The cost of outsourcing manufacturing to China is beginning to level out with the U.S. This is leading companies to search for new places to set up shop and they are finding that our neighbor Mexico might just be the place (Cioppa, 2014). Mexico has many attractive attributes for new businesses moving across the border. For example, Mexico is much closer than China so businesses would save on transportation. Companies would also be able to monitor the manufacturing process much easier from the States (Cioppa, 2014). Mexico also offers significant savings in terms of labor costs as opposed to China (HSBC, n.d.). It’s not cheap labor. In fact, the population is filled with educated working-age people looking for new opportunities (Cioppa, 2014). With all of these appealing qualities why aren’t more companies moving over the border rather than overseas? Could it be the corruption that plagues Mexico each day?
Transparency International (TI) publishes a report each year that ranks each country on a Corruption Perception Index (CPI) and measures how corrupt each country is. On a scale of 0 (highly corrupt) to 100 (very clean), Mexico scored a 35 in 2014. The CPI ranks countries based on how corrupt their public sector is perceived to be. Mexico ranked 103 out of 175 countries. This score is worse than 2013 and has been continually declining (Transparency International, 2014). Forbes names Mexico as being among the world’s most corrupt nations in 2014 based on the report from TI. They report that the decline in rankings came by no surprise based on the many allegations of corruption in government, politics, business and banking this past year. Among the 31 countries of the Americas, only 10 ranked lower than Mexico. Mexico also ranked as the most corrupt among the OECD (Organisation for Economic Co-operation and Development) countries (Estevez, 2014).
With all of this corruption, how does it affect foreign businesses in Mexico? Bribery, colloquially referred to as “bites” or “mordida”, is a long-standing tradition. “Since the 1990’2 the government of Mexico has tried to change this behavior…and has found that this tradition is equally apparent in business as is just as difficult to eradicate” (Slab Watchdog, n.d.). In 2012, The New York Times published an investigative story about how the rapid growth of Wal-Mart involved systematic bribes. Read the full story here. The negative allegations hit Wal-Mart hard even though it was stated that bribery is a normal part of business in Mexico. In an NPR report about the accusations, financial journalist Eduardo Garcia states that it wasn’t shocking that the bribe happened, “it was a shock to see it out there in the public and being reported so extensively” (NPR, 2012). After being asked about bribery being a normal part of business Garcia responded “In Mexico, the culture of bribing to speed up certain requisites for you to open a business, it’s quite commonly done…so it’s almost part of your cost analysis when you do business in Mexico” (NPR, 2012).
There are countless reports about bribery and corruption in business in Mexico. Do the pros of doing business in Mexico outweigh the cons? It’s hard to say. For a smaller company, it may not be worth it to venture across the border. They may gain more affordable business costs and labor, but will the bribes even out their savings? For a large corporation like Wal-Mart, who can afford to play the game, getting the benefits of doing business just across the border could be worth it. What do you think?
References
Cioppa, D. (2014, August 18). HSBCVoice: 3 Reasons To Near-Source Your Business To Mexico – Forbes. Retrieved from http://www.forbes.com/sites/hsbc/2014/08/18/3-reasons-to-near-source-your-business-to-mexico/
Estevez, D. (2014, December 11). Mexico Among The World’s Most Corrupt Nations In 2014, New Report Says – Forbes. Retrieved from http://www.forbes.com/sites/doliaestevez/2014/12/11/mexico-among-the-worlds-most-corrupt-nations-in-2014-new-report-says/
HSBC. (n.d.). HSBC Global Connections — Helping businesses grow internationally. Retrieved from https://globalconnections.hsbc.com/us/en/tools-data/country-guides/mx/introduction
NPR. (2012, April 25). Are Bribes The Norm In Mexico’s Business Culture? : NPR. Retrieved from http://www.npr.org/2012/04/25/151339996/are-bribes-the-norm-in-mexicos-business-culture
Slab Watchdog. (n.d.). Doing Business in Mexico | SlabWatchdog.com. Retrieved from http://www.slabwatchdog.com/problem/mexico/
Transparency International. (2014, December 3). 2014 Corruption Perceptions Index — Results. Retrieved from https://www.transparency.org/cpi2014/results#myAnchor1
Leave a Reply
You must be logged in to post a comment.