Pubdate: Fri, 17 Dec 2010
Source: Wall Street Journal (US)
Copyright: 2010 Dow Jones & Company, Inc.
Authors: Nicholas Casey And James R. Hagerty
Note: Jose de Cordoba, Paul Kiernan and Dana Mattioli contributed to 
this article.


Unrest Deters Electrolux, Whirlpool, Others Who Have Considered New
South-of-the-Border Plants

MEXICO CITY-Growing numbers of companies are deciding to limit their
investments in Mexico because of spiraling drug-related violence in
one of the world's most important emerging markets.

The latest is Swedish appliance maker Electrolux AB, which said
Thursday it had chosen Memphis, Tenn., over locations in Mexico for a
$190 million appliance factory that will employ 1,200 people.

The decision involved a host of factors, including proximity to
component suppliers, distribution centers and another Electrolux plant
in Springfield, Tenn. But Mexico's deteriorating security also played
a role, the company said.

Mexico continues to lure foreign investment with its low wages,
location next to the U.S. and the advantages of the North American
Free Trade Agreement.

One of the U.S.'s largest trade partners, Mexico attracted $14 billion
in foreign direct investment in the year's first nine months, up 20%
from a year ago, according to government figures. And some of Mexico's
biggest investors, including Wal-Mart Stores Inc., are maintaining
their investment plans.

But fights between rival drug cartels have claimed more than 31,000
lives in the past four years, including more than 11,000 this year.
Other crimes like robbery, extortion and kidnapping also have climbed.
For some companies, particularly those that don't yet have operations
south of the border, the violence has become daunting.

"We won't put a factory in Mexico until some of this violence gets
addressed," said Ron DeFeo, chief executive of Terex Corp., a
Westport, Conn., maker of construction cranes and other heavy
equipment. "We just can't put our people at risk."

Mr. DeFeo said Terex has looked closely at building plants in Mexico
but decided to hold off for now.

Owens-Illinois Inc., a Perrysburg, Ohio, maker of glass food and
beverage containers, is also wary.

"We have been monitoring the Mexican market for a few years now,
looking for the right opportunity to directly enter that market," said
spokeswoman Stephanie Johnston. "The escalating violence has led us to
be more cautious. We take the safety and security of our employees
very seriously."

Concerns about safety in Mexico were a factor in a decision by
Whirlpool Corp. earlier this year to build an oven and cook-top
factory in Cleveland, Tenn., rather than in Mexico, Alan Holaday, vice
president of North American manufacturing and quality, said in a
recent interview. Security was only one of several factors in the
decision about the plant, which will employ more than 1,600 workers,
he said.

Drug-related violence in Mexico probably cost the country some $4
billion in foreign direct investment this year, estimated Gabriel
Casillas, J.P. Morgan's chief economist for Mexico.

Crime has also spooked foreign executives. Jim Davis, a managing
director at Russell Reynolds Associates, an executive-recruitment
firm, said he recently conducted a search for a pharmaceutical company
seeking a top manager in Mexico City.

"A lot of the folks would say, 'My wife would not be in favor of us
moving down there at this time,'" Mr. Davis said. "I think the fears
are a little bit overblown but the reality is that's what people are
reading in the newspapers and seeing on TV."

While foreign direct investment is expected to be slightly up in
Mexico this year, the figures were boosted by the $5 billion takeover
of the beer business of Fomento Economico Mexicano SAB by Dutch brewer
Heineken NV. That deal won't include typical investment benefits like
construction of factories and creation of jobs in Mexico.

Stripping out the Heineken-Femsa deal, Mexico's foreign investment
numbers begin to look less healthy, said Mr. Casillas. Moreover,
companies usually plan investments far enough ahead that this year's
dramatic increase in violence will probably only show up in next
year's numbers.

In Mexico's violent border regions and troubled interior states of
Durango, Sinaloa and Michoacan, foreign investment has dropped to
roughly $1.9 billion in 2010 from an average of about $5 billion a
year from 2005 through 2008, excluding the Heineken-Femsa deal.

Concern about violence is leading to "a lot of caution around future
growth plans," said David Speer, chief executive officer of Illinois
Tool Works Inc., a big industrial conglomerate based in Glenview, Ill.

Mr. Speer said some companies that buy products from ITW units have
delayed projects in Mexico due to security concerns, though he
declined to name any projects.

Violence has spread to parts of the country formerly seen as "immune"
from such problems, he said.

Some global companies are making investments deeper in Mexico's
interior to avoid the violence. Japanese car maker Toyota Motor Corp.,
for instance, is building a plant in the state of San Luis Potosi.

Others are adapting. A truck operated by Ryder System Inc., a trucking
and logistics company, was intercepted in August in Monterrey, Mexico,
and the driver was forced out by gunpoint, said Bill Anderson, group
director of global security. Earlier in the year, Ryder trucks
carrying consumer electronics for a customer were hijacked, he said.
Ryder has implemented new rules in response. Since September, shift
changes occur during daylight and the company beefed up its travel

Some firms are carrying through with new investments despite the

Polaris Industries, a maker of snowmobiles and all-terrain vehicles in
Medina, Minn., plans to open a 425,000 square-foot facility in 2011 in
Monterrey. Still, the company is taking precautions like attaching
tracking devices to company cars and hiring armed guards to patrol the
site, said Suresh Krishna, company vice president of operations.

Jose de Cordoba, Paul Kiernan and Dana Mattioli contributed to this
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MAP posted-by: Jo-D