Strategic Management of Narco-Trafficking Organizations in Latin American Countries and Mexico - Case Study Example

Strategic Management of Narco-Trafficking Organizations (NTOs) Name: Tutor: Course: Date: Introduction Narco-trafficking organizations (NTOs) undertake drug trafficking operations in some Latin American countries and Mexico. In a case study by Kerridge and Kerridge (2013), it shows that the drug trade is taking on a strategic management perspective in the way it is evolving as a business and organization. Although illegal and illegitimate, the Mexican narco-trafficking problem has specialized into retail of cocaine and opiates as well as human trafficking and firearms. This essay considers the NTO’s strategies and objectives as well as the key stakeholders and expectations. Meanwhile, it assesses the strategic options and how the drug trafficking situation has been changing over time. As the strategic choices available are evaluated, the essay also looks at the options that are open to the Mexican government especially President Nieta Pena and what are at stake for him. Narco-Trafficking Organizations (NTOs) strategies and objectives NTO’s objectives a) To increase the gross profit margin to $400billion per year from drug trade for the next three years b) To increase the market share of drug proceeds in the European market by 15 percent in the next two years NTO strategies NTOs operate under corporate strategies because their competition are based on territorial control such as ports of entry and exit, production, areas with corrupt law enforcement and access to trafficking routes. With a corporate strategy, a growing organization is concerned about the choices it makes over its businesses and markets (Masters, 2017). Most of the NTOs have strategic options and choices that can increase their competitive advantages and growth. Some decisions have to be made about buyouts, investments and divestment. Specifically, several NTOs have been using the market development strategy and diversification into new markets and products. From market penetration perspective, these NTOs are considering new markets in Europe for cocaine or supplying methamphetamines to the North American market using existing contacts and routes (Astorga & Shirk, 2013). Market development is intended to deliver existing products to new markets while new products and services are targeted at existing markets (Beittel, 2012). For example, the Mexican Sinaloa Cartel made efforts to develop the West African and the European market for illegal narcotics. This strategy involves new users and new geographies in the above mentioned international markets. Secondly, NTOs have invested in related diversification under diversification strategies. Most of the cartels were experiencing stringent competition from other cartels and there was need to enforce territorial control and operations (Berry, 2013). As such, the cartels began diversifying into organized crime. They were either buying weapons for armed groups or colluding with local criminal gangs. This was exhibited by the Gulf Cartel and the Sinaloa Cartel through methods like corrupting the military and the police, and by trafficking and procuring weapons. Consequently, they were able to build strong internal capabilities and cushioned themselves from the crackdown by the government (Shifter, 2007). Related diversification was not only in firearms and cocaine trade but also in opiates and human trafficking. Under related diversification, products or services that relate to the existing business are invested or produced (Whittington et al., 2014). The need to diversify was occasioned by the saturation point that the US cocaine had reached in 2000s due to the limited opportunities for market expansion. Thirdly, some drug cartels opted to market penetration strategies in the wake of diversification after fierce competition. For example, Sinaloa Cartel decided to build on existing relationships with Colombian suppliers and US distributors to dominate the existing Mexican drug trafficking market and increase its market share. The intention was to reach more drug users in the US market but hidden under conglomerate diversification (Kerridge & Kerridge, 2013). Some of the market penetration methods were territorial dominance, money laundering and territorial expansion within the existing US market. The cartel had more power over its suppliers and powers and managed to increase its experience base as well as economies of scale. The cartels had to be creative in establishing effective drug corridors for all types of illegal narcotics and taking control of the Mexican West Coast. Stakeholder management and diversification strategies NTOs have a range of stakeholders with various needs and expectations under different stakeholder models. Key stakeholders such as drug cartels, distributors and suppliers have an objective of making financial returns. On the other hand, drug users demand continuous supply of drugs to meet their insatiable needs (Walsh, 2009). Stakeholders are groups or individuals that depend on an organization to meet their own goals. In the NTO setup, internal stakeholders