazing book “Narconomics” (check it out!) the best way to battle such well structured organizations would not be to fight them but to slowly legalize drugs to compete with them.

“The choice that I think we face isn’t really a choice between a world without drugs and a world with drugs,” he says. “I think the choice we face really is between a world where drugs are controlled by governments and prescribed by pharmacists and doctors, and a world where they’re dealt by the mafia, and given that choice, I think the former sounds more appealing.”

Tom Wainwright

The aforementioned book draws comparisons between drug cartels and Wal-Mart at several occasions as Wal-Mart might be the only buyer in a certain industry and if the production of a product is disrupted Wal-Mart won’t adjust its buying price. It’s either keep the price or don’t sell. The same goes for drug cartels. Even thought the fight on drugs seems to increase and it seems to be harder to smuggle now, the price appears to always remain the same. Who else would pay for the product? Right!

Another great example in said book is the example of “The Zetas”. This drug cartel based out of Mexico is one of the fastest growing cartels out there. How do they do that? By franchising! They go into local areas, find the baddest criminals there and tell them they got an offer they can’t decline: They can remain criminals and even use the Zeta branding. They even give them baseball caps and t-shirts with their logo on it! In return the Zetas get, obviously, money from what the local criminals make. Basically like Subways. Or F45.

It’s not all gold that glitters though as, just with normal franchising, franchises end up competing with each other and hence making trouble for the main company. It’s one thing when two competing McD’s compete and quarrel but you probably don’t want two criminal organizations (under one roof) being mad at each other.

How drug cartels adapt

We already talked about the financial crisis earlier that saw lots of companies going bankrupt, we saw Netflix killing Blockbuster, the internet is making it hard for newspapers, video killed the radio star, and let’s not even start talking about all those Unicorn deaths we saw and are going to continue seeing (*cough* WeWork *cough*). With all those deaths of established, or well funded, organizations isn’t it fascinating that drug cartels have always been around and have always been able to adapt? The Chinese Triads have been around since the 17th century. The Sinaloa Cartel outsmarted competitors at home as well as the US government and their ‘war on drugs’. How are they doing this?

When we look at the net margins of drug cartels and compare them to other companies we can see that airlines earn 1.8%, oil companies are at around 8%, but cartels run at around 93%. Woah! Another stat says that the profit per FTE is 270,000 USD for Google, 460,000 USD for Apple, but around 20 Million USD (!) for the Sinaloa Cartel. Jealous yet? All this success led to the cartel expanding beyond their own borders into Europe, Asia and Australia.

Just imagine what kind of obstacles drug cartels have to overcome! Governments and law enforcement throwing everything they have at them and yet they are still succeeding in expanding their businesses.

We still don’t really know how the drug cartels keep their success going though. According to the aforementioned sources the one thing that sets drug cartels apart from the rest is how they successfully maintain their corporate cultures – and this is how they do it:

Implementing a credo that makes it easy to identify with them, focusing on improvisation and going for the small-but-big approach.

  1. Credo: The most successful criminal organizations in the world work on credos. The Yakuza does it, so does the Sinaloa Cartel. If your work force believes in you they will follow you which will eventually lead to an improvement of the overall output.
  2. Improvisation: While innovation is a huge buzzword these days, lots of corporations don’t really improvise. Improvising means to move quickly and that is exactly what most corporations seem to lack and what drug cartels seem to do well. Drug cartels know that if they found one way to distribute drugs, law enforcement will eventually keep up with them and try to stop them. Hence innovation and improvisation are crucial to succeed. Pressure makes diamonds.
  3. Small-but-big: While drug cartels run multi million dollar businesses they usually try to keep their teams within their companies small. Those small groups however can still pull from the vast resources those cartels have. Moreover moving in small teams leads to an increased entrepreneurial mindset as you need to find ways to get things done while being in your small team rather than wait orders that have to make their way through a huge hierarchy.

There are the secrets to running a successful drug cartel! If the Sinaloa Cartel can implement such a structure what keeps you from doing it? If you’re ready to take the next step in regards to developing your business, get in touch with us!

1 thought on “What we can learn from drug cartels for business innovation”

  1. Thipjutha Trakpiboom

    Very interesting on the How drug cartels adapt. I have never known before that the drug business gave a lot of profit.

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