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The Security Risks of Near-Shoring to Mexico

Senior business executives must balance competing priorities when considering a strategic move of company operations, equipment and personnel to a new country in response to changing market conditions. Priorities at the top of the list in Asia might be labor or exchange rates, or work force potential. For the CEO considering a move to Mexico from Asia, the number one priority must be security.

The following report is an in-depth analysis of Mexico’s complex and intimidating security environment, put into the context of the recent trend by companies to “near-shore” their operations to Mexico from Asia. The assessment examines the threats and threat actors in Mexico, and explains how and when this is relevant to business operations and employees. The clear advantages to near-shoring to Mexico from Asia are put in the balance with the unavoidable risks to business. Where risks potentially outweigh advantages, solutions are offered that give business planners the insight needed to move ahead intelligently with near-shoring strategies.

Themes developed in this detailed look at risk in Mexico include:

  • Business case for near-shoring to Mexico: Why it is growing in importance and is so relevant to the security issues in Mexico.
  • Security threats in Mexico: A careful look at the changing dynamics of Mexico’s powerful drug cartels, cartel-related criminal violence and where it is trending.
  • Specific security threats that have immediate impacts and consequences for existing businesses in Mexico, or businesses considering a move to Mexico.
  • Addressing security risk: Separating the headlines from the reality of security risks to businesses in Mexico
  • Balancing business with security: Guidelines that offer business operations in Mexico tangible, cost-effective measures to balance security risk with business value.

Understanding the Mexican Near-Shoring Business Case

In increasing numbers, businesses are shifting their operations to Mexico from China and Asia in a trend called “near-shoring.” The Mexican government welcomes this change because it has the potential to fuel a refreshing and much-needed economic resurgence for the country. Businesses welcome the opportunity because they recognize the advantageous nature of operations in Mexico and are shifting their operations there in increasing numbers. Reasons for this shift include:

  • Steadily rising cost of doing business in China.
  • A 3.5% economic growth rate in Mexico over the past year.
  • Significant efforts by the Mexican government towards reforms in the country’s energy sector, with the potential of opening several new areas to private participation and profit-sharing agreements.

The business case for near-shoring is attractive, compelling, and unfortunately often minimizes the persistent and substantive security challenges that remain in Mexico.

Mexico: Current Security Threats

Organized crime remains the principal threat in Mexico, and the primary threat actors come from the ranks of the nine major Mexican drug cartels (the Sinaloa Cartel; los Zetas; the Gulf Cartel; Tijuana Cartel; Pacifico Sur and Acapulco Independent Cartels; Nuevo Cartel de Juarez; the Knights Templar Cartel; and La Resistencia and the Jalisco Cartel - Nuevo Generation. These groups are opportunistic, and increasingly see that they must augment their revenues with non-narcotics related activities to survive and thrive. It is this diversification into non-narcotics related crime that represents a more direct and long-term threat to multi-national business operations in Mexico.

Snapshot of cartel-related violence and potential trends

The greatest driver of violence in Mexico continues to be conflict between rival cartels and their proxies, confrontation between the Mexican government authorities and the cartels, and the increasing diversification into non-narcotics related criminal activities by the cartels and associated organized criminal groups.

The Security Context: Concerns For Business Operations

Trends to watch include extortion directed not just at small, local businesses in Mexico but larger multinational corporations. Although most kidnap victims are Mexican nationals, foreigners are very appealing targets to the cartels.

Mexican cartels and criminal groups are diversifying into activities such as kidnapping (physical and virtual), extortion, human smuggling and prostitution, resource (petroleum) theft, auto theft, assassination for hire, money laundering, product piracy and software piracy for some time. It remains unclear whether diversification is the result of U.S. and Mexican drug enforcement measures, or simply more robust growth on the part of criminal enterprise into additional revenue-producing streams. The primary categories of risk include the following:

  • Corruption
  • Extortion
  • Supply Chain Theft than 180% since 2006.
  • Kidnapping
  • Street Crime and Other Violence

Addressing Security Risks In Mexico

Understand the Risks: The most proactive measure is investing in a professional risk assessment using a multi-disciplinary team with expertise in threat attributes and business realities relevant to the environment. Specific threats should be characterized in detail, using both qualitative and quantitative methods, in order to properly identify and weigh vulnerability and risk to the company and its critical assets.

Additional countermeasure areas:

  • Pro-active measures private companies can take to counter corruption and extortion threats to their operations
  • Anti-cargo theft measures targeting the “terrestrial piracy” of truck hijacks in Mexico. These include layered technology, physical security measures, personnel and operational security procedures.
  • Countermeasures to reduce the risk of becoming a target for kidnap-for-ransom
  • Measures for business travelers, or new employees, that will reduce the likelihood they aretargeted and become victims of street crime

A detailed understanding of threats, risks and protection strategies support the development of programs, systems, policies and procedures to mitigate the risks and secure both business operations and personnel. This is critical for firms considering near-shoring as a business strategy and postures those companies to proceed with greater likelihood of business success.

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