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Puerto Vallarta News NetworkBusiness News 

Mexico's Violence Largely Spares Foreign Firms
email this pageprint this pageemail usPatrick Rucker - Reuters
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July 29, 2010


Take on Wal-Mart, and you're going to have a whole lot of problems.
- Albert Zapanta
Mexico City As bodies pile up in Mexico's drug war, local businesses are bearing the brunt of violence, extortion and kidnapping while big foreign-run firms have so far been spared the worst of a rising tide of crime.

More than 26,000 people have died since late 2006, when Mexican President Felipe Calderon launched a crackdown on cartels smuggling drugs into the lucrative U.S. market.

Violence is getting worse in areas where armed gangs hold sway, like the northern region home to factories churning out goods to be sent across the border to the United States.

While there are signs drug crime is discouraging investment and denting business for smaller firms operating in the most violent areas, the picture is not as grim for many large firms that so far have been able to keep those dangers at bay.

"When (criminals) go looking for theft and kidnapping opportunities, there are lots of easy hits," said Albert Zapanta, who heads the U.S.-Mexico Chamber of Commerce.

He said the cartels, even as they launch bold attacks on security forces and each other, have so far preferred to target lower profile firms or local businessmen that may not be able to afford elaborate security or are vulnerable in other ways.

"Take on Wal-Mart, and you're going to have a whole lot of problems," Zapanta said.

A car bomb attack this month in Ciudad Juarez, the famously dangerous border city, and several political assassinations this year could yet discourage foreign investors.

In the commercial city of Monterrey, a nascent economic recovery is being hampered by security fears that keep locals away from restaurants, cinemas and other social spots, local business leaders contend.

"Whatever business still operates in the city does so because they pay extortion," said the owner of a small Mexican factory in Ciudad Juarez.

In Monterrey and Ciudad Juarez, both already suffering due to weaker U.S. demand, there are signs some foreign firms are scaling back new projects or freezing investment as they gauge the effects of surging violence.

Racketeers meet foreign 'anomaly'

While the drug trade has created a culture of enterprising criminals in Mexico who eagerly look for chances to exploit legitimate business, foreign stakeholders say they have been spared so far because criminals cannot find an access point.

"We are an anomaly. They don't know what to do with us, or even who is in charge," said K. Alan Russell, president of the Tecma Group, which manufactures on-spec goods in Mexico.

Foreign executives are rarely seen on the factory floor and go to great lengths to protect their safety. Industrial plants have vault-like security while trucks loaded with cars, TVs and airplane parts are easily tracked by satellite.

Whereas Mexican entrepreneurs can expect face-to-face threats from racketeers, foreign plant managers whose families and property are north of the border are not as vulnerable.

Roughly 3,400 managers, engineers and other support staff live in El Paso, Texas but cross the border each day for work in 360 nearby Mexican factories, or maquiladoras, according to the El Paso Regional Economic Development Corp.

The violence is "absolutely not an obstacle to the development of our business," Carlos Ghosn, CEO of Nissan Motor Co, said during a recent visit to Mexico City.

Nissan plans to spend $600 million to upgrade plants in Mexico and will start making three new low-cost cars at a plant in northern Mexico, positioning the country as its supply hub for markets in the Americas.

Focus on the positives

If they can be shielded from violence, foreign companies are likely to focus on the virtues of doing business in Mexico, such as low labor costs, proximity to the American consumer and favorable trade treatment.

Other executives suggested that taking on a foreign company in Mexico which would likely elicit a stronger response from the Mexican government is just too daunting for a criminal gang interested in quick cash.

Foreign firms also benefit from having a direct line to top government officials, said Zapanta, who remembers when a call to the Mexican attorney general's office several years ago ended with two containers of stolen goods being returned.

"They found the truck in two days," he said.

Foreign executives are naturally concerned about violence, but for now the calculus of risk leads them to conclude security risks and costs are manageable, said Russell.

"We are not going to be coy or flippant about this. The data about the violence speaks for itself. But these companies are making long-term decisions about the future and deciding to come," he said.




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