An exclusive published report from Reuters indicates that Apple’s prime contract manufacturer Foxconn was reconsidering plans for its proposed Wisconsin manufacturing facility. The motivations and implications are what we believe to be a further reinforcement that fast-moving changes are underway in high tech and consumer electronics supply and customer demand network strategies

Just over one year ago today, the Supply Chain Matters blog highlighted the formal ground-breaking ceremony for Foxconn’s proposed new U.S. based manufacturing complex to be located in Southwest Wisconsin This new 20 million square foot factory facility valued at $10 billion, represented an investment designed to rebuild high-tech electronics supply networks within the United States in the form of LCD screen, television and electronic components manufacturing. The State of Wisconsin provided a reported $4 billion in incentives to ensure that this facility would be located in that state, along with the promise of upwards of 13,000 jobs when the facility was fully operating at capacity. Debate over the longer-term costs of such incentives to Wisconsin taxpayers contributed, in-art, to the defeat of the incumbent Governor in the 2018 election.  Consumer Electronics manufacturing

Like many related changes occurring across today’s high-tech and consumer electronics global-based supply and customer demand networks, indicators of manufacturing sourcing changes are now faster-moving.

In what is termed as exclusive reporting, Reuters indicates that Foxconn is now reconsidering plans for any large-scale manufacturing at the proposed Wisconsin facility. The report can well be interpreted to imply that rather than volume manufacturing, Foxconn is now viewing the facility to be a “technology hub.”

Citing conversations with the special assistant to Foxconn CEO Terry Gau, who is noted in industry circles as the driving force for all of Foxconn’s business strategies, the report indicates that while the global contract manufacturer was still evaluating options for Wisconsin, the reality of existing U.S. based supply network capabilities and the economics producing advanced television screens in the United States appear to be non-competitive.

The Reuters report goes on to indicate: “The company (Foxconn) may be prepared to walk away from future incentives if it is unable to meet Wisconsin’s job creation and capital investment requirements, according to the source familiar with the matter.

The above statement alone is an indication of a different set of industry developments now underway, most likely being driven by Apple.

Our readers can certainly be skeptical to such a sudden change in strategy, especially given the huge financial incentives that Foxconn was provided by the State of Wisconsin and the Trump Administration. The original decision had to be grounded in rigorous analysis, not only of U.S. based supply network sourcing investment required, but also on the economics of U.S. market demand for electronic devices. Recall that market demand was originally defined as not only LCD and television production, but a number of related devices utilized by U.S. based automotive, equipment and other industry supply network needs.

Concerns related to the original manufacturing strategy for Wisconsin began leaking in late May of last year.

 

What Has Likely Changed

We submit that what has changed is Apple’s, and increasingly other consumer electronics and broader-based manufacturers’ ongoing wake-ups to the realities to a definitive slowing of economic growth across China that is changing consumption trends, and to the implications of increased tariffs and trade tensions involving foreign-based manufacturers with product origins in the country.

Supply Chain Matters along with other high-tech industry focused industry has been highlighting various reports that Foxconn is now moving rather quickly to shift Apple’s iPhone production capacity away from China to other future market growth regions including India or Vietnam.

Over this weekend, Bloomberg reported Foxconn’s indication that the contract manufacturer had allocated upwards of $200 million for what was described as a “mega-development” in India, with the implication of moving the manufacturing of Apple products out of China. This report seems to further imply that Apple, along with Samsung and other high-tech and consumer electronics manufacturers are now coming to grips toward more obvious implications for future customer demand and supply network strategies.

They include ever higher direct labor costs in China, the ongoing geo-political trade tensions among the United States and China now extending, and realities of lower cost manufacturers now able to attract consumer buying interest across emerging markets. All are likely motivating changes in manufacturing and supply network sourcing toward regions that will likely provide future customer demand and lower overall supply network costs.

Noted in our Supply Chain Matters commentary published last week, there are now meaningful indicators of changing forces for high-tech and consumer electronics supply and customer demand networks. Manufacturers are likely about to tackle the realities of regionalized markets and trade protectionism and in exercising supply chain management risk mitigation.

 

Blog Postscript

After our initial publishing on this blog on January 30, President Trump reportedly contacted Foxconn’s Chairman, Terry Gau. The result of that conversation was apparently a Foxconn update indicating that the contract manufacturer have reverted back to the original plan to include electronics manufacturing at the Wisconsin site.

Where all of this stands is subject to ongoing developments.

 

 

Bob Ferrari

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