Narco-terror and U.S. business

narco-terror.top.jpgSept. 7, 2010: the body of a municipal police officer in Ciudad Juárez, Mexico By Scott Cendrowski, reporter


FORTUNE -- It was a shocking twist in Mexico's four-year war among drug cartels. At around 1 a.m. on a Thursday in late October, gunmen sprayed bullets into three buses carrying temporary workers after their shift at U.S.-based Eagle Ottawa's plant in Juárez. Four employees of the automotive-upholstery maker were killed and 17 injured, sending chills through the border town. Never before had employees of a U.S. factory been targeted in the drug-related violence that is sweeping the country.

This year alone more than 10,000 people have been killed in the inter-cartel drug war, according to Mexico's Reforma newspaper. Countless others have been involved in shootouts, kidnappings, and extortion. The violence is beginning to affect multinationals -- and not only on the border. "It's Al Capone and Tony Soprano doing whatever they want with little or no actual police interference," says Tom Cseh, deputy director of Vance International, a security firm in Mexico City. Among the recent reported incidents: Caterpillar ordered 40 American employees with children home after a drug-fueled shootout at a school in Monterrey earlier this fall; oil-services giant Schlumberger (SLB) said violence in northern Mexico hurt third-quarter earnings; and Canadian mining company Goldcorp (GG) plans to build a landing strip to fly gold out of a mine instead of hauling it on unsafe highways.

Foreign companies have long been thrilled to be part of the robust Mexican economy, with its cheap skilled labor. Even with the problems, which J.P. Morgan estimates are costing some 1.5 percentage points of GDP growth, 2010 GDP is expected to rise about 5%. "I don't see [violence] as a real downer for investments in Mexico," says Al Zapanta, CEO of the U.S.-Mexico Chamber of Commerce.

Still, even as Unilever (UN) plows ahead with the country's largest aerosol and deodorant plant outside Mexico City, the company admits it is facing challenges distributing products to the country's most affected regions. "It's not something you want to see," says CEO Paul Polman, "but we have dealt with it before."

Attitudes seem to be changing. A State Department survey of 220 U.S. businesses operating in Mexico, released in October, showed that 15% of them have postponed near-term investment. More than 75% of them said the violence threatens the long-term stability of Mexico. Not surprisingly, more than a dozen U.S. companies with Mexican operations refused to comment publicly on the situation. "We don't want attention," one executive told Fortune.

One place that concerns businesses is Monterrey. Two hours from the Texas border, it provides 8% of the country's economic output and is home to the likes of PepsiCo (PEP, Fortune 500) and General Electric (GE, Fortune 500). It also hosts some of the fiercest fighting. "No travel to Monterrey, even with armed security," was one response on the survey. Students of 1980s Colombia, where narco-wars decimated the country, say that Mexico still has a stable government and things must get much worse before companies scale back. To top of page

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