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Foxconn eyeing cheaper production bases outside China: report

  • Staff Reporter
  • 2012-09-24
  • 16:55 (GMT+8)
Foxconn chairman Terry Gou announces pay increases for Chinese workers in August. (Photo/CNA)

Foxconn chairman Terry Gou announces pay increases for Chinese workers in August. (Photo/CNA)

Global electronics manufacturer Foxconn is considering relocating production away from mainland China due to growing salaries and tightening margins, reports the China-based China Times or Huaxia Shibao (not our Chinese-language sister paper).

Taiwan-based Foxconn, the world's largest maker of electronic components, has more than 31 manufacturing bases in China. Based on chairman Terry Gou's operating strategy of "going wherever the market is," the company is said to be looking to expand its operations globally to other parts of Asia, Europe, South America and even Africa.

On Sept. 20, Foxconn signed a memorandum of cooperation with the Sao Paulo government under which the Taiwanese company will invest US$14 million to build a technological industrial park in Brazil. The park is expected to begin production in 2014 and reach full capacity by 2016. Foxconn already has eight factories in Brazil.

In addition to Brazil, Foxconn's global strategy also includes investments in Japan and Germany, with the next step focused on Indonesia and Myanmar, China Times reported.

In mid-August, a spokesperson for Hon Hai, the parent company of Foxconn, confirmed the company's investments in Indonesia. The aim is to establish a mobile phone factory there by the end of the year, the spokesperson said.

Indonesian trade minister Gita Wirjawan said recently that Foxconn will invest between US$5 billion and US$10 billion in Indonesia within the next five to 10 years.

Analysts say Foxconn is clearly targeting its investments in large markets with low labor costs, as well as opportunities to reduce transport times and import taxes. Gou has said that Africa is a potential investment destination in the future.

Meanwhile, the company's investments in China are reportedly starting to slow down. Apart from preparing to take over Japanese company Sharp's TV factory in Nanjing, Foxconn's only other major project in China is a 100 billion yuan (US$15.8 billion) investment to transform the city of Jincheng in the northern province of Shanxi into the global capital of precision manufacturing — although this deal was signed last year.

An industry insider said Gou has been planning to increase reliance on automated, unmanned factories and moving production away from its key manufacturing base of Shenzhen further inland. Foxconn will not completely back out of Shenzhen, however, as it will remain a key R&D base for products related to consumer electronics giant Apple moving forward, the insider added.

Commentators suggest that the main reason for Foxconn's decision to move operations inland is part of its ongoing search for lower costs of production. Inland local governments have in turn welcomed Foxconn with tax breaks, land and regulatory benefits.

Since June 2010, salaries for Foxconn workers have risen by 30% on average, putting increasing pressure on the company's profit margins. In May this year, Gou further declared that he was going to essentially double the current salaries of Foxconn's Chinese workers by raising base monthly salaries from 2,200 yuan (US$350) to 4,000 yuan (US$635) by the end of the year.

Salaries in Indonesia remain the lowest in Asia with a average monthly wage of just US$113, less than half of the average pay in Thailand and a third of the average in China.

Despite continuing large orders from Apple, Foxconn's profit margin from January to March has slipped to just 0.9%. For the first half of the year, Foxconn earned total revenues of US$2.5 billion, a drop of 16.4% from the previous corresponding period. This represented a net loss of US$226 million, the fourth consecutive year where the company has posted a loss in the year's first sixth months.

 

 

References:

Terry Gou  郭台銘

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