Taiwan's Foxconn signals its faith in Indian growth with its US$5b investment

Tsering Namgyal says the firm's hefty investment in Maharashtra will encourage others in the IT sector to turn to India amid a Chinese slump

PUBLISHED : Friday, 14 August, 2015, 11:30am
UPDATED : Friday, 14 August, 2015, 11:30am

Taiwan's technology sector is, it seems, finally dancing to the tune of India's growth story. Foxconn's recent announcement that it will invest US$5 billion in the state of Maharashtra over the next five years - creating tens of thousands of jobs - is just one indication.

With more than half of its population under 25, India provides a vast pool of skilled manpower, and a vast market for cellphones and laptops.

This foray comes as mainland China, Taiwan's erstwhile favourite destination, is bracing itself for a downturn. The Taiwanese technology industry is ruthlessly competitive, product life cycles are short, innovation is critical for survival and profit margins are thin. All this leaves little room for complacency.

What we are seeing now - especially given the turmoil in the Chinese markets and slumping exports and industrial production - is most likely just the tip of the iceberg, as the Chinese economy shows increasing signs of weakness.

This is a source of major worry for Taiwanese investors, and for the economy in general because of its close ties with the mainland. Taiwanese investors have enjoyed great success there in the past, not least IT manufacturers. But Chinese labour costs are no longer competitive, and there is actually a shortage of workers.

Previous Taiwanese leaders - especially the ardently anti-Beijing ones such as Lee Teng-hui - grew frustrated over the exuberant Taiwanese businessmen putting "all their eggs in one basket". In response, policymakers came up with strange industrial zones in places like Subic Bay in the Philippines - which didn't go very far, because everyone was busy jumping on the China bandwagon.

Now, to stay ahead of the game, Taiwan's IT sector has had to search for a new hinterland.

India is probably one of the toughest places to do business, and the bureaucracy is a nightmare, though projects of such size must receive preferential treatment. And for all the cultural differences, it seems quite a natural destination for Taiwan. There is an obvious synergy: one specialises in hardware, the other in software; one is hungry for capital and is growing fast, the other has surplus capital, and is in the process of a slowdown. Ultimately, it is often the hard rules of economics that determine where companies go.

And the Indian domestic market is significant, which means not going there would risk ceding market share. So while mainland China is an important market and will continue to be so, Taiwanese IT firms must sail with the shifting winds of the global technology industry.

Given its status, Foxconn's moves are widely watched and its latest decision will, therefore, encourage other IT companies waiting on the sidelines to take the plunge and head into India.

Tsering Namgyal is a Hong Kong-based correspondent for IPE International Publishers in London