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Hon Hai Precision Takes Another Step in Vertical Integration

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The year 2010 has turned out to be rather significant for Hon Hai Precision Industry and its major contract manufacturing arm Foxconn Technology Group.  The news was both positive and not so positive.  Certainly, having Apple as your prime customer insures global-wide visibility to any major events involving this now dominant player on the high tech and consumer electronics scene.  In the not so positive category were the incidents of multiple worker suicides that occurred earlier in the year, which have since led to a series of worker wage hikes and other mitigation programs.

The most positive publicity however came in September, when this Asia based provider was featured as a prime Bloomberg BusinessWeek cover story which noted that Foxconn had the tenets of a disruptive strategy that will change the landscape of high tech and consumer electronics competitive strategy in the months to come. The article cited a twofold strategy that was unfolding.  The first is a multi-year strategy for moving certain production to more interior regions of mainland China.  It is within the interior regions where the migrant workforce actually resides and also where social and family support systems are present.  The second strategy involves Hon Hai as an eventual OEM itself, targeting China’s emerging middle class with a series of in-country selections. That strategy could include the leveraging of a channels business formation where former Foxconn factory employees could manage their own small retail outlets to sell Hon Hai products.

This week brought news that Hon Hai is in talks to acquire a major stake in Hitachi’s flat-panel display business. The deal, if successful, could bring this contract manufacturer to the very top tier of producers of small and medium-sized LCD display panels used in mobile devices and tablet computers. Hitachi’s IPS screens are known for producing clear and bright images, even when viewed from unique angles. Hon Hai had previously acquired Chi Mei Optoelectronics and TPO Displays, two display providers based in Taiwan. The deal also will provide Hon Hai direct onshore presence in high tech manufacturing in Japan, where a second Hitachi LCD panel plant is scheduled to be built north of Tokyo. Access to the manufacturing volumes of Hon Hai would also be a needed shot in the arm for the Japan based high tech component industry.

Supply Chain Matters believes that this deal, if successful, will propel Hon Hai toward another significant step in supply and value-chain vertical integration.  It is one that existing consumer electronics OEM’s should pay close attention.

Having just published our Supply Chain Matters Top Ten Predictions for Global Supply Chains in 2011, perhaps we were remiss in not including a specific mention of Hon Hai.  The year 2011 may well provide more recognition of Hon Hai as being included with one of the top twenty-five supply chains capabilities in consumer electronics value-chain integration.

Bob Ferrari

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