Global Supply Chain Threats: Impacts to Multinational Corporations

Track and monitor exogenous threats to the corporate supply chain so that corporations can make proactive decisions to mitigate threats. How STRATFOR Looks at Supply Chain

Types of Supply Chain Threats Terrorism and Insurrection Crime Political and Regulatory Environment Labor Unrest and Action Natural Disasters International Frictions Nongovernmental Organizations

Mexico: A Case Study The U.S. is Mexico's largest trading partner Large hub for U.S.-based multinational corporations – Manufacturing and retail clients Great concerns about Mexico’s security environment impacting business operations and supply chain

Terrorism and Insurrection Medium risk Domestic security threats arising from insurgency or terrorism – home to several rebel movements, including the Zapatista Army for National Liberation and the Popular Revolutionary Army (EPR) operate mostly in the southern and southeastern regions Potential for specific attacks against foreign interests – History of attacks against financial and energy targets although frequency has decreased in last year. Drop in such activities in last couple of years. Cartel war has dominated security threat environment.

Crime Environment High risk Critical level of organized criminal activity—drug cartels control supply chain routes Great potential for theft and violence – Number of deaths steadily increasing since – 15,000 deaths associated with organized crime in 2010, according to Mexican government. Organized crime pervasive throughout society, politics and security Police and security forces face severe challenges when attempting to counter threats—death threats and corruption.

Mexico’s Cartel War

Political and Regulatory Environment Low risk Regulations are clear and enforced Friendly attitude toward foreign investments and operations— ex. NAFTA President Calderon is seeking policies to encourage increased transparency from the government and government-owned businesses. However, economic transparency and rampant corruption remain a challenge.

Labor Unrest and Action High risk Organized labor at local and national levels is strong, is present across companies and industries, and has a powerful political voice. Labor strikes are common, although usually quickly resolved through negotiations Strikes create security disruptions—road blocks; violence sometimes employed

Natural Disasters High risk High rate of seismic activity Both the Pacific and the Gulf/Caribbean coasts are affected annually by tropical storms and hurricanes, which can lead to disruptions in harvests and distribution Seasonal floods are possible in the south Droughts throughout the south and the Baja Peninsula are possible Infrastructure is relatively extensive and well-developed, although roads are often of lower quality in interior, posing some challenges to disaster response

International Frictions Low risk Positive economic, political and military relations and interactions with other nations – More free trade agreements than any other country Low chances for disputes to take on a more concrete form, although increasing tension along the U.S.-Mexican border – Most disputes relate to issues such as drug trafficking, illegal immigrants and immigration agreements – Concerns about spillover of violence

Mexico: Nongovernmental Organizations High risk NGOs have significant political impact – Examples: Roman Catholic Church, worker and peasant groups and foreign NGOs that are inclined toward socialism and anticorruption groups NGOs have targeted trade in the past and can generate international support for their issues New anti-violence organizations are putting increasing pressure on the government through public gatherings and marches

Reactions of MNCs to Supply Chain Threats Many MNCs continue to operate and invest in Mexico due to low labor costs, despite critical security threats, seeking third party consultants due to concerns amongst shareholders or Board. Concerns over increasing foreign presence in the line of fire Increasing operational costs to guard against/react to organized crime threats – Cost-benefit analysis Need for proactive intelligence and countersurveillance to stay ahead of threats and keep costs down

For more information, please contact: Fred Burton (512)