Amidst a violent war, Mexico tries to remain safe, low-cost, competitive

an outbreak of the swine flu and a slump in oil prices. This year, Rafael Amiel, director for Latin America at IHS Global Insight, an economic and financial analysis firm, expects Mexico’s GDP to grow 5.1 percent.

At the same time, Amiel says there are no signs of a major exodus of foreign dollars from the country. Foreign direct investment averaged $1.6 billion per quarter in the four quarters ending March 2010. While there was a surge in the second quarter to $6.1 billion, Amiel says that uptick was driven by one deal, an acquisition by Heineken. Excluding that, foreign direct investment in Mexico remains weak, although he notes that this is a function of the stresses on the global economy, not Mexico’s challenges with the drug cartels. “Employment growth is about what you would expect at this point in the recovery and we don’t see firms moving out of Mexico due to the violence.” Still, Amiel warns that if the situation on the ground in Mexico worsens, this could change. He figures a major escalation in the violence could shave half a percentage point off GDP growth.

According to Wind, the potential problems in Mexico are numerous. “To what extent are executives operating in the country at risk for being kidnapped or killed?” Wind asks. “There is also the risk of property loss. And if you rely on that country to supply other factories, what is the risk that you can’t deliver if it is attacked?”

These risks are all leading to higher costs from heightened security. ASI Group’s Johnson says firms need to consider things like better physical security, lighting, and fencing for facilities. Many U.S. companies also do not allow U.S.-based personnel to stay in Mexico overnight, he adds. Instead, they will fly or drive in and out in one day and use a security-trained driver while getting around. There are regular check-in procedures as well so employers can keep track of everyone who is in Mexico on business.

Higher security costs are not the only unwelcome consequence of Mexico’s problems. Increased complexity in the form of more outsourced work is another likely result. Fred Burton, vice-president of counter-terrorism and corporate security at global intelligence firm Stratfor, notes that some companies have passed more work off to subcontractors in Mexico to reduce the amount of personnel they need to keep on the ground there. Wind says this strategy is common in