- 21
- SEP
- 2011
Mexico's supply chain - a risky business
Author: Kayleigh Ryan - Categories: Risk, Global Sourcing
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?
Comments
Carlos Ramos via LinkedIn
Thu 22 Sep 2011 08:27
Hello Kayleight, even we recognize, as Mexicans, that these horrific stories are rounding all the world, and giving Mexico a very bad image, what I can say, as a supply chain link in my country, is that the great majority of bussiness keep going by, the money keeps moving, foreign investment are growing and in general, almost all of us, keeps our lifes and families safe and with a great encourage to change this situation of violence to what, I'm sure almost all mexicans want: PEACE AND PROGRESS ENVIRONMENT. Regards from Guadalajara, Jalisco, Mexico
Oscar Lopez via LinkedIn
Thu 22 Sep 2011 08:28
Thnaks for sharing your concern Kayleigh, part of the problem is indeed bad press. Sure there is a global problem on drug cartels, but as others have commented Mexico is doing his best to keep supply chains up and running, thee a re hard data in many fronts about competitiveness of our country, and from my point of view yes thee is alot to do but we are one of the biggest economies of the world supported by the job and talent of several supply chianers.
Mike Hrivnak via LinkedIn
Thu 22 Sep 2011 08:29
Shippers can certainly protect themselves by involvement with US Customs and Border Security initiatives like FAST (Free and Secure Trade) which certifies the supply chain through rigid security processes and procedures. If anyone has any questions, I would be willing to help.
Frank Sawinsky via LinkedIn
Thu 22 Sep 2011 08:29
Good article Kayleigh. It's getting more and more difficult for this whole nasty situation to be swept away.
Miguel Tuñón via LinkedIn
Thu 22 Sep 2011 08:30
First we need to understand that this criminal gangs, are only trying to scare the government, society, and rival gangs. Like dogs they want to mark the territory, otherwise, why they did not bury the corpses? they are loosing the fight. Business is as usual with capital investment coming back from China, as well as new investment from Europe and U.S.
Mike Hrivnak via LinkedIn
Thu 22 Sep 2011 08:31
This is why in supply chain decisions you always should have a backup vendor or supply. Secondary choices should be a necessary. This will definitely affect Mexico's business impact. Companies will either make theirselfs or look to another less risky venture.
Never say "O, they will always be there or available."