Edition: U.S. / Global

Re-engineering the Drug Business

By Matthew Brzezinski
Published: June 23, 2002

The vial of heroin lands in my lap, and for a few uncomfortable seconds, as an undercover police officer and a very jittery drug dealer both grope my midriff, I worry someone will panic and go for his gun.

The dealer is shouting -- for his money, for us to hurry -- peppering his exhortations with unprintable expressions. He looks no more than 20, with baggy trousers, high-top sneakers and a Baltimore Orioles baseball cap perched at a rakish angle. His grasping fingers, I can't help noticing, are bejeweled, like those of the rap artists one sees on MTV videos.

Lost in the chaotic exchange, and now rolling on the littered floor of the unmarked police pickup truck, is the small vial of heroin. It contains a milligram of opiate in fine powder form and is sealed with a color-coded plastic cap. The top is pink in this instance, but it's also available in an assortment of other hues, each denoting a variation in purity and price, to tap the widest possible customer base. If that sounds incongruously like something out of an M.B.A. textbook, that's because it is: the strategy is called microbranding, and it is the reason so many different varieties of Coca-Cola sit on grocery shelves these days.

The pink-top I have just clumsily purchased has its particular niche, or target market: the ''kids from the counties,'' as middle-class teenagers from the suburbs are known in Maryland. They are the same trendy audience that advertisers slaver over, and Baltimore's inner-city dealers have tailored the pink-top to their finicky needs. The product is just strong enough so that it can be snorted -- all the rage nowadays -- yet, at $20, cheap enough that it won't make too much of a dent in its average customer's weekly allowance.

Beneath its veneer of violence, narcotics trafficking is a surprisingly sophisticated industry, marketing-driven just like any consumer-products business. Only illegal drugs are a bigger business than most, generating global revenues in excess of $400 billion annually, according to a United Nations study. From source to street, pushing drugs shares many common elements with hawking soda pop or cigarettes. It requires lots of working capital, steady supplies of raw materials, sophisticated manufacturing facilities, reliable shipping contractors and wholesale distributors, the all-important marketing arms and access to retail franchises for maximum market penetration.

Just as in most sectors of the economy, innovation and technology are engines of growth. New uses of old products like heroin, or the introduction of synthetic drugs like methamphetamine and Ecstasy, keep pace with the changing demands of the marketplace, redistributing income from traditional profit centers like marijuana and cocaine. As in the automotive industry, different source nations compete in the global arena, with producers popping up in one country as quickly as they are pushed down in another. Occasionally, aggressive upstarts catch complacent giants unawares, as the Japanese did with Detroit carmakers in the 1980's.

The principal difference between the narcotics trade and legitimate commerce, of course, is that the drug business must operate in the shadow of the law. This throws the entire organizational chart out of whack. Transportation becomes paramount, consolidation and vertical integration -- those cherished buzzwords of merger-hungry multinationals -- impossible. As a result, the narcotics industry has adapted what might be called the Osama bin Laden approach to management: base your operation in remote safe havens, the more war-torn and chaotic the better; stay small and shifty; use specialized subcontractors or freelancers on a need-to-know basis; vary your routes and routines whenever possible; and most important, always insulate yourself with plenty of expendable intermediaries in case someone gets caught and talks.

Sept. 11 and its new world of heightened border controls has made decentralization doubly important for international smuggling networks, be they Chinese, Colombian, Turkish or Nigerian. Ever since the big Cali and Medellín cartels were wiped out nearly a decade ago, virtually the entire narcotics trade has radically slimmed down. With the added pressure of 9/11 security measures, drug kingpins have adopted the mantra of their more enlightened corporate cousins, that size does not necessarily create efficiency, and that to survive you have to stay nimble.

Heroin is the perfect drug for the new age of small-batch manufacturing and decentralization, a high-value-added commodity where a little goes a very long way. In fact, it's so well suited to the changing times that many cocaine traffickers are retooling their production lines to include heroin and joining the global trend toward leaner, meaner, terrorist-style operations.

The restructuring is helping the business survive what could otherwise be a difficult period. Despite the military and security measures taken to fight international terrorism and shore up America's borders, Heroin Inc. has had a remarkably good fiscal year. The industry has managed to sustain gains made during the boom of the late 1990's, largely shrug off 9/11 and make further inroads in cocaine markets in the United States. Supplies in America are at an all-time high.