Mr. Gou goes to Latin America

On August 6th, the Financial Times featured an article on Taiwan electronics firm, Foxconn (富士康科技集團), and its founder, Terry Gou. Foxconn controls close to half of the world’s outsourced technology products, including a number of Apple favorites (iPads, iPhones, etc).
According to the article, Mr. Gou recently announced a plan to place one million robots on Foxconn’s production lines. Automated production, he believes, will generate growth – the company made $80 billion in revenue last year, but is finding it hard to expand its market share.
Before Terry Gou ever announced his fondness for robo-employees, Foxconn was already seeking greater efficiency and market access through global expansion. In addition to production facilities in “greater China” (where it employs nearly one million people), Foxconn also operates in Europe, Australia, the United States, and Latin America. The company’s relatively new Latin American ventures (currently limited to Brazil and Mexico) provide greater access to local markets and close proximity to North American consumers.
Source: Foxconn web site
Foxconn is now contemplating an additional investment of $12 billion in Brazil, which was first announced by President Dilma Rousseff during her visit to mainland China in April of this year. The company already operates at a limited capacity in the South American country, but the proposed investment would significantly expand production capabilities. New investments would offer Foxconn direct access to Brazil’s market and a means of avoiding the country’s notoriously high tariffs.
If the deal goes through, it would be Foxconn’s largest global investment. But the company’s leadership has hesitated in recent months.  Mr. Gou expressed concern about a culture in which “there’s all that dancing” and “as soon as they hear ‘soccer,’ they stop working.” Foxconn has asked the Brazilian government for certain labor and infrastructure guarantees and may eventually reduce the amount it is willing to invest.
Foxconn’s Mexico production is based near Ciudad Juarez. Its massive facility employs approximately 8,000 workers from nearby towns. The company’s presence was warmly welcomed by politicians in both Chihuahua and New Mexico, but faced controversy after a disgruntled worker set fire to the facility’s activities center.
Further expansion into Latin America – though certainly welcome – isn’t guaranteed. Foxconn’s founder seems to prefer Chinese manufacturing, even despite rising labor costs and the recent Shenzhen tragedy. Chinese laborers are thought to be very skilled, to tolerate more, and to work longer hours than many of their foreign counterparts. Mr. Gou believes that rising labor costs can be offset by a move to China’s cheaper inland provinces.
China’s remarkable distribution network is yet another advantage – shipments from China to the US are generally cheaper even than shipments from Brazil.
But as Foxconn and other firms look to expand market share, Latin America’s emerging markets are bound to receive more attention. Although fresh foreign investment in the country’s stock market has slowed (especially in the investor exodus this week), foreign direct investment in Brazil has increased steadily over the past year. As one of the fastest growing BRICS countries, its consumer market is attractive to investors. The country’s Mercosur affiliation also allows for tax-free export of certain goods to other member countries.
Mexico, for its part, boasts proximity to the US and a skilled labor force. Its manufacturing sector grew thirty percent in the first three months of this year and its share of US imports is also on the rise.
As for Mr. Gou’s cultural bias: if he ultimately decides to replace many of Foxconn’s workers with robots, futebol (fútbol) fanaticism and a proclivity for dancing should no longer be of tremendous concern.

Categories: Brazil, East Asia, Economics, Mexico, Politics

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2 Comments on “Mr. Gou goes to Latin America”

  1. August 12, 2011 at 6:45 pm #

    One correction: The proposed investment Foxconn announced in April was $12 billion, not million.

    Although Mr Gou's remarks on the labor culture in Brazil are a little impolite, they also underestimate the extent of the problem. The main problem is that, even once you get past the initial cultural/language barrier, the cost of labor (not just wage levels, but also taxes and contributions on the wages), the rigidity of the labor law and the shortage of skilled labor in Brazil should all discourage such a massive enterprise. Foxconn will probably invest a couple hundred million in Brazil over the next few years to expand its assembly operations and perhaps invest some money in a token R&D facility to appease the Brazilian government, but I bet that this will get us nowhere near the $12 billion figure.

  2. August 12, 2011 at 7:14 pm #

    Thank you for the correction, Dani.

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