Mexico: descent into chaosAmidst a violent war, Mexico tries to remain safe, low-cost, competitive
Mexico became attractive to manufacturers thanks, in part, to its inexpensive labor and proximity to the massive U.S. market; a steady increase in drug-related violence has increased the risks to businesses, and these risks are all leading to higher costs from heightened security; the issue for Mexico is at what point those added headaches and higher costs make a serious dent in the advantages companies see in operating there
More victims of Mexico's drug war // Source: interbent.com
Mexico became attractive to manufacturers thanks, in part, to its inexpensive labor and proximity to the massive U.S. market. There is, however, a new reality on the ground in that country these days: a surge in violence tied to the war on drug cartels that Mexico’s president Felipe Calderon mounted after his election in 2006. The result has been a wave of kidnappings, extortion, and murder that is threatening the country’s economic health and causing multinationals to examine closely how they operate and invest in Mexico.
“A failure to attract new capital is a major risk,” warns Wharton marketing professor Jerry Wind, director of the SEI Center for Advanced Studies in Management. “If [the violence] continues, a lot of talented people might leave the country.”
Knowledge at Wharton offers a detailed and useful discussion of relationship between Mexico’s growing violence and the country’s business climate. The cost of Calderon’s war on the cartels has been steep. Since he took office four years ago, the government estimates there have been more than 28,000 deaths tied to the conflict. Each day seems to bring new horrors — the recent discovery of seventy-two murdered migrants in a mass grave and the subsequent disappearance of two government officials investigating the crime, a bombing in the tourist hotspot of Cancun, and evidence that the cartels may be gaining expertise in car bombs.
Just as troubling has been the increase in attacks in the modern and once-safe city of Monterrey. Knowledge at Wharton notes that while violence along the U.S.-Mexico border — the route for drug traffickers to transport narcotics into the United States — has not been a surprise, the problems in Monterrey, 130 miles south of the border, have been an unexpected nightmare. Home to manufacturing operations of large companies like General Electric and Whirlpool, Monterrey has seen politicians and citizens murdered and roadblocks set up throughout the city by roving gangs, a tactic apparently aimed at showing the gangs’ power and also disrupting police activity. “The violence [in Monterrey] is bordering on obscene,” says Daniel Johnson, senior chief of kidnap response at ASI Group, a Houston, Texas-based global risk management firm. “It is a major concern for companies operating there.”
To date, the impact of these security issues on the Mexican economy has been overshadowed by the severity of the global recession. Last year, Mexico’s gross domestic product declined 6.5 percent, a painful contraction exacerbated by
