At first, Gerry and Margarita Licon only saw the benefits of doing business on the US-Mexico border. Co-founders of Licon Engineering, a construction management and engineering services company, the couple expanded their business from two employees to 38 in their first seven years in business, and took their revenues to more than $5 million. It seemed like they had the best of both worlds. From their headquarters in El Paso, Texas, they had access to US government contracts with set-asides for minorities and small businesses. Across the border in Ciudad Juarez, they could tap low labor costs and an ever-growing customer base in the manufacturing sector.
Business was so good that they weren’t particularly concerned when drug-gang warfare sent the murder rate in Juarez skyrocketing. By early 2008, six or seven people a day were being killed. Gunmen riddled a pickup truck with 31 bullets, killing the driver and her 9-year-old girl passenger. A man kidnaped from his front yard in El Paso turned up dismembered in Juarez. Seventeen patients in a drug rehab center were lined up agains the wall and shot to death. The scale of the slaughter led Time magazine to dub Juarez “The Most Dangerous City in the Americas.”
Like many living and working in the border region, the Licons still didn’t think at this point that the crime wave posed a direct threat to them personally. The killings seemed to be strictly limited to those involved in the drug trade. But as the violence escalated, the criminality expanded. Kidnaping and extortion also became endemic.
And on an afternoon in March 2008, Gerry Licon experienced the dark side of Juarez for himself.
He was driving away from a building site when he stopped at a red light at an intersection. A man stepped forward and tapped on his side window with a gun. Another armed man opened the passenger side door. Both men climbed in and drove off with him. “They covered me with a black hood over my head,” Licon says, “and took me to a place where I could tell right away that there was a lot of other kidnaped people, because I could hear crying and screaming.” Trussed and pistol-whipped, he was forced to lie in his own feces for more than 24 hours.
Licon happened to have been driving a rental car with license plates from Illinois. His abductors apparently believed he must be a wealthy businessman from far away. Licon pleaded with them, assuring them of their mistake. “I probably did my best sales job ever,” he says. “I kept telling them, ‘I don’t have any family, I don’t have anybody to even call to ask for ransom money. I’m just by myself.’”
Finally the kidnapers decided to cut bait. They took Licon to an ATM, where he withdrew the maximum amount of cash: $400. They took the money and let him go.
AS JUAREZ’S MAELSTROM of violence enters its third year, the city remains, despite all the alarming news coverage, a vibrant economic engine for Mexico as a whole. Together with El Paso, it forms a symbiotically intertwined community of more than 2 million people — the largest bilingual, bi-national workforce in the Western Hemisphere. Billions of dollars worth of goods are manufactured here each year. But as the security situation continues to deteriorate, officials and business people on both sides of the border are wondering whether the opportunities will continue to outweigh the dangers. Is the battle against the cartels winnable? Can Mexican culture change enough to purge its legacy of corruption? Or, to put it in even starker terms: is Mexico in danger of becoming a failed state?
Forty years ago, when Juarez began its remarkable rise, today’s quagmire would have seemed inconceivable. In the ‘60s, the city was a quiet backwater of some 300,000. Everyone knew everyone else. Kids played soccer on the street until well after dark. American tourists strolled the streets, cameras around their neck, with little fear of crime.
The winds of change began to blow in 1962, when RCA opened a manufacturing plant on the outskirts of town. At the time, the concept was revolutionary: bring materials to Mexico duty-free, use Mexican labor to process it, and re-export the finished good. This kind of factory was called a “maquila” after the Spanish word for the share of grain a miller receives in return for grinding it.
By the 1980s the maquila sector was booming, and after the passage of NAFTA in 1994 it gained even more momentum. Today some 3000 maquilas operate throughout Mexico, generating a quarter of the country’s GDP. Juarez, with more than 150,000 employed in the sector, ranks among the industry’s busiest centers.
Its advantageous are manifold. El Paso and Juarez, having grown up alongside one another, together form a hybrid city that is both fully American and fully Mexican. Viewed from the popular vantage point on Scenic Drive in El Paso, the two metropolises sprawl between the surrounding hillsides in a continuum that looks all but seamless. Together, they provide the potential for manufacturers to offshore production costs without having to leave their native soil.
Managers can work in Mexico and return each night to a home life that’s fully American. Capital-intensive processes like metal stamping and injection-molding can take place on the US side, while labor-intensive work like assembly are better suited for the Mexico side. When the work is complete, integrated rail and highway networks stand ready to carry finished products to both the eastern and western US.
