Another day, another horrific story to come from Mexico. Yesterday a major road in the state of Veracruz on the eastern coast of Mexico was blocked by Mexican gunmen and 35 of their victims' bodies. Just last month the country saw its first direct attack upon innocent people when members of a drug cartel set alight a casino in the northern city of Monterrey. These are just some of many incidents connected to the drug war that has ravaged the country since 2006. But, what has this to do with procurement?
As mentioned in a recent blog post by Pasquale Gioia, Mexico's geographical location places it in a logical position to engage with the US supply chain. This, combined with lower labour and production costs of certain materials and goods, as well as cheaper transportation fees, makes Mexico a purchasing haven for certain US industries. However, as the drug war plagues the country, many foreign companies are weighing up the risks associated with their investment plans in Mexico. The increasing number of battles between drug traffickers and the Mexican army, which often take place on busy highways, are exposing foreign companies to the risk of employee kidnappings, cargo thefts and even death.
Cars, steel, aluminium, copper and industrial chemicals have become cargo thiefs' choice targets, costing companies millions of dollars every year. With all these risks to weigh up, it is no surprise to discover that according to JP Morgan, in 2010 Mexico lost $4 billion dollars in foreign investment due to drug-related violence.
The US is not only the foreign supply chain that is feeling the effect of Mexico's drug war. The country's own supply chain has fallen victim to its internal problems. The exportation and cost of Mexican limes and avocados have become increasingly more expensive as farmers are paying drug cartel members to ensure the safe delivery of their produce. Despite this, goods trucks are still being attacked. This, combined with increased border checks due to the rise in drug smuggling to the US, has meant that delivery takes longer and produce is often not delivered fresh.
Regardless of the increased risk, many foreign companies insist that they will continue negotiations with Mexican companies and this is most likely due to extremely low labour costs, fewer environmental standards with which to comply and the convenience of the location.
The question is: will the Mexican supply chain continue to support itself if the drug war continues?