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Foxconn

Hon Hai Precision Industry Co., Ltd. (trading as Foxconn) is the world's biggest maker of electronic components. Its clients include the world's best known electronics and information technology companies, and products manufactured at its plants include iPads, iPhones, iPods for Apple, Kindles for Amazon, PlayStations for Sony and Xboxes for Microsoft. 

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TECHNOLOGY

Hon Hai pivots to America after China problems

Demand for made-in-US products in its largest market drives manufacturer to shift strategy

PUBLISHED : Thursday, 02 January, 2014, 1:41am
UPDATED : Thursday, 02 January, 2014, 1:59am

Hon Hai Precision, the world's largest contract electronics manufacturer, will expand advanced manufacturing in the United States despite high costs after more than three years of labour problems on the mainland followed by pressure from clients and incentives from local governments in the US.

The Taiwanese firm, which trades as Foxconn, has announced plans for two projects in the US state of Pennsylvania totalling US$40 million. Three other states have offered it incentives for what the company describes as "advanced" manufacturing.

Hon Hai revealed its plans for the US, a split from the industry trend of siting factories in inexpensive Asian countries, following a trip in November by its billionaire founder Terry Gou.

The unusual move lets Hon Hai, an assembler of the iPad, lighten up on mainland production, take advantage of unique incentives in the US and meet US client demand for more made-in-America products, analysts say. Major US clients include Apple, Cisco and Dell.

"I think (Gou) is going where his clients and its other partners are in order to keep up relations and secure long-term business relationships," said Jamie Wang, a principal analyst with market research firm Gartner in Taipei.

The normally secretive company said in a November statement it was studying sites in the US for "high-intensity, hi-tech, high-value-added" manufacturing. More detailed plans should emerge this year, Hon Hai spokesman Hsing Chih-ping said.

"We are evaluating it all," Hsing said from the company headquarters outside Taipei. "We haven't received any limits on what we can do. We hope products can be made in America. We have the manufacturing capability and the United States has the demand."

US officials have offered financial incentives to American companies that produce at home in an attempt to stimulate the economy. Without factories in the US, Hon Hai may lose business to competitors.

"Part of the investment plan for the US is demand from clients," said Helen Chiang, senior research manager at IDC in Taipei.

Hon Hai has a number of liaison offices in the US but relatively little manufacturing, analysts say.

Eventually an expansion in the US could lay a foundation for expansion from consumer technology into aerospace and machinery, Wang said. Hon Hai does not rule out either category, its spokesman said.

In another lift for Hon Hai, made-in-America labels would focus attention away from China. Since 2010, Hon Hai's mainland factories, which now total 13, have faced a rash of worker suicides followed by riots and protests over labour conditions. The same flaps ruffled some of Hon Hai's core clients as they sought to protect their corporate images.

"We're not just made in China," the spokesman said, speaking to Hon Hai's ideal image. "We're made in other countries."

The company, which posted profits of more than US$500 million in the second quarter of last year and US$1 billion in the third, will gain in the US from highly skilled labour and an advanced legal system, both absent on the mainland.

Despite rising wages on the mainland, Hon Hai will still find US labour more expensive but may be able to pick sites near pockets of high unemployment where people are willing to accept relatively low pay, said Liang Kuo-yuan, chairman of Yuanta-Polaris Research Institute in Taipei.

"They could find a place where the jobless rate is high," Liang said. He added Hon Hai may also be shopping for states with cheaper land.

In Pennsylvania, Hon Hai will spend US$30 million to expand an existing panel-making plant from 30 to 500 employees over two years. It will put another US$10 million into robotics and automation through a research and development partnership with Carnegie Mellon University.

The company is studying sites in Arizona, New Jersey and Texas for other plants, Hon Hai's spokesman said. He said all three were near clients and came with state-government incentives.

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Reshore Now
Proximity to customers, R & D and consumer preference for Made in U.S. are some of the main reasons for bringing manufacturing back to the U.S. This is causing many companies to rethink their manufacturing strategy.
Reshoring to the U.S. has grown rapidly since 2010 and offshoring is slowing to the extent that the two processes are about in balance for the first time in decades. Repeated surveys by Boston Consulting Group, MIT Supply Chain Forum, MFG.com, Deloitte and others consistently show a sizable and growing percentage of companies deciding to reshore at least some of their production and sourcing.
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The not-for-profit Reshoring Initiative’s free Total Cost of Ownership software helps corporations calculate the real P&L impact of reshoring or offshoring. In many cases companies will find that, although the production cost is lower offshore, the total cost of offshoring is higher. TCO Estimator ****www.reshorenow.org/TCO_Estimator.cfm

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