When Businesses Relocate, It’s Not Mexico

Once upon a pretty short time ago, companies who were thinking of  outsourcing or building  new manufacturing plants considered Mexico a good idea.  And why not?   Labor is inexpensive, the weather is decent, and Mexican workers are diligent and competent.   There are advantages to locating factories in Mexico, thanks in part to the NAFTA agreement.   Mexico gives businesses easy proximity to the United States, so there is a reduction in shipping costs.

But now Mexico is consumed by a series of violent episodes as a result of the drug trade and resultant wars among the rival drug cartels.  Couple that with the Mexican Government’s attempt to crack down on the cartels, and the business climate down there is dicey at best.   With this being the case, according to a recent Wall Street Journal Article, many companies are limiting their investments in Mexico.   In some provinces business investment is way down.

Overall, the drug related strife, replete with murder, extortion, and kidnapping, has cost the Mexican economy upwards of $4 Billion in foreign investments. Executives are reluctant to consider jobs in Mexico.    The latest potential investor to decide to go elsewhere is Swiss Appliance manufacturer, Electrolux AB, who chose Tennessee instead of Mexico  for it its new plant.  Whirpool Corp decided against Mexico and will also install its new oven and cook-top plant in Tennessee.

The glass maker, Owens-Illinois, and heavy equipment manufacturer, Terex Corp.  have put on hold their plans for building new factories in Mexico.  However, other companies like Toyota and snowmobile manufacturer, Polaris, were still moving forward with their investment plans.

I have done a fair amount of research on the drug wars and the Mexican Government’s attempt to reduce the violence and corruption in that country.   To date, some 31,000 people have been murdered.  And then there is robbery, extortion, and kidnapping.  One American executive was kidnapped a few weeks ago.  None of this bodes well for continued investment.

I hate to see Mexico torn asunder by violence and corruption. The domination of the country by drug cartels is anything but good.    But, quite honestly, at the same time with America in an economic downturn,  I am gratified to see that corporations are investing money within the United States and hiring American workers for manufacturing and production jobs.   Considering the Recession and the state of domestic manufacturing, it is time more money was invested here so that new manufacturing plants can be installed and, perhaps, older plant renovated.   Instead of merely paying attention to outsourcing for the cheapest labor dollar, perhaps it is time to reflection long range planning and the repercussions of  chronic unemployment and a paucity of manufacturing right here within our borders.

Yes, labor may be more costly, but shipping is less, and if stability is a factor then few nations are as stable as conditions here.   Besides, if you want Americans to be able to buy the goods being manufactured, then it is necessary to provide jobs.

Sometimes, as evidenced by this situation in Mexico, things happen for reasons no one can ever predict.