Supply Chain Matters provides a brief update on Foxconn’s formal announcement of a significant investment in a U.S. manufacturing facility.  At a White House ceremony held on July 26, Foxconn Chairman and CEO Terry Gau made the announcement flanked by a host of Wisconsin State and U.S. Congressional leaders, and later, President Trump. 

The new $10 billion factory, to be located and built in Southwest Wisconsin represents employment of upwards of 3000 people initially and as many as 13,000 people at peak capacity. Further indicated was that upwards of 22,000 indirect jobs could also come from the new plant at peak capacity. CEO Gau indicated in the White House ceremony that Foxconn, through its new subsidiary, Sharp Corporation, will introduce the latest 8K LCD technology for applications across many industries including automobile displays, medical devices, televisions, and smartphones. This initial investment planned by Foxconn designed to rebuild a high-tech electronics supply chain within the United States and there are already reports of a pending announcement for an additional electronics production facility in the State of Michigan.

Roughly three weeks since this announcement and there are already differing views and stated skepticism regarding the viability of this announcement.

First, the overall impact and magnitude of the announcement was somewhat muted by the kaleidoscope of conflicting Trump Administration events consuming the news cycle that week. Not lost by social media and cable news was the irony of the States in the short-list, all being those that predominantly voted for Mr. Trump, something that this blog pointed-to as-well. The final selection being in the home state of the Speaker of the House of Representatives comes with its own political irony.

Coverage by general media such as the New York Times and the Washington Post was quick to note that Foxconn has in the past, demonstrated a track-record of not following-thru in its multi-billion-dollar plant commitments. In other regions such as Brazil, India, Indonesia and Vietnam, investments have fallen far short of expectations, as well as a $30 million commitment to build a factory in Pennsylvania four years ago.

Then there is the magnitude of the overall $3 billion in incentives to be provided by the State of Wisconsin and its taxpayers, reported to average $15,000 to $19,000 per job, annually. One expert at a nonpartisan non-profit research firm in Washington classified the Foxconn deal as the fourth-largest incentive deal in the United States.

A report from a Milwaukee newspaper indicates that taxpayers would have to wait upwards of 25 years, until the year 2043, to be able to recoup the payments to be made to Foxconn. Reported was that a state fiscal bureau found that over the next 15 years, state taxpayers would pay upwards of $1 billion more to Foxconn than the additional taxes that would be generated. A spokesperson for the State’s Governor indicated that such a trade amounts to an excellent investment for the State of Wisconsin.

Then, we have the “tweet” by President Trump, two days before the Foxconn announcement, indicating that Apple CEO Tim Cook informed him that Apple would have forthcoming announcements of significant announcements in building three manufacturing plants in the U.S. During Apple’s recent financial performance briefing last week, CEO Tim Cook seemed to dampen such expectations, indicating that Apple remains committed to creating jobs through payments to applications developers and orders to U.S. suppliers. Such statements beg the question of where did President Trump get his information or is there some quid-pro-quo negotiations underway behind the scenes.

The bottom-line, from our lens, is that Foxconn cannot afford to short-change its stated commitments to a U.S. Manufacturing presence.  The announcement represents a business decision with wide-ranging benefits to Foxconn as well as its major customers, including Apple and others. It also represents a politically-charged decision, where Foxconn obviously played to the various dimensions of local, state, and national politics. If one plays with fire, best that one continues to monitor the overall temperature. Especially in an environment where the risk of bi-lateral trade wars could break-out at any time.

Bob Ferrari

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