How the Globalization of Mexican Business Helped Spread Crime
By: Analysis | Stratfor.comOctober 23, 2018
Highlights
The same factors that attracted globalized business to Mexico make the country attractive to globalized organized crime.

As a result, organized criminal activity has come to mirror and even piggyback off Mexico's legitimate transport infrastructure and logistical nodes.


The growing power of organized crime and its diversified criminal activity has led to widespread violence, negatively impacting the legitimate economy. 


Recently, I found myself explaining to a client how illicit goods flow into and through Mexico and then onward to the United States, and it occurred to me that there are many logistical similarities between Mexican transnational criminal organizations and the countless manufacturers operating in Mexico. After further consideration, it became clear that many of the factors that make Mexico an attractive destination for foreign businesses also make it attractive for criminal enterprise. It is no mistake that the pieces of real estate that Mexican criminal groups fight over often directly overlap with major logistical and production nodes of the traditional economy. In many ways, Mexico's globalized criminal landscape is a mirror of its globalized legitimate economy — and they have both been growing in power.

The Market

The U.S. consumer goods market is the largest in the world. The United States has a gross domestic product of over $19 trillion, and U.S. household spending is the highest on Earth, accounting for nearly a third of global household consumption. The strong demand for consumer goods — such as automobiles, electronics and other items — combined with the economic benefits of various free trade agreements triggered a massive expansion of the manufacturing industry in Mexico. Thanks to Mexican law and trade agreements, foreign-owned manufacturing facilities in Mexico, known as maquiladoras, can import components, raw materials and equipment free of duties. Furthermore, because of deals such as the North American Free Trade Agreement (NAFTA), maquiladoras and other manufacturers can export goods to the U.S. market without paying typical duties. Additionally, the cost of labor in Mexico is only 15 to 25 percent of what it is in the United States.

The U.S. market for illicit drugs is also the largest in the world. And while there is no free trade agreement that permits the flow of drugs and precursor chemicals into Mexico, the huge number of legitimate components and raw materials flowing through Mexico's ports presents ample opportunities for smugglers to conceal finished drugs and chemical precursors. Unfortunately, pervasive corruption facilitates the relatively free movement of contraband once it enters Mexico. 

Transportation Networks

The ability to manufacture items in Mexico would not be as attractive if there were not quick and efficient ways to transport those finished goods into the United States. Fortunately for producers operating in Mexico, the country's transportation networks have evolved in such a way as to sync-up almost seamlessly with the rest of North America. This connected highway infrastructure has resulted in the U.S.-Mexico border becoming the busiest land border in the world. Some $1.45 billion in legal trade crosses it every day. Approximately 6 million cars, 440,000 trucks and 3.3 million pedestrians transit from Mexico to the United States every month, utilizing any one of 27 land crossing points that exist between the two countries.

And, despite the political rhetoric surrounding border security, the vast majority of narcotics flow through legitimate ports of entry, hidden within streams of legal cargo inside tractor-trailers and cars rather than being hauled through remote areas of the desert. The importance of border crossings for moving narcotics is illustrated by the way the cartels expend blood and effort to seize and maintain control of them. They are worth fighting for because of the economic gain that comes from controlling what flows through them. As well as being able to regulate and smuggle homegrown illegal goods, cartels levy a tax (called a "piso") on others who want to move contraband through the border crossings they control. That is why we continue to witness bloody fights for control of the Tijuana, Juarez and Reynosa plazas.

Of course, this illicit commerce flows both ways across the U.S.-Mexico border, and the stream of auto parts, raw materials and other goods coming south from the United States and Canada to Mexican manufacturing centers provides an opportunity for criminals to smuggle bulk cash and weapons from the United States into Mexico.

Meth Maquiladoras

One industry that has fully embraced the maquiladora concept is the electronics manufacturing sector, specifically from the Asia-Pacific. In the maquiladora system, electronic components manufactured overseas flow through Mexico's ports and are transported to factories where companies such as Sony, Sanyo, Samsung, Foxconn and others assemble them into finished products that are then shipped north for sale in the United States.

