Mexico Outsourcing: Violence Worries Rise

A surge in murders and other crime linked to drug trafficking is solidifying Mexico's reputation as a risky outsourcing site

By Rachael King

A spate of killings over five days in late January in Mexico served as a grisly reminder of the rising tide of drug-related violence just south of the U.S. border. On Jan. 20 there were three severed heads found inside a cooler in the city of Ju�rez in the state of Chihuahua. That same week private intelligence firm Stratfor tracked a string of incidents, including the deaths of a police officer and a federal agent. Then, on Jan. 23, at least 17 people were killed during a 24-hour period in Chihuahua state.

The escalation in violence that has accompanied the Mexican government's crackdown on drug cartels comes as more U.S. companies consider Mexico as an IT outsourcing destination—but it's causing some outsourcing consultants to question whether to relocate business elsewhere. "On a geopolitical level, we tell clients to be very careful about outsourcing to Mexico," says Ben Trowbridge, CEO of Alsbridge, a consulting firm that advises companies on outsourcing and related security matters. "In my opinion, Mexico is one step away from complete lawlessness."

Trowbridge is responding to anecdotal as well as statistical evidence of a lack of security in Mexico. He cites an incident in northern Mexico in December when a security adviser was kidnapped after leaving a conference where he'd spoken on the very topic of avoiding a kidnapping. The number of drug-related deaths rose to 4,000 in 2008, from 2,500 drug-related deaths a year earlier, according to the Council on Foreign Relations. Mexican newspapers including Reforma put the 2008 figure at above 5,000.

Outsourcing Demand Holds Up

Alsbridge isn't alone in calling attention to lawlessness in Mexico. The country was identified, in a worst-case scenario, as one of two that "bear consideration for a rapid and sudden collapse," according to the Joint Operating Environment 2008, a report on world security trends released by the U.S. military in December. The other state identified in the report was Pakistan. "The Mexican possibility may seem less likely, but the government, its politicians, police. and judicial infrastructure are all under sustained assault and pressure by criminal gangs and drug cartels," according to the report.

Companies that specialize in IT outsourcing in Mexico point out that the violence tends to be located in border areas and cite anecdotal evidence that demand for outsourced Mexican IT remains buoyant. "In my personal opinion, a collapse is quite an unlikely scenario," says Beni López, CEO of Softtek Near Shore Services, an IT outsourcing company headquartered in Monterrey, in the state of Nuevo León, south of Texas. Softtek also has centers in Aguascalientes, Ensenada, and Mexico City, as well as areas outside Mexico.

Last year, Softtek added 40 new clients, four of them Fortune 50 companies, López says. On May 22, Accenture (ACN) opened a second outsourcing center in Mexico, in Monterrey. Its first is located in Mexico City. Companies that send work to other countries have long balanced such risks as crime, geopolitical instability, or the potential for natural disasters with the rewards of low-cost labor.