include the drug lords and employees such as hit men, packaging personnel and spies. External stakeholders include drug suppliers, government security agencies like police and the military, and the community that the drug business supports. The interests and expectations of the various stakeholders are shown in the table below. Stakeholder Power Interest Expectations Needs Remark Drug lords High High To make maximum returns from drug trade and proceeds Reliable personnel and machinery Key player Distributors High High Efficient trafficking routes and contacts Well connected routes and entry points Key players Drug users High High Continuous supply of drugs Adequate quality and quantity of drugs Key player Police and military Moderate High Eliminate drug trafficking Adequate intelligence Keep informed Firearm dealers Low Low Constant purchase of firearms Good deal with buyers Minimal effort President Moderate High Eliminate drug trade Efficient drug enforcement Keep informed Spies and hit men High High Minimal interference of drug routes and corridors Weapons and information Key players Competitors High High High profits and market share Non intrusion into marked territories Key players Community Low Low Low levels of crime Reliable security forces Minimal effort From the table above, the expectations of drug users and that of drug lords is prioritized in the drug trafficking business. The key facilitators of this strategy are distributors and suppliers under the help of hit men, spies and firearm dealers. It is desirable to reposition the distributors and the competitors in the drug business by changing markets and introducing new methods of reaching the customers. Similarly, the level of interest and power of drug lords has been changing due to frequent changes in the governance structure (Shifter, 2007). Most of the drug lords are arrested or killed by rival gangs or government drug enforcement agents who constantly tilt the power and the interests of other players in the drug trade. Under the market development and related diversification strategies considered, the positions of police and the military, distributors, firearm sellers, spies, hit men, and competitors will change (FBI, 2012). For example, new markets for cocaine in Europe and West Africa will require new skills and knowledge on how to guarantee smooth trafficking of drugs. The drug cartels also behave ‘ethically’ and ‘responsible’ to the economic development and plight of local communities they operate. Some drug cartels like Gulf and Sinaloa Cartels offer some of their proceeds into building of schools, churches, water projects and roads. The NTOs engage in a number of diversification strategies (Masters, 2017). First, they are involved in value-destroying diversification by engaging in human trafficking and arms trade. The intention was to spread the risk of losing the lucrative business to security forces or drug competitors. Besides, the negative synergies witnessed were a result of declining profits due to saturation in the US market. As a response to the decline in the market and increased scrutiny by government agencies, there was need to launder money through legitimate businesses (Toro, 1999). For example, some of the money was being used to finance political campaigns or buy residential houses for resale. Second, the corporate parent cartels were no longer adding value and thus considered divesting in related businesses (Shifter, 2007). However, the effect of the value destroying activities increased management costs and increased bureaucratic complexity. Ostensibly, it increased enforcement control and kept the paramilitaries busy when drugs are on transit. The value-destroying strategies were applied at the maturity stage of the drug business when the profit level was already saturated and it needs new synergies. Strategic options available to NTOs Most of the NTOs operate as niche markets or focus generic strategies. The competitive scope is narrow because they target customer segments with differentiated needs. Consumers of drugs are a small niche but buy in large quantities due to addiction. Drug cartels seek competitive advantage by charging premium prices given the high costs of trafficking and protection. TOWS matrix is used to generate strategic options as shown below. Strengths Weaknesses Opportunities Huge profits resulting from internationalization of the drug business to foreign markets Employs thousands of people from trafficking or smuggling Non-intensive production from specialized complex operations Flexible to changes in types of drugs and criminal organizations Well endowed financing to divest in real estate and politics Huge competition from rival cartels escalates firearms trade End-level distribution decentralized and fragmented benefits drug dealers Involvement in legitimate businesses presented new markets Threats Frequent changes in governance structures to suit instability of the drug industry NTO alliances possible amid suspicion and drug rivalry Evolution of new markets and drug types to avoid saturation of profits Ease of substituting drug lords during heightened crackdown Fluid networks and