Foxconn & India Manufacturing -Impacts & Implications

FOXCONN ANNOUNCEMENT

• Foxconn International Ltd. is the latest company to insert India into its manufacturing planning.

• After a recent visit chairman Terry Guo said Foxconn will shift more manufacturing activities to India and that the company expects to build up to 12 new factories in the country.

• Guo said he sees huge potential for his company in India and announced Foxconn would invest in Indian technology start-ups over the next years, according to reports.

WHAT IS FOXCONN ?• Hon Hai Precision Industry Co., Ltd., trading as Foxconn Technology Group,

is a Taiwanese multinational electronics contract manufacturing company

• Headquartered in Tucheng, New Taipei, Taiwan

• The world's largest electronics contractor manufacturer, and the third-largest information technology company by revenue

• Primarily a contract manufacturer and its clients include major American, European and Japanese electronics and information technology companies

• Notable products that the company manufactures include the BlackBerry, iPad, iPhone, Kindle, PlayStation 4, Xbox One, and Wii U

OPERATIONS OF FOXCONN• Factories in Asia, Europe, Mexico and Brazil that together assemble

around 40 percent of all consumer electronics products sold.• 12 factories in nine Chinese cities—more than in any other country.• The manufacturing facility and warehouse are strategically located

west of Sydney• All company facilities in South America are located in Brazil and

the company is considering more investments there• Foxconn has factories in Hungary, Slovakia, Turkey and the Czech

Republic. • Major Customers: Acer, Amazon.com, Apple, BlackBerry Ltd.,

Cisco, Dell, Google, Hewlett-Packard, Microsoft, Motorola Mobility, Nintendo, Sony.

Why Foxconn is looking at India as its Next Manufacturing Hub?

Foxconn is looking at India for five reasons:

•Chinese economy

•India opportunity

•Government support

•Building complete eco-system

•Export market

CHINESE ECONOMY• China’s GDP growth, Industrial Growth and also its share market are

on a downhill.

• The company is looking at India opportunity as its next manufacturing hub so that the company can balance its investment.

• Rising wages in China, dangers to intellectual property, logistics and transportation hurdles

• The ‘Factory Asia’ supply chain – which has tied China tightly to suppliers in China itself and in Southeast Asia, thus creating a massive barrier to entry to other countries – is now loosening.

INDIA OPPORTUNITY

• With Indian economy expected to grow at 9-10 percent, companies like Foxconn is seeing India opportunity not only in ICT sector but also in defence electronics, automotive electronics and renewable energy.

• Rollout of 4G and broadband in a big way presents a big opportunity for manufacturers like Foxconn..

• Indian Prime Minister Narendra Modi has set a target of 100 GW solar and 60 GW wind production by 2022.

• The Foxconn venture has announced plans to invest in and develop renewable energy plants across India

GOVERNMENT SUPPORT

• Make in India is an attractive proposition for any manufacturer who is planning to set up its manufacturing hub in India.

• State government support in terms of getting manufacturing facility in their respective states in terms of cheap land, tax exemptions and others.

• Foxconn in touch with state governments like Maharashtra, Haryana, Gujarat and Andhra Pradesh

COMPLETE ECO-SYSTEM• Foxconn believes that India has the opportunity to build complete

manufacturing eco-system.

• Foxconn is planning to set up data centres and incubators in cities like Delhi, Mumbai, Bengaluru and Hyderabad.

• All these steps will help Foxconn to build the right eco-system by identifying start-ups and small medium enterprises and also investing in these companies.

• On the patent front, Foxconn was ranked 18th in the world with 1,537 US patents in 2014. The company would like to increase its patent by working with Indian companies on the software front and focus on innovation.

EXPORT MARKET

• With India as its base, companies can look at exporting it to SAARC and African countries and this opens up a big opportunity for Foxconn

• Even the cost of manufacturing in India versus quality is lower than China according to industry experts and this gives lots of confidence to companies like Foxconn to look at alternative manufacturing hub in the country.

PLANS OF FOXCONN FOR INDIA• Foxconn is looking to invest $2 billion over the next 10 years to set up

manufacturing facilities in the country to produce phones, TVs, electronic products.

• Foxconn could also be looking at bringing in other parts of the supply chain into India such as chip fabrication units.

• Gou is in talks with Gujarat-based billionaire Gautam Adani, handset-maker Micromax and ecommerce-firm Snapdeal for setting up the plants.

• Xiaomi and Oppo have partnered with Foxconn to manufacture smartphones in India. The factories are based in Sri City, Andhra Pradesh.

• Taiwanese handset maker Asus will start contract manufacturing in India soon, by partnering with Foxconn.

POSITIVE IMPACTS

• Integration into global economy – access to a wider global and better platform in the world economy

• Economic growth - benefit from foreign direct investment

• Trade - a wide spectrum of opportunities in the trading of goods and services in India

• Technology diffusion and knowledge transfer – introduction of world-class technology and technical expertise

• Increased competition – will result in the enhancement of quality of products and services.

• Human Resources Development - Employees of India will get acquainted with globally valued skills

• Employment –Foxconn is planning to setup 10-12 factories in India, and employ one million workers in India by 2020.

BARRIERS FOR FOXCONN IN INDIA

• India still suffers from a problem of factor productivity

• Labour laws are arcane, discouraging firing, and therefore hiring. The quality of the workforce is poor.

• There is great difficulty in getting hold of land - Land Bill fiasco

• Foxconn had to suspend operations at a facility that made Nokia phones on the outskirts of Chennai

• Despite manufacturing being high on the government’s agenda, there is still no clarity on the tax incentives for either SEZs or NIMZs so far.

NEGATIVE IMPACTS

• Destruction of small entrepreneurs- they will not be able to withstand the tough competition

• Foxconn’s Past Announcements & Reality

2012 Itu, Brazil

Plan : Industrial park to manufacture components locally in 100 acres 2015 status : No plant till date

2007 Vietnam

Plan : Investment of $5 billion. 2015 status : Project licensed in 2008 and scheduled for operation in 2009 but factory not complete till date.

IMPLICATIONS ON INDIAN ECONOMY• Demand for electronic products, principally cell phones and consumer

electronics, is sky-rocketing, and will reach $400 billion by 2020. Endorsement of India as an attractive production center for the globe’s biggest OEMs will ripple throughout the entire electronics supply chain.

• In many ways, India is still virgin grounds for electronics companies

• After two long decades of jealously watching China rise to become the world’s No. 2 economy, India appears to be finally getting the attention of electronics manufacturers and may be on the cusp of benefitting from OEMs' unceasing search for lower-cost production centres to boost competitiveness and increase profits.

IMPLICATIONS (contd.)• Foxconn isn’t the first to announce plans for a major investment in India

• Other companies have preceded Foxconn into India although the results have so far been moderate.

• Rising labour costs in China

• India would seem like the next natural spot for global production.

• India will not replace China immediately in the electronics supply

• India historically had a strength in light manufacturing, as the world’s manufacturing shifts around India must stake a claim in highly-engineered goods. What better than electronics?