Trends Column / Security Leadership and Management

Is There a War Dividend?

During the recent federal government budget debates, the “peace dividend” of the 1990s was mentioned a few times. Does the U.S. get a “war dividend” in the risk/reward decision of business location and expansion?

By war dividend, I simply mean the country’s significant investment in defense, homeland security and state and local investment in emergency services. Are companies regretting locating in Mexico, for example, as drug violence and corruption there cause risks and costs to escalate? According to an article in the New York Timeson July 11, 2011, the answer is, “No.”

Some of the “business before people” sections of the article bear repeating:

Despite the bleak outlook the drug war summons, the Mexican economy is humming along, not without warning signs, but growing considerably faster than that of the United States.          

Even as drug organizations battle for turf around them, more TV sets are being assembled, car parts boxed up and electronic widgets soldered together in the large manufacturing plants here known as maquiladoras. The result is a boomlet in jobs in some of Mexico’s hardest-hit cities, a bright spot in an otherwise bleak stream of shootouts, departing small businesses and fear of random death.

The article also quotes a local economic development official that business, does indeed, come first:

Business is business, and the proximity to the United States is hard to pass up. The rising cost of labor, transportation and the renminbi have made some companies reconsider Mexico instead of China, he contended. Despite several murders a day, trade between Juárez and Texas rose 47 percent last year to $71.1 billion, he said.

The person quoted by the New York Timesis Bob Cook, the president of the El Paso Regional Economic Development Commission, which helps recruit businesses to Ciudad Juárez, which he says is Mexico’s most violent city. (Juarez is actually the world’s most violent city, averaging more than 2,000 murders each month.)

And to drive the point home, the article documents how global company Electrolux swapped the relative safety of Iowa for the risks of Mexico:

Some of the new or expanding plants come at the expense of plant closings in the United States. Electrolux, which makes washers, dryers and other home products, closed a plant in 2009 in Iowa but opened one in Juárez last month that is expected to employ 400 people.

When you’re doing business in Mexico you don’t have to stay on your toes worrying about client visits to your facility. One executive quoted in the article notes that most customers pass on that opportunity, citing the violence as their reason.

Is the U.S. wasting time and money keeping Iowa safe from terror, drug lords, cartels and shootouts? Is the superior investment in police, fire and emergency services justified in dollars and cents? Would Iowa’s economy be better without its security infrastructure? After all, Iowa’s trade with Texas did not jump 47 percent last year. I asked Lynn Mattice, whose firm, Mattice and Associates, works with companies to better understand and manage the scope of the risks, threats and hazards they face in today’s complex global environment, to share his expertise.

 

Security: Does the U.S. get a “War Dividend”? 

Mattice: “I believe we are starting to see major corporations re-examining their outsourcing decisions of the past. CEO’s are starting to understand that the short term gains that were enjoyed with the blind rush to off-shoring has come at a significant price….massive losses of intellectual property, local government pressure to cover increasing costs of government sponsored social programs, along with rapid increases in wages and benefits for the work force. Top that with increased risk from terrorism, extensive losses associated with natural disasters…particularly in environments where the local infrastructure is unable or incapable of responding to a disaster and the associated recovery process. In the end, a number of companies have started a process of repatriating processes and jobs back into the U.S., but it is a slow and arduous process.”

 Security:Is there a “Do Business in the USA” message that is economically measurable but not being articulated related to risk?

Mattice:“Many companies I have spoken with are regretting the decision to move manufacturing to Mexico, as well as some other high-risk countries. Some are seriously considering repatriating some plants back to the U.S. Couple this to the Security and Exchange Commission focusing a new level of enforcement on FCPA violations.”

Security:How do you look at the situation/metrics for supplementing international security and emergency services versus available public services in the USA?

Mattice:“Most major corporations are starting to deploy much greater levels of due diligence in their analysis of off-shoring decisions…and also in their expansion decisions. Many factors now roll up into the decision matrix when it comes to building new plants and expanding into new markets…a broad scope of risk points are being added in the equation that many times were simply overlooked in the past. Those include regulations, infrastructure, logistics, supply chain and intellectual property protection.

And so I ask you: How is your organization factoring the “war dividend” into business location decisions? Please let me know at mccourtm@bnpmedia.com

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