criminal gangs to scare police and the military Money laundering to layer drug proceeds Splintering into smaller groups to dissuade state pressure From the table above, key strategic options were expansion into foreign markets, product and market development, divestment into legitimate businesses and focus on human trafficking and firearms. These options not only gave the cartels competitive advantage but ensured their survival in an environment that is under constant pressure from government crackdown. Although the drug cartels are making huge profits from distribution and sale of drugs directly to consumers, they often use a lot of money in spying and protection of its markets (Kerridge & Kerridge, 2013). To start with, the option of expanding into the foreign market has been seen as a strategy to reach out to international consumers with premium prices to offer for the prices. Secondly, internationalization of drugs opens new opportunities to investment in human trafficking, firearms trade and cocaine dealership. Thirdly, it is possible to source cheaply from producer countries and sell to high-end markets in the US, Europe and West Africa. Regarding product development, the cartels have been moving towards new types of illegal narcotics by selling cocaine and opiates away from the old marijuana market. Similarly, Sinaloa Cartel looked for ways of legitimizing its investments using legal and illegal methods to hide its drug profits. This diversification into unrelated business was value-destroying but served to conceal their intentions (Masters, 2017). As well, they resorted to related diversification by investing in firearms and human trafficking to help in protecting territories and smuggling of drugs to new markets. Increased pressure from United States Government under the Drug Enforcement Agency (DEA) has seen most of the Colombian and Mexican drug lords arrested and incarcerated. This means that their international networks are being monitored and frustrated by government security agencies. The internationalization of drug business is slowly turning violent as seen in Mexico offer the threats of a wall to be build by the US government. On the other hand, drug dealers are using younger innocent travelers to smuggle their drugs to new markets where they are not easily identified and arrested. Evaluations of the strategic options The strategic options mentioned above have economic outcomes that directly affect the supplier nations, consumer nations and trafficking rings. The Gulf Cartel and the Sinaloa Cartel present a picture of successful organizational effectiveness and adaptability to changes. The need for new strategies and assessment of performance employs gap analysis. To do so, SAFe techniques and evaluation criteria has been used. As mentioned earlier, the strategic choices for the NTOs are; i. Developing new drugs and entry into new international markets ii. Diversification into legitimate businesses such as real estate and airlines iii. Penetrating into new markets iv. Forming alliances with other cartels and distribution networks In order to understand the strategic choices, three success criteria employ a range of techniques that are either financial or non-financial. Strategies are evaluated by assessing performance, identifying gaps and evaluating options (Kerridge & Kerridge, 2013). Performance is usually assessed by looking at organizational effectiveness and economic performance while options are checked for suitability, acceptability and feasibility. The evaluation criteria are as shown below. Strategic choices Suitability Acceptability Feasibility Develop new drugs and entry into new international markets Addresses key opportunities and threats Meets stakeholder expectations Risk and return is acceptable Positive reaction from stakeholders Likely to work in practice and is easily financed Requires new skilled personnel and other resources Strengthen dominance of domestic drug consumer markets Partially addresses key opportunities and threats Acceptable among local drug dealers Existing personnel have skills and resources Diversify into legitimate business such as real estate and airlines Does not address opportunities and threats Acceptable by government investment bureau Works in practice Financed by drug profits Requires new skills and resources on legitimate investments Alliances with other cartels in the drug distribution networks Addresses key opportunities and threats Meets stakeholder expectations Risks and returns not acceptable Negative reactions of suppliers left out Strategy works in practices Requires new financing Requires new skills and resources As shown in the table above, most of the strategic choices can exploit opportunities and avoid threats. In fact, it capitalizes on their financial prowess and effective distribution networks to create new international markets. The NTOs have options of changing suppliers and splitting the cartels but that works to their disadvantage because it negates the principle of consolidation (Gonzalez, 2009). The option of new drug market and product development is suitable in terms of environment because they exploit know of