Sounding The Alarm In Mexico

Foreign investment is up, but the growing costs of theft and kidnapping are giving investors pause

On any list of Mexican President Ernesto Zedillo's accomplishments, drumming up almost $11 billion a year in foreign investment for Mexico since 1995 ranks near the top. So it came as a nasty surprise when one of those investors publicly asked him to do something about crime--or else.

Shin Takagi, head of Sony Corp.'s Mexico operations, told Zedillo at a May 8 meeting hosted by the National Council for the Maquiladora Export Industry that crime is getting so bad that companies might "decline further investment or move to a safer country." For the future of the mostly foreign-owned maquiladora manufacturing plants, Mexico's most dynamic exporters, that was an ominous alarm.

HIGH STAKES. Indeed, crime is a key campaign issue in the July 2 presidential election, with concerns over its economic cost to business adding to ordinary Mexicans' fears for their personal safety. Takagi's comment was "a little shot across the bow to remind the government that they have a lot at stake here," says Jon French, president of Problem Solvers, a Mexico City security company.

An Inter-American Development Bank study estimates that violent crime costs Mexico at least 6.2% of gross domestic product each year. For companies, robbery and street crime subtract from the bottom line by forcing them to invest in everything from background checks on warehouse workers to a bulletproof car for the CEO's spouse. Sony's Mexican operation, for instance, doubled security spending in 1999, to $1 million. But that didn't stop thieves from making off with 250 televisions from a truck that was barely out of Sony's Tijuana warehouse.

Takagi had more on his mind than stolen cargo. In April, the eight-year-old daughter of a Japanese executive at Bridgestone/Firestone Inc. was kidnapped in the central city of Cuernavaca. Although she was released unharmed after a ransom was paid, the incident rattled Mexico's small Japanese business community. With just five expatriate kidnappings since 1995, the danger is rare. Still, women and children seem to be new targets: The wives of two German execs were abducted in Mexico City last year. Both were released unharmed.

Cargo theft is most companies' main concern. Since the mid-1990s, an epidemic of truck hijackings has swept Mexico. Medicines, clothing, food, and consumer electronics are preferred loot because criminals can quickly unload them at street markets. The situation has gotten so bad that some companies, such as Nestle, no longer insure cargo, opting instead to cover losses themselves. Small wonder. Insurers, hit by steeply rising claims, have jacked up premiums on cargo insurance by some 50% in the past five years, says Guillermo Olivares, technical director for Mexico City insurance broker Brockman & Schuh, owned by New York's Marsh & McLennan. Deductibles have also risen, from under 5% to about 20% of the cargo's value.

That has compelled companies to beef up security. Now, trucks often travel in convoys or are accompanied by armed escorts. Sophisticated logistics equipment, such as global-positioning systems that track trucks by satellite, also help. Omnitracs, a division of San Diego-based Qualcomm Inc., is installing "panic buttons" in trucks so drivers can alert the company when there has been a robbery. Omnitracs passes the tracking information to federal police, who can then intercept the stolen vehicle.

The mix of low- and high-tech anticrime measures seems to be paying off: Truck robberies dropped from 21 a day in early 1997 to 16 in early 1999, according to the Mexican Association of Insurance Institutions. Roadblocks mounted by a new police force, the Federal Preventive Police, have helped crimp hijackings, down 16% in the first four months of the year.

Still, the government has been scrambling to contain the public-relations fallout from the Sony scolding. At a hastily convened breakfast with European investors on May 23, Zedillo said that foreign direct investment is up almost 20% in the first quarter. Miles Bryant, Mexico director general for DaimlerChrysler, announced that his company will invest $2 billion in Mexico over the next five years--and pointedly thanked the government for helping halt vandalism against Chrysler cars shipped by rail.

"We have total faith in Mexico," Bryant declared. That may be, but is he confident enough to take a nighttime stroll through Mexico City?

Before it's here, it's on the Bloomberg Terminal. LEARN MORE