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Editorial: As bullets fly, is Mexico shooting itself in the foot?

Mexico has become Mexico's #1 enemy. The violence surrounding the country's drug wars has been on the nightly news so often that now it almost isn't noticed. Several months ago, I contacted some molders and mold making companies that have facilities in Mexico to ask them about the situation. Is it interfering with business? Are you afraid to cross the border for business?

The article was entitled "U.S. molders in Mexico not adversely impacted by border violence" and while most of those I spoke with responded carefully - no one after all wants to admit that their manufacturing plant is in a war zone - they all said that precautions are necessary when crossing the border to visit customers or their plants. They know the dangers that exist as that country's armies of narco-terrorists fight their battles.

Multi-national OEMs are generally aware of the geo-political and social climates of the countries in which they operate manufacturing plants. It's an important consideration in site selection for plants in foreign countries. But when things turn sour, it's never easy.

On September 7, Navistar International Corp.'s chairman and CEO, Daniel Ustian, expressed his concerns regarding Mexico in a call with analysts. As the Wall Street Journal reported, Ustian "warned that the truck maker could shift production from Mexico because of escalating political instability, with drug-related violence moving into parts of the country once deemed as safe."

Like many U.S.-based manufacturers, Navistar has been manufacturing trucks and buses at a plant near Monterrey for more than a decade. In fact, the "maquiladora" or twin-plant concept (a plant on each side of the border) is more than two decades old. The arrangement makes it cost effective for U.S. companies to ship parts into Mexico, assemble them there, and ship them back to the U.S. with minimal tariffs or taxes.

One has only to look at the list of U.S.-based manufacturers there to realize that Mexico's manufacturing platform is a "Who's Who" of Fortune 500 companies. Mexico was one of the first LLCCs (Low Labor-Cost Countries) to reap the benefits of U.S.-based manufacturers seeking to reduce their costs to manufacture.  Today, Mexico has a huge automotive industry that includes the Detroit Three, Japanese and European automakers, and a slew of auto parts makers including Delphi, TRW, JCI, and many more.

I've had the pleasure of touring a number of plants in Mexico over the past two decades and I can honestly say that I've been impressed by what I've seen.  These are not schlock facilities filled with yesterday's worn-out equipment. These are new, beautiful, state-of-the-art manufacturing plants equipped with the best machine tool and molding technology; robotics; clean rooms; assembly-room floors you could eat your lunch off of; cafeterias that provide two hot meals daily to workers; and on-site medical care for the workers and their families.

These major global OEMs have given the booming, young population of Mexico tremendous opportunities to learn skills and trades, become managers, move up the ladder and become the new middle-class of Mexico.  It breaks my heart to hear of all the violence in places that I've visited many times, touring plants and getting to understand what Mexico has to offer its people and U.S.-based corporations. Yet, Mexico is becoming its own worst enemy. The anarchy raging in that country among the drug cartels could result in job-destroying actions such as the one Navistar's CEO is thinking about: pulling manufacturing back to the U.S.

As we look around the globe however, there are many countries where political uncertainty and social unrest could throw a monkey wrench into plans to benefit from cheap labor. It's something that is watched closely by many CEOs. They know the risks of putting manufacturing plants in places where civil unrest is a national pastime. Even relatively stable, democratic countries such as India are having their problems and haven't been immune to spates of violence that threaten to erupt into more, and disrupt the flow of manufacturing and manufactured goods from that country to the rest of the world.

Mexico's proximity to the U.S., the largest consumer base for many of the products produced in Mexico by companies such as Whirlpool, Electrolux, Stanley Black & Decker, and many others, has made it a popular place to locate manufacturing. "Near-shoring" as it's called, makes shipping easier and less costly. U.S. suppliers have easy access to their OEM customers, and vice versa. Mexico appeared to be a win-win for everyone.

It's too bad that Mexico is now running the risk of chasing the multi-nationals - and the thousands of jobs they bring - from the country. Mexico suffered from the loss of many companies when the push to locate to China drove many from the region. The country and its many hard workers were just starting to enjoy a comeback when the violence started. Let's hope that our neighbor in the South can find a way to stop the criminal activity, and restore rule of law to the country. Their future is at stake.

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