Mexican manufacturers of illicit synthetic drugs and their Chinese partners have copied this system. Precursor chemicals are shipped from China to Mexican ports where they are then forwarded to criminal organizations such as the Cartel de Jalisco Nueva Generacion (CJNG) and the Sinaloa cartel, who then use these chemicals to synthesize methamphetamine and fentanyl in makeshift factories. The drugs are then smuggled into the United States for retail sale. In the case of methamphetamine, it wasn't a free trade agreement that led to an increase in the manufacture of the drug in Mexico, but a series of law enforcement and regulatory actions in the United States that resulted in the shuttering of large-scale meth labs in California's central valley, while also making meth precursor chemicals more difficult to obtain in the United States.

The import of precursor chemicals provides an additional reason for criminal organizations to control the ports. The groups that have profited most from the synthetic drug trade, such as the CJNG and Sinaloa cartel, have a strong presence on Mexico's Pacific coast where the important ports of Manzanillo and Lazaro Cardenas are located — in fact, the CJNG first came to our attention when it made a heavy push to establish control of the port of Veracruz. This has given the coastal organizations a distinct advantage over their competitors.

Beyond Maquiladoras

Of course, maquiladoras and other manufacturers aren't the only industry that has an illicit twin. There is an interesting parallel between the Mexican avocado industry — primarily based in Michoacan, Jalisco, Nayarit, Guerrero and other Tierra Caliente states — and the Mexican opium poppy production in those parts of the country. Although opium poppies actually have a wider growing range, and production of opium gum extends farther up the Sierra Madre Occidental, the flow of processed opium is similar to that of the avocados and we have observed instances of drugs being smuggled in shipments of avocados.

There has always been crime, and organized criminal groups, in Mexico. However, the globalization of crime over the past four decades has provided Mexican criminal groups with the resources to become the extremely powerful and dangerous organizations they are now. The influx of cash Mexican criminals received from partnering with Colombian organizations to traffic South American cocaine into the United States was the impetus that began the dramatic growth of the Mexican cartels. It provided them with the cash to buy properties, vehicles and front companies to assist their smuggling operations. It also afforded them the opportunity to hire professional enforcer groups and purchase military-grade weapons and equipment. The vast amount of money the Mexican cartels made in the drug trade also provided them with the ability to weave an intricate web of corruption that has impacted all levels of government in Mexico.

Later waves of crime globalization happened when Chinese criminals began to ship massive quantities of precursor chemicals to Mexican organizations producing methamphetamine. These same connections would later help Mexican criminal groups dramatically expand their production of fentanyl. Another opiate-related example of criminal globalization was the emergence of Colombian chemists and agronomists who helped Mexican organizations improve and dramatically expand their heroin production. Today, the Drug Enforcement Administration estimates that Mexican heroin accounts for more than 90 percent of U.S. supply.

But the cartels are not involved only in drug production and trafficking. They are also involved in a wide array of crimes, many of which impact the legitimate economy. Cargo theft from trucks and trains and illegal petroleum siphoning are growing at an alarming and exponential rate in Mexico. Like the growing violence between Mexican criminal groups, other forms of criminal activity are serving to constrain the growth of the Mexican economy. While the effects of the globalization of legitimate business have resulted in an economic boom in Mexico, globalized criminals are having an adverse impact on the Mexican economy. While it is difficult to find accurate numbers to quantify the toll that kidnappings and extortion are taking, it is significant — as is the cost of security to protect against such threats. The Mexican Employers' Confederation (COPARMEX) estimates that 40 percent of its member companies have been victimized by crime and that members spend between 10-12 percent of their corporate earnings on security. It is also hard to quantify all the investment that has not happened because of the criminal threat. However, the crimes that we can better quantify — petroleum theft is costing the state-owned oil company Pemex some $1.6 billion a year and road and rail cargo theft totaled over $4.7 billion in 2017 — are clear indicators of the adverse impact crime is having on Mexico's economy. 

How the Globalization of Mexican Business Helped Spread Crime is republished with permission from Stratfor Worldview, a geopolitical intelligence platform.

TagsCartelsDrugsMexicoU.S.
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