Foxconn’s Indian factory shuts down, Apple phones still have to be made in China

In summary:-

  • Foxconn to set up factories abroad. However, many high-profile projects do not go as smoothly as expected. They instead die prematurely.
  • The tightening of the Chinese market has made Apple more eager to find overseas emerging markets. However, Apple’s products in India and Brazil are only used to meet local demand.
  • India lacks supply chains and infrastructure. A large amount of cheap labor is a natural resource. However, roads, railways, water supply facilities and complete supply chains take a lot of time to build.
  • Apple’s dependence on China is gradually deepening instead of decreasing. The number of Apple foundries in China has increased far beyond China.

Foxconn ’s new plant in India is not expected to open. This is after plans to build plants in Brazil and the United States become blocked.

Subhash Desai, Maharashtra’s industry minister, said on January 7 that plans to work with Foxconn to establish an electronics manufacturing plant there had been cancelled.

According to Gizchina, Foxconn has decided not to invest $ 5 billion in India, as written in an agreement signed with the government in 2015. The reason for canceling the cooperation was “an internal dispute between Foxconn and Apple”.

Foxconn has reached an agreement with India and plans to build 10-12 factories in India by 2020 for the production of consumer electronics. However, according to Gizchina, “Foxconn’s investment commitments made in the first place have not been fulfilled and will not be fulfilled in the future.”

Foxconn then responded that “the report of ‘internal disputes’ with Apple is untrue and India’s production plans are moving forward.” However, it did not deny that the new plant was not intended to be opened.

In the past two years, Foxconn has frequently spread the news of building factories overseas. However, many high-profile projects have not launched as smoothly as expected.

In 2011, Foxconn entered Brazil to build the “world’s second-largest Apple mobile phone production line”. In 2017, Foxconn planned to invest 1 billion US dollars in Indonesia to reduce production capacity. In 2015, it decided not to continue due to “land issues” Invest in; in 2018, Foxconn President Guo Taiming and Trump held a groundbreaking ceremony for a new plant in Wisconsin, U.S.A., the news of the shutdown in 2019.

It should be noted that, despite the difficulties, Foxconn’s overseas plans are not all lost. According to a briefing to investors, Foxconn has factories in Brazil, Mexico, Japan, Vietnam, Indonesia, the Czech Republic, the United States and Australia.

It’s just that most of these factories do not produce Apple products, or their output is very small. Apple’s business is precisely Foxconn’s most profitable business.

Why does Foxconn want to bring manufacturing overseas?

“Not putting all your eggs in one basket is the golden rule of business,” said Josh Foulger, head of Foxconn’s India operations.

That’s right. In fact, most of Foxconn’s eggs have been concentrated in Chinese baskets. In 2019, Foxconn’s new chairman Liu Yangwei said that only about 25% of Foxconn’s production capacity is located outside of China.

But China’s basket is changing.

One of the most direct reasons for the change is the friction between China and the United States-iPhones assembled in China may have to bear additional tariffs when they are imported into the United States, which has brought cost crisis to Foxconn and Apple. According to the annual report, Chinese assets account for more than 30% of Apple’s long-term assets. These long-term assets mainly refer to product processing and manufacturing equipment, retail stores, and related infrastructure.

The second reason is that emerging markets are forcing Apple to build factories by increasing tariffs. Take India as an example. In the past two years, this country first increased the basic tariff of 10% on all mobile phones imported from abroad, then increased the tariff from 10% to 15%, and then from 15% to 20%. .

After Chinese mobile phone companies such as Xiaomi dismantled into zero, imported parts without importing the whole machine, and then assembled in India, the Indian government began to levy 10% -15% tariffs on mobile phone core components, forcing them directly in India. Buy parts.

Apple’s situation is the same. Either set up a factory in India, or bear the high cost of tariffs, or let the Indian market hand over.

The third reason is the rise in labor costs in China. According to statistics from the China Bureau of Statistics, the average annual salary of Chinese manufacturing workers rose by 50% between 2012 and 2017. India’s workers are about one-third cheaper than China’s.

Finally, the Chinese market is being eaten by more anxious competitors. In the second half of 2019, a Trump ban greatly affected Huawei’s overseas sales of mobile phones, forcing Huawei to attack the domestic market in turn, and other mobile phone brands including Apple were greatly swallowed up in the country.

36 Yan’s article “2019, China’s mobile phone shocked for 150 days | Shen Yan” documents this change. According to research firm Canalys, in Q3 2019, Huawei’s share in the domestic smartphone market has reached 42%. At the same time, a report from Counterpoint Research shows that Huawei has occupied more than 80% of China’s high-end smartphone market share.

Although iPhones made in China are not only sold to the Chinese, the tightening of the Chinese market still makes Apple more eager to find overseas emerging markets, such as Southeast Asia and Latin America, and there are more reasons to open factories there.

Why is it difficult for Foxconn to make apples overseas?

1. Political instability and poor economic situation

Brazil is the first stop for Foxconn to make apples at sea.

In 2011, Foxconn entered Brazil, announced a multi-billion dollar investment plan, and said it would help Brazil create 100,000 jobs. According to local media Istoe Dinheiro’s report at the time, Foxconn had built the world’s second-largest iPhone production line in São Paulo, Brazil.

But by 2017, Foxconn had only employed about 2,800 workers in Brazil. For comparison, the Foxconn Zhengzhou plant employed about 350,000 workers at the same time.

Where is the problem? In Brazil, Foxconn does not have the support of a stable political situation, nor does it have a stable economic environment.

In 2011, Brazil’s female president Dilma Rousseff, who strongly supported Foxconn to build a factory, became the world’s first impeached female president in 2016. Some tax benefits promised by the government were reduced or cancelled.

