Tim WilsonEstablishing business operations in Latin America has great appeal; the majority of countries in the region have stable, market-friendly economies with improving infrastructures and affordable, educated workforces. But foreign investors often have security concerns, and they can be challenged when assessing the resources needed to keep their human and physical assets safe and sound.
“The security spend for a company in Latin America is in the order of two percent to four percent of operating cost,” says David Robillard, a former country manager for Kroll Associates in Mexico. “It will all depend on how the need is defined.”
Robillard, who is now the Mexico City-based president of reputational due diligence and background check company MuliLatin, says that assessing key personnel is a must, particularly those involved in finance and logistics. However, in Latin America some jurisdictions are in better shape than others.
“For example, in Mexico some states won’t release criminal or police records information for employment clearance because it is considered discriminatory, though I must emphasize that, overall, Mexico is on the forefront,” Robillard says. “And in Argentina there is legislation that makes it very difficult to get either criminal or litigation history, whereas in Brazil our sense is that that kind of information is more readily available.”
Outsourcing Risks
Where there is greatest exposure, says Robillard, is when companies outsource their operations to third parties that aren’t up to scratch. That in itself requires due diligence for compliance, which is sometimes lacking.
“Who are you outsourcing your business processes to? That is definitely a weak area,” he says. “So many companies have outsourced their data processing and call centers, but they don’t know who is handling that sensitive data.”
But the situation in Latin America appears to be improving, in large part due to the requirements of specific business sectors which require a high degree of accountability. This runs deep into an organization, covering third party engagements where there might be risk exposure.
“We are seeing a lot more focus from third party, regulated industries,” says Robillard. “The leaders in background screening are the banks, followed by the major logistics companies. So, this includes trucking companies and things like bonded warehouses – in the past two years there has been a great improvement in diligence when it comes to screening.”
That can be a challenge in more rural areas where the construction of a plant or the development of a mine might fall prey to extortion. A large multinational might not experience it directly, but such practices could be imbedded in the supply chain, with local smaller companies unable to withstand the pressure. This is a risk that inflates costs and can affect operations.
“Security is not a deal-killer for most foreign companies in Mexico,” says Robillard, “but investments in the automotive sector have been moving from the north of the country to the interior, particularly Querétaro and Guanajuato, and I think a major reason for that is security.”
The advantage of these locations, and other low-risk areas in Latin America, is that an initial capital investment in security infrastructure can then bring savings over the long haul, with a company not having to hire armies of security personnel or ad hoc technologies and processes, which then add to on-going operational costs.
Finding the Right Personnel
In Latin America it is common to see security personnel standing guard outside banks, office buildings, and even lower-end retail chains. Some are well-trained. They have been checked, and work for respected companies. Many, however, are former soldiers or police officers who might themselves pose a risk.
“Clearly, small and medium size businesses who are paying guys to stand outside with shotguns are not paying top dollar,” says Walter McKay, a security consultant who helped create Mexico’s first national police accreditation program. “Many businesses will hire the cheapest people they can. If they are being paid five or ten dollars a day it’s just for show.”
That is clearly not an option for a multi-national with a serious investment on the ground. At the same time, hiring top-level security personnel can be prohibitively expensive, which means that the best approach is often to invest in the right infrastructure, while making sure that your people on the inside are trustworthy.
“Unfortunately, though a top tier company is trustworthy, with second and third tier security providers the line between the criminal element and the security staff can be pretty fine,” says Robillard. “The most effective companies have their eyes and ears open, and a staff that communicate well. People in community relations, in HR, and of course the security team – those three need to be talking to each other on a regular basis and sharing notes.”
Having people with local knowledge is a huge asset, with some areas – or even entire countries – requiring a degree of diligence that can kill a business case. For example, global business advisory firm FTI Consulting recently came out with its “2014: Public Insecurity in Latin America” report, and ranked Venezuela, Honduras, and Guatemala as being at the highest danger level, and with a worsening trend. FTI Consulting ranks Mexico at its top danger level, too, though it was cautiously optimistic with regard to positive change – a view shared by Robillard, particularly with regard to corporate best practices.
“Unlike in Colombia and Argentina, for a time Mexican companies had fallen behind in terms of the quality and depth of management who could deal with security,” says Robillard. “But now many companies have chief security offers who can speak to senior management and boards of directors. These are executives who understand security in terms of liability and brand protection.”
Be Prepared
One challenge over the years is that many organizations have been reactive: they only act after a security breach, and often spend a disproportionate amount of resources on bodyguards for top executives, rather than taking a systemic approach.
“Many organizations will have the minimum investment until something happens,” says McKay. “Then they will ramp it up, and the CEO will get increased protection. But this is often for appearance, with the upper management spending a lot of money on themselves.”
At other times, a company is well aware that it needs to up its security spend from the get-go to get the job done. That might be because they have to operate in a risky area – or even just during a risky time of year.
“In the mining sector, for example, some people will invest in their own air fleet to move their people in and out of remote areas, because travelling by land is considered too risky,” says Robillard. “And security spend can fluctuate for certain consumer products, with high end gourmet foods tending to have a higher degree of cargo theft around Christmas and Easter.”
Given all these factors, the benchmark spend would seem to be quite elastic. Businesses in Uruguay, Chile, and Costa Rica, for example, which rank as the safest countries in FTI Consulting’s report, are not going to spend the same as a foreign mining company trying to operate in the conflict-ridden state of Guerrero, Mexico. There are also sectors where not only the worker, but also the consumers are at higher risk.
“What most concerns us are the people who are the most vulnerable,” says Robillard. “Mexico is developing an industry in medical tourism, and insurance companies are sending patients here, but according to our studies the education and health sectors are really behind in carrying out screenings.”
Clearly, having someone check a box to get papers in order is not sufficient, but neither is there a need to go overboard. Different jobs need to be assessed with a different degree of diligence, depending on whether a person is handling the money, if they are gatekeepers or security staff, or if they are a subcontractor. And of course location matters, too. All these factors add up to a business case for a security spend that keeps human and material assets secure, and gets the job done.
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