Managing Security and Violence in Mexico

Drug-related violence has U.S. manufacturers reviewing their strategies for operating in Mexico.

In late December 2011, Mexican officials announced the entire police force of Veracruz, including 800 officers and 300 administrative employees, was laid off -- an effort to root out rampant, insidious corruption within the ranks. Veracruz was recently the scene of one of the worst gang attacks in the ongoing Mexican drug war, and the mass firing was part of President Felipe Caldern's ongoing strategy to weaken the drug cartels.

While the United States has supported the goals of Mexico's war on drugs, the internal conflict has taken a heavy toll on the country. Since 2006, when Caldern took office, organized crime killings mostly of cartel members have more than tripled and reported kidnappings have more than doubled. Cargo theft has risen roughly 50% since 2006. In all, about 35,000 people died from drug-related violence in that timeframe.

Four-fifths of the drug-related murders have occurred in just 7% of the municipalities, primarily in the border states and Mexico City. Unfortunately, these particular areas -- including Nuevo Len, home to Monterrey -- play an increasingly significant production and supply role for U.S. manufacturers, especially for the machinery, food and beverage, and metal parts industries. Organized crime is rapidly moving into areas frequented by American executives, criminals are targeting factories and cargo trucks, and kidnappings and extortion of enterprises are on the rise.

The mounting violence has given companies pause to think about their business strategies in the nation. Multilatin, a security firm employed by companies in Latin America, states that it has seen some corporate investments postponed in Mexico because of increasing organized crime activity. The biggest concerns include employee security, executive protection, transportation of goods and plant and office safety. Virtually all companies are reviewing their strategies on how and when to expand their business in the country.

This represents no easy task. Mexico has become a critical part of U.S. manufacturing's production and supply processes. According to an informal MAPI membership survey, 90% of large manufacturers have U.S.-based employees who travel to border areas of Mexico, and roughly two-thirds of this group visit Monterrey, the industrial center. Despite this heavy traffic, the general liability insurance plans for most of the responding companies do not cover kidnapping and/or ransom demands.

A majority of U.S. manufacturers with facilities in Mexico have increased their on-site security, including using closed circuit television, screening arriving and departing vehicles, and using metal detectors.
The problem for companies that want to minimize their risk, says Fernando Sedano, a MAPI economic consultant specializing in Latin America, is that it's very difficult for American manufacturers to find a practical alternative to Mexico. "Proximity to major clients is a key factor affecting investment decisions, and since the inception of NAFTA, northern Mexico is the best location for efficient supply chains and distribution channels," he noted in his November briefing "Mexico's Rampant Crime and Its Effects on Politics and Foreign Investment." As a consequence, three-quarters of those doing business in Mexico have no plans to leave, and the rest are taking a "wait and see" approach before making a significant business decision.

In the meantime, U.S. manufacturers are providing practical guidance to their employees, such as to stay at specific hotels and use pre-arranged transportation in high-risk areas. Some tell their employees to remain in the hotel after sundown. Most are advising that travelers only visit legitimate businesses and tourist areas during business hours, avoid traveling alone, and otherwise defer unnecessary trips to the border areas. A few even provide security teams and armored SUVs for executives.

A majority of U.S. manufacturers with facilities in Mexico have increased their on-site security, including using closed circuit television, screening arriving and departing vehicles, and using metal detectors. If drug-related crime and violence escalates even more, almost half the manufacturers in the MAPI survey said they are prepared to ratchet up the amount and kinds of security they provide their employees and their production.

Stephen Gold is president and CEO of Manufacturers Alliance for Productivity and Innovation (MAPI), an executive education and business research organization in Arlington, Va. (www.mapi.net).

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