Beginning in 2010 when Rousseff assumed the presidency, the annual growth rate of Brazil’s GDP fell from nearly 10%, and in 2012 there was a stalemate of zero growth. Unemployment and inflation have also fluctuated higher. By the time Foxconn shuts down its iPad production line, it has reached a record high in Brazil.

So how effective is Foxconn’s six-year plant in Brazil?

Initially, according to Brazilian media estimates, local assembly could reduce the price of an iPad or iPhone by as much as 30%, as Brazil previously imposed a tax on imported smartphones of more than 60%.

However, the emergence of Foxconn has not brought down the price of Apple products. When the iPhone 6 was released, it was 97% more expensive in Brazil than in the United States. Not even on time. When Brazilian consumers saw the iPhone 4S, it was already at least two months behind the global launch.

2. Lack of infrastructure and no complete supply chain

India’s political situation is more stable than Brazil’s and its economic development momentum is much better. And here is the final piece of the blue ocean for smartphone brands.

In 2015, Foxconn opened its first Indian factory in Sri City. It employs 15,000 workers, mainly female workers, and earns only about $ 4 a day. But they did not assemble Apple, but Xiaomi.

In 2017, Foxconn’s second smartphone factory was established in the Sriperumbudur Industrial Park in southern Tamil Nadu, employing 12,000 employees and deciding to produce iPhones in India for the first time in 2019.

In October 2019, an iPhone XR with Assembled in India printed on the back of the box finally appeared, and Foxconn successfully built an Apple phone in India.

But the number of apples produced here is just a drop in the bucket compared to global demand for apples. A report released by Reuters after a survey in August 2019 shows that Apple’s products in India and Brazil are only used to meet local demand, and the number of Apple foundries in China has increased far beyond China.

According to Apple’s data, in China alone, Foxconn’s factory expanded from 19 in 2015 to 29 in 2019, and another foundry, Pegatron, expanded from 8 to 12 locations. And they were born as Apple added product lines such as smart watches, smart speakers and wireless headphones.

Not only assembly plants, but in the supply chain, Apple’s dependence on China is gradually deepening, not decreasing. Reuters statistics show that in 2015, 44.9% of all its suppliers’ sites were in China, but by 2019 it had risen to 47.6%.

In contrast, India’s shortcomings are obvious-lack of supply chain and infrastructure. A large amount of cheap labor is a natural resource, but roads, railways, water supply facilities and complete supply chains take a lot of time to build in this country.

As Andrew Polk, a founding partner of Beijing research firm Trivium China, puts it, “Global supply chains are fragmented, but China has only one.”

In mainland China, Apple’s supply chain is almost within a 24-hour drive, but Foxconn’s Indian factory still has many parts that depend on supply from Guangdong, China, more than 5,800 kilometers away. Due to severe water shortages in Chennai and nearby areas, Foxconn’s head of India operations, Josh Foulger, is also working to resolve water issues for thousands of workers.

In this environment, Indian foundries can take orders for Google Pixel smartphones, but it is a bit cumbersome to take orders from Apple. Because Apple requires higher shipments, it’s harder to stay flexible. In China, Apple can produce hundreds of millions of mobile phones each year, while maintaining only a few days of inventory, which allows Apple to maintain a more stable free cash flow.

3. Lack of cheap labor

Manufacturing requires a lot of cheap labor. But Vietnam does not, neither does the United States.

Vietnam has cheap labor but not enough. The total population of this Southeast Asian country is 95.54 million, while the total population of Henan Province, China is 10.906 million.

The United States has a little more labor, but it is not cheap. Guo Taiming’s annual salary promise for the employees of the Wisconsin factory in the United States is about 53,000 US dollars. According to Foxconn’s advertisements on various domestic recruitment sites, the average front-line worker in China has a salary of about 3,000 yuan per month.

Although Guo Taiming didn’t plan to make apples in the United States from the beginning-as he said, Foxconn’s jobs in the United States will be “high-tech, high-salary, high-potential, high-value” jobs. The main business is the production of LCD Display panel, but even then, recruiting people is also a big problem.

According to the earliest plan, the Foxconn plant will employ 5,200 people by the end of 2020 and “finally employ 13,000 people,” but at the end of 2018, the company employed only 156 people in Wisconsin.

In February 2019, Foxconn executives told the media that they would no longer build manufacturing plants. Two days later, the rhetoric changed again, as Guo Taiming and Trump had a “private talk.” The U.S. factory no longer looks like a business logic-based existence, but a political game.

Former U.S. House of Representatives Speaker Paul Ryan, who has backed Foxconn’s plant and promised $ 4 billion in subsidies, and former Wisconsin Gov. Scott Walker are Republicans. In September 2018, at a meeting discussing the Foxconn Act, although all Democratic lawmakers in the state legislature voted against it, the Republican-controlled state legislature passed the bill.

Now Democrat Anthony Evers, who has been questioning the plant agreement, has replaced Scott Walker as governor, and Wisconsin has returned to Democrats. What about Foxconn’s fate?

In February 2011, Obama asked Jobs at a Silicon Valley dinner: “What conditions need to be met to produce iPhones in the United States? When will these jobs return to the United States?” Jobs replied unambiguously: “It will never be possible.”

“Apart from China, there are nowhere in the world that can make 600,000 mobile phones a day,” Dave Evans, chief executive of San Francisco supply chain company Fictiv, said in an interview with Reuters.

Foxconn is still a very profitable company, but trouble is happening. The fourth quarter of 2019 financial report shows that the company’s revenue for the quarter reached NT $ 1.73 trillion, the second highest record on record, but fell 4.4% year-on-year. Throughout 2019, Foxconn’s revenue was NT $ 5.33 trillion, up 0.82% year-on-year, and the growth rate slowed significantly.

Can Foxconn find another China on Earth?

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