In Mexico, Supply Chain Risks Increase, Security Costs Climb

Mexico continues to be a positive business proposition for many companies. However there's no doubt that it is becoming increasingly more challenging and more costly to mitigate risks to operations, supply chains and personnel there.

Consider this: Since 2006, more than 24,000 people have been killed in drug violence in Mexico, and as an article in The Dallas Morning News puts it:

Faced with the threat of smuggling attempts by criminal organizations in Mexico, foreign companies are simply doing more, spending more and in the process charging consumers more to shore up security in a country where killings, kidnappings and extortions have become a part of daily life.

The article then goes on to estimate that the share of operating costs dedicated to security in Mexico has risen by roughly one-third in the last two years. In particular, companies today are forced to spend more on securing distribution routes, developing contingency plans in the event of a "major development," and ensuring that personnel are safe while working in, or traveling to and from, Mexico.

Ryder Systems Inc., one of the firms profiled in the article, uses GPS to track every one of its trucks transporting manufactured goods. In addition, private security sometimes escorts loads. Inspectors and drug-sniffing dogs check every container before it crosses the border to Texas.

Interestingly, Alberto Islas, a founding partner of Mexico City-based Risk Evaluation Ltd., also points out in the article that one of the hidden costs of Mexico's drug war is the inability to recruit high-level, qualified management. According to Islas, companies "start to lose competitiveness."

TAGS: Finance
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