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What’s happening on the US-Mexico border…and what it means for business

Posted on June 08, 2009 by: Lisa Koss

People who know I work frequently in Mexico ask me about safety there given the much-reported on violence and the economic outlook for our southern neighbor.

In BusinessWeek April 20 edition, there was an article of great interest if you also wonder about the risk of doing business in Mexico. The article is entitled Business is Standing Its Ground – Why, despite the drug violence, major global companies are hanging tough. In the article, authors Pete Engardio and Geri Smith say that there are many reasons that manufacturers continue to grow and expand to Mexico. They authors point to numerous examples of companies who have chosen –and stayed — in Mexico due to its location, efficient workforce and talented workforce pool.

Regarding safety, conversations with current and past clients reflect that employees (and consultants!) are taking more precautions. Company employees who travel across the border, and even those living on the Mexico side of the border are taking different routes to work. Some arrive at different times to the factory. The idea, of course, is to be less predictable to anyone who may be interested in the business in kidnapping and extortion. Analysts agree, however, that the drug war is largely being fought between narco-traffickers themselves and business is plugging along.

What I find most compelling about this article, however, is the commentary about long term possibilities for US partnership. While Mexico’s economy is struggling (foreign investment declined 46% in 2008, to $18.6 billion, and the country has lost hundreds of thousands of jobs this year), the slump is primarily due to the global recession – not economic mismanagement as in the past. Fiscal and monetary policies after the 1994 financial crash have made Mexico stronger and able to cope with global shocks. World Bank country director Axel van Trotsenburg says “You can now do business here in a stable macroeconomic environment.”

The article also points out that with the uncertainty of shipping costs due to fluctuations of oil prices, Mexico is a safer bet. What’s more, the peso has dropped 41% vs the dollar since August.

It all paints an relatively upbeat picture for US companies interested in distributing their workforce globally. Indeed, I have always felt that it makes overwhelming sense that the US become more economically interdependent with its regional neighbors because of the positive ripple effects on so many other fronts. But that’s the topic for a future post.

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