“Juarez isn’t about labor costs, it’s about production costs,” says Richard Dayoub, president of the Greater El Paso Chamber of Commerce. “Manufacturers can take advantage of just-in-time production methods, instead of having to send their goods over an ocean via container ships.”
As the borderplex grew, workers poured in from all over Mexico. Dusty desert gave way to sprawling factories; isolated villages became teeming neighborhoods. Full employment meant that not only husbands and wives, but every adult child still living at home also could expect to find a good-paying job. “We have the highest standard of living, by family, in Mexico,” says the mayor of Juarez, Jose Reyes Ferriz.
Unfortunately, the blessings of geography and infrastructure that made the region so amenable to legitimate business were equally appealing to less savory enterprises. In the late 80s, as “Miami Vice”-era enforcement shut down traffickers in south Florida, the drug trade shifted to Mexico. Today, says the FBI, 60 percent of all illegal drugs that enter the United States do so through the El Paso corridor.
For a long time, the influx rolled merrily along, unmolested by interference. Government officials had reached an understanding with its domestic drug cartels so that each side was able to go about its business peacefully and profitably. The arrangement was understood at all levels of Mexican society. “There has always been drug smuggling and violence in Mexico,” says Luis Garcia, a recently retired director of field operations for U.S. Customs and Border Protection who now offers security consulting to companies doing business across the border. “But it was managed. It never became a public spectacle.”
By 2007, however, a growing level of affluence in Mexican society meant that the country was no longer just a transit route. Mexicans were becoming drug consumers, as well. And that changed the dynamic of the relationship between the government and the cartels. When Vicente Fox broke the ruling PRI party’s 71-year stranglehold on power by being elected president, he began taking on the drug lords. His successor, Felipe Calderón, went even further, committing 20,000 troops from the army and the federal police to action in key hotspots across the country.
With the old order thrown into disarray, the largest and oldest syndicate, the Sinaloa cartel, moved in on the turf of the rival Juarez cartel. Murders surged from 300 in 2007 to 1600 in 2008. (This year, they will likely top 2100.)
The Mexican government doubled down, sending more than 5000 army troops and federal police officers to reinforce the city. Jose Reyes Ferriz, the newly elected mayor of Juarez, demanded that all of the city’s police officers undergo an integrity test, which included polygraph testing. Nearly three-quarters wound up leaving the force.
Yet crime only got worse. “It was like Bush firing the Iraqi army,” says one maquila manager. “All of a sudden, you had a lot of former police officers on the street, looking for a way to make a living.”
Among the opportunities they discovered were kidnaping and extortion. “The policemen who were fired, those were the ones who kidnaped my husband,” says Margarita Licon.
Suddenly, the violence wasn’t limited to drug traffickers anymore. The danger was everywhere. A manager at the Lear Corporation maquila was kidnaped and held for five days. An American manager at Delphi, driving across the border early in the morning en route to her job in Juarez, was chased by a car full of gunman. Unable to guarantee the safety of foreign personnel, companies began to pull them out. All the American executives attached to the Lear maquila now work from El Paso.
To make matters worse, the upsurge in violence was soon followed by a dramatic collapse of the American automotive sector, which for decades had been lynchpin of the local maquila industry. Jobs started to evaporate. Then came the swine flu, in an epidemic that killed scores of people and brought the Mexican tourism business to standstill. Crime, recession, plague: Nobody could say which horseman of the apocalypse was most to blame, but things were looking grim. Not only did Mexico seem dangerous, but worse, it was looking like a bad place to do business.
ON A SUNNY FALL day midway through a week in which nearly 50 people were murdered, a stroll through downtown Juarez reveals what seems to be a prosperous and peaceful city. In the downtown area, shoppers bustle along pedestrian streets thickly lined with stores. A few blocks away, a phalanx of police officers stand at attention in the bright morning sun, surrounded by a crowd of relatives and clusters of soldiers wearing flak jackets and carrying M-16 rifles. A small marching band plays an anthem, and then Mayor Ferriz gives a speech of congratulations.
The ceremony marks the induction of a latest class of newly graduated recruits into the Juarez police force. With this batch, the mayor has achieved his goal of reaching a police force of 3000, three-quarters of them recruited and trained within the last 18 months. This re-staffing is an attempt to radically re-start the culture of policing in Juarez. Professionally trained, the new officers wear distinct uniforms to set them apart from the old, distrusted police force, and are the only police force in Mexico authorized to carry and use automatic weapons.
“When the trouble started, police officers would hide. I had a hard time getting patrol cars to leave their stations,” says Ferriz. Now, he insists, “There’s still a war on, but we’re better prepared to fight that war.”