drug users and spreads into new geographies and segments. Furthermore, it exploits research into new drugs like opiates and cocaine. Meanwhile, diversification into legitimate businesses like real estate does not exploit strategic capabilities but human trafficking and firearms trade does (Kerridge & Kerridge, 2013). Withdrawing from declining markets is not an option because the US market is one of the best markets for cocaine and marijuana. Sinaloa Cartel has the capability of identifying and focusing on the established strengths. The cartel has benefited from market penetration in a bid to gain market share in West Coast Mexico and the United States. Moreover, it has to exploit superior capabilities and resources such as established and effective drug corridors, spies, drug distribution operations and exchange of cash. Similarly, alliances were formed to reduce frictions and tensions among the diverse NTOs because it had caused constant changes in the NTO management hierarchies. Strategic options open to government The strategic choices open to the Mexican government are; cooperate and form alliances with the US government, short-term disruptions on drug routes, armed attacks on NTO hierarchies and changing the conditions of business trafficking. To start with, forming alliances and cooperating with the US government will help in netting the drug distributors crossing the border the US. The Mexican government through the military and the police can infiltrate into the drug rings at local and international level (Kerridge & Kerridge, 2013). Cooperating between countries can help to manipulate the drug trade outcomes and manage perceptions and expectations of participating countries. Secondly, short-term disruptions on the drug routes can be extended into long-term disruptions by frequently arresting and incarcerating drug distributors and their leaders. This choice addresses key threats and opportunities but is not acceptable to drug leaders. It is risky and may likely receive a backlash from distributors and drug lords (Gonzalez, 2009). In practice, disrupting drug routes is not easy to finance because the government will need huge financing to fund spies and hit men (Kerridge & Kerridge, 2013). The police and DEA agents will also need to be empowered and skilled to an extent that they will not be compromised by the drug cartels. Thirdly, armed attacks on NTO hierarchies have often been met with reprisals from the drug rings. The arrest of El Chapo and Guzman has often been fatal with drug leaders reorganizing to make reprisal attacks on government security agencies. Attacking NTO hierarchies may reduce the influence of drug cartels but falsely addresses the threats of continued repeat attacks (Kurrle, 2013). While it is acceptable among international leaders, it is risky and triggers high negative reactions from the cartels. Similarly, it will require people who are good in camouflage, ability to melt into the drug rings and discover the operational processes. Enrique Pena Nieto, the new president of Mexico, has an option of changing the business of drug trafficking by introducing a national public awareness campaign on effects of drug trafficking. The intervention measure seeks to change behavior of the people towards drugs and drug trafficking. While the government is likely to meet resistance, the shift should be incremental and significant. Meanwhile, the state can encourage informal adjustments in local community policing and allow people time to adjust to the new drug-free environment. Also, the Mexican government should provide a suitable climate for drug leaders to reform and abandon the drug trade altogether. Conclusion The strategic management essay shows that NTOs are organized and wield effective strategic plans that have seen them blossom and survive over the decades. While gearing from greater market share and super profits, NTOs exploit corporate strategies especially market development and design of new illegal drugs. The cartels are also eyeing for expansions into foreign markets especially Europe and West Africa since the US market is already saturated. The cartels are also forming alliances in the distribution network to take advantage of the organizational capabilities to build on their competitive advantages. The strategic choices for the NTOs have been evaluated based on suitability, acceptability and feasibility. From a number of strategic choices that the government has in countering the drug trade, there is need to change tact in approaching drug leaders in the business of drug trafficking. References Astorga, L. & Shirk, D.A. (2013). Drug trafficking organizations and counter-drug strategies in the U.S. Mexican context. University of San Diego. Beittel, J.S. (2012). CRS Report to the United States Congress, R41576, 3 August 2012. Berry, T.A. (2013). Mexican Drug Trafficking organizations: Matching strategy to threat. US Department of Security. Federal Bureau of Investigation (2012). Organized Crime, Available at: http://www.fbi.gov/aboutus/investigate/organizedcrime/glossary ) accessed December 30, 2012. Gonzalez, F. E. 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