The Supply Chain Matters blog has provided previous commentaries regarding global high-tech and consumer electronics contract manufacturing services provider Foxconn Technology, and specifically its decision to establish a significant manufacturing presence in the United States.  Consumer Electronics manufacturing

Background

In January 2017, international and U.S. business media began reporting that Foxconn was considering investing $7 billion to build an advanced flat-panel LCD screen factory in the United States. The plant would have reportedly be associated with the contract manufacturer’s ownership of television manufacturer Sharp.

In July of that year, Foxconn made its formal announcement at a White House ceremony, with the selection of Wisconsin as the location of the new facility. The company’s founder and chairman Terry Gau had personally led the negotiations for the facility and joined President Trump in the announcement.

The then proposed new $10 billion factory, was to be located and built in Southwest Wisconsin and represented an initial investment planned by the contract manufacturer designed to rebuild a high-tech electronics supply chain within the United States. According to reports at the time, the proposed Wisconsin plant would employ upwards of 3000 people initially and as many as 13,000 people at peak capacity.

At the time, Wisconsin Republican Governor Scott Walker, indicated to the White House and press gathering that the Foxconn manufacturing campus will span 20 million square feet. The Governor further coined a new term: “Wisconn Valley”, a new global center for cutting-edge technology.

Three weeks after the announcement, there were already differing views and stated skepticism regarding the viability of this announcement. Prominent U.S. news organizations such as the New York Times and the Washington Post pointed out that Foxconn had built a track-record of not following-thru in its multi-billion-dollar plant commitments in other regions such as Brazil, India, Indonesia and Vietnam. Similarly, for a prior announcement to build a $30 million production facility in Pennsylvania.

Then there is the magnitude of the overall $3 billion in incentives to be provided by the State of Wisconsin and its taxpayers, reported to average $15,000 to $19,000 per job, annually. One expert at a nonpartisan non-profit research firm in Washington classified the Foxconn deal as the fourth-largest incentive deal in the United States.

In the coming months, the contract manufacturer reportedly conducted additional analysis of U.S. market and supply chain related opportunities regarding the needs for various LCD displays.

In February of this year, we highlighted for our readers a published Reuters report indicating that the contract manufacturer was one year later, reconsidering the scope of its Wisconsin investment. Rather than a high-volume manufacturing, Foxconn was considering a termed “Technology Hub.”  The Reuters report indicated that while the global contract manufacturer was still evaluating options for Wisconsin, the reality of existing U.S. based supply network capabilities and the economics producing advanced television screens in the United States appear to have turned toward non-competitive. Once more, citing informed sources, the report indicated that Foxconn was prepared to walk away from future incentives if the manufacturer was unable to meet Wisconsin’s job creation and capital investment requirements.

Our stated Supply Chain Matters perspective in February was what changed appeared to be Apple’s, and increasingly other consumer electronics and broader-based manufacturers’ ongoing wake-ups to the realities to a definitive slowing of economic growth across China and to the implications of increased tariffs and trade tensions involving foreign-based manufacturers with product origins in the country. We further highlighted reports that Foxconn was moving rather quickly to establish a new iPhone manufacturing presence in India or Vietnam.

Newest Developments

Last month, Foxconn indicated that it would begin construction later this year of a Generation 6 production facility that would produce small screens for mobile phones, tablets, televisions and other devices. The original commitment was to build a Generation 10 facility that would have produced far larger screen devices.

Last week, newly elected Wisconsin Governor Tony Evers, a Democrat, indicated that his state wanted to renegotiate the state’s $3 billion incentives contract with the global manufacturer, indicating it was now appearing unrealistic that upwards of 13,000 people would be employed.

The Governor indicated to reporters that the state was working directly working with Foxconn toward revising the original contract because it “deals with a situation that no longer exists.” Evers reportedly indicated: “Clearly, the deal that was struck is no longer in play.”

Opposition political party members, including the influential State Assembly Speaker indicated a differing view, that the deal was “ironclad.”

Last week, we highlighted for readers a published Bloomberg report indicating that Foxconn will initiate production of the latest iPhones at a new production facility in India.  While some may draw no parallels to both developments, we believe that there are parallels, namely where influential high tech and consumer electronics branded companies such as Apple plan to establish an alternative manufacturing and supply chain volume hub for their products.

Least we omit one other announcement.

Foxconn founder and Chairman Terry Gau indicated to Reuters that he plans to step down step down in the coming months, 45 years after founding the company that made him Taiwan’s richest citizen. Reportedly, an announcement to shareholders is expected in June. There are no visible successors to Gau’s leadership role at the company. A separate report from Bloomberg reported that Gau has announced his candidacy to be Taiwan’s President.

Each of these developments add more of our cloud related to the Wisconsin presence.

As is often the case, when business decisions counter political decisions, the results can be mixed, at-best. Throw in the political dimensions of “Make America Great Again, “and the monetary and trade policy implications, and the situation gets messy.

 

Bob Ferrari

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