Many businessmen believe him, and profess optimism about the future. “Over 40 companies right now are looking at starting up operations in Juarez,” says Bob Cook, president of the El Paso Regional Economic Development Corporation. Some are more than looking. Foxconn, the world’s largest manufacturer of videogame consoles, opened a plant this summer with 3 million square feet of space and hired 7500 workers.
Manufacturers interested in offshoring their production, but wary about setting foot in Juarez, can turn to so-called “shelter operations” that can put together production facilities on behalf of clients, renting space and hiring workers under the umbrella of its own legal status. On a recent visit to one such company, MFI International, workers were clustered around sewing and cutting machines in the company’s 50,000 square foot maquila, assembling goods for a dozen different customers, including Tempur-pedic mattresses and Snaptotes custom handbags. Despite Juarez’s reputation for chaos, “not once has our operation been impaired by the violence,” says director of operations Armando Sanchezcastellanos. “I don’t have any bullet holes in my trailers.” Indeed, in the last two years, MFI’s business has grown by 35 percent.
For boosters like Bob Cook, the safety issue in Juarez has been blown out of proportion. “Juarez is a major city, one of the largest cities in North America,” he says. “And if you’re doing business in Juarez, and take the same kinds of precautions that you would in any major city. You don’t travel at night, you travel in numbers — there are a lot of common sense things to do.”
Gerry Licon, for his part, now takes his safety precautions very seriously. He says that after his kidnapping he no longer never drives solo around Juarez, preferring to walk across the border on a pedestrian bridge and meet an employee, who then drives him around. “As long as there are several people in the car, the kidnapers won’t bother you,” he says. To prevent drawing the attention of criminals, the Licons have removed their company’s logo and phone number from the sides of their trucks.
They also steers clear of certain parts of the city. Indeed, Gerry and Margarita Licon no longer visit one of their company’s two facilities in Juarez. “It’s in a dangerous area,” Margarita explains. “There’s a lot of killers around.”
The warfare has dragged on so long that many who live in its shadow have lost hope that the government will ever prove capable of gaining the upper hand. The more the cartels kill each other, the more deeply their blood hatred of one another becomes. The more their conflict visibly calls into question the integrity of the Mexican government, the more fiercely its politicians vow to keep struggling. And so the violence spirals onward. “It’s bad, and it’s getting worse every day,” a mayoral aide says privately. “A lot of businessmen are running away.”
The best option, some say, is to return to the status quo ante – to recognize that, even if unsavory, the prior unofficial accommodation between the government and the traffickers was mutually profitable. “In my view, if you want to shut down the violence in Juarez, you would have to go back to the way it was before,” says Luis Garcia.
Garcia admits that such a move might be politically impossible. The national government of Mexico staked its credibility on winning the war in Juarez. But just as the US government has been forced to face up to its limitations in its wars in Iraq and Afghanistan, the Mexican, government, too, might someday need to admit that its capacity to endure bloodshed is ultimately limited.
There has been a precedent for such an accommodation. Five years ago, the city of Nuevo Laredo, 500 miles to the southeast, was experiencing the same tidal wave of violence that Juarez is experiencing today. Gunmen murdered the chief of police hours after he was sworn in and attacked the newsroom of the city’s largest paper. But eventually the parties involved decided that the violence had became too costly. In 2007 the cartels forged a peace treaty, with the Sinaloa cartel agreeing to pay the local gang a tax on drugs it ships through its territory. It’s widely understood that the government, too, gets a cut. “You cannot have a city like Laredo without a cartel,” said the city’s mayor.
For now, the war in Juarez continues to rage, and the people living and working there do their best to adapt to their new reality. Gerry and Margarita Licon manage their construction and engineering mostly from El Paso, minimizing the amount of time they spend across the border. And when they do go to Juarez, they’re a lot more alert to danger.
This past September, Gerry Licon was driving away from his favorite taco stand in Juarez when an unmarked car abruptly pulled in front of him and stopped. Two men wearing police uniforms got out and started walking toward him.
I’m not going to take this any more, he thought. I don’t want to go through what I went through before. He hit the gas, steering around the other car. He knew that if they were real police officers, they would chase after him, and at most fine him or throw him in jail.
Foot on the accelerator, he barreled past four stop signs. He figured that if a car came in from the side and smashed into him, that would still be better than getting taken by kidnapers.
Reaching the border highway that runs along the channel of the Rio Grande, he turned right. Looking in his rearview mirror, Licon saw that his hunch had been right after all. “They weren’t behind me any more,” he says.
And so he drove home once more to El Paso, happy to be safe once more.
[This story was originally written for Fortune Small Business magazine.]