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Apple Contractor Foxconn Seeks Wider Reach after China Flaps

  • Ralph Jennings

FILE - Employees work at a Foxconn factory in Wuhan, Hubei province, China.

FILE - Employees work at a Foxconn factory in Wuhan, Hubei province, China.

Foxconn is known as the company that assembles iPads and iPhones for the world with inexpensive labor in China. Now, the giant contractor is trying to diversify clientele, geography and means of production to grow its business as workplace issues haunt it in China. Foxconn’s latest ambition calls for investing $1 billion in the capital of smartphone-savvy Indonesia.

Giant Taiwanese contract electronics maker Foxconn normally uses factories in mainland China to make products for the world’s top electronics brands, such as Apple and Sony. But since 2010, the company has been stung there by worker suicides and labor protests. This month, Foxconn signed a deal to invest $1 billion in high-tech research and development in Indonesia.

Jamie Wang, a principal research analyst with the market research firm Gartner in Taipei, said Indonesia gives Foxconn a welcome alternative to China.

Wang said Foxconn needs a new production site and that Indonesia offers not only an end-market business opportunity but that, in terms of the production costs, Indonesia offers good value. Another key is whether the local government and its infrastructure give Foxconn attractive incentives or support. As she understands, Jakarta offered Foxconn a substantial support package.

Foxconn’s agreement with the city of Jakarta follows a deal in November to spend $40 million on robotics, a relatively new field for the company, in the U.S. state of Pennsylvania. The manufacturer, also known as Hon Hai Precision, said it was studying three other U.S. states for investment. A spokesman said U.S. investments would cast Foxconn as a global company, not a Chinese one. At its home base in Taiwan, Foxconn won a license last year to offer 4G mobile services, another departure from its normal contracting business.

Foxconn Chairman Terry Gou hinted at a company year-end party last month in Taiwan that Foxconn would rely less and less on worker-intensive factories in the future. Some see the comment as a sign he is turning away from Chinese workers who have protested Foxconn’s conditions.

Gou said manufacturing remains Foxconn’s core business, but because younger people worldwide don’t want to work in factories, manufacturing must rely more on automation.

Analysts said the push away from China is not just about shaking off labor problems. Some argue that the company, which earned $130 billion in revenues last year, is also reviewing its relations with Apple. Foxconn is Apple’s largest manufacturer, assembling its products at seven bases between China and Brazil. However, margins may be low as Apple takes on new suppliers. John Brebeck, a senior adviser with Taipei-based Quantum International, pointed out the limitations of working with Apple.

“Nobody makes that much money off Apple. You’d have to basically make that product only for them. You have to buy equipment that’s only good for them. I do know that Hon Hai, they make money on Apple but it’s not really high margin. And also every year the Apple supplier list includes more and more Chinese companies,” said Brebeck.

In the United States, the government is offering financial incentives to companies such as Apple that make products onshore instead of overseas, a possible threat to Foxconn’s factories outside the country.

In Indonesia, Foxconn calls its three- to five-year investment a chance to sell products to a young, smartphone-crazy local population. It plans to develop smartphones, panels and cloud computing tools just in Jakarta for now, but said it is looking at branching out into other parts of Indonesia and other Muslim countries later.