Global high-tech electronics contract manufacturer Foxconn’s proposed large investment in U.S. based manufacturing is now under the looking glass as an industrial development agency representing the State of Wisconsin indicated this week that the contract manufacturer  has not met outlined conditions for receiving State monetary incentives.

According to reports from both the Wisconsin State Journal as well as The Wall Street Journal, the State of Wisconsin has denied a request from global contract manufacturing services provider, and prime Apple contract services provider Foxconn for the initial billions in tax subsidies due, reportedly until company officials draw up a new contract regarding the now revised scope and purpose of the proposed facility.

These reports indicate that in a letter sent Monday to Foxconn Vice Chairman Jay Lee, the Secretary of the Wisconsin Economic Development Corp. (WEDC) wrote:  “Foxconn’s activities and investments in Wisconsin to date are not eligible for credit” under the more than $3 billion contract first signed back in 2017. The letter further stated that negotiation attempts between the state and company this summer failed to result in a new contract.

According to the WSJ report, WEDC CEO Missy Hughes in her letter indicated “I have expressed to you my commitment to help negotiate fair terms to support Foxconn’s new and substantially changed vision for the project.

Fosconn manufacturing presence

Background

In January 2017, international and U.S. business media began reporting that Foxconn was considering investing $7 billion to build an advanced flat-panel LCD screen factory in the United States. The plant would have reportedly be associated with the contract manufacturer’s ownership of television manufacturer Sharp.

In July of that year, Foxconn made its formal announcement at a White House ceremony, with the selection of Wisconsin as the location of the new facility. At the time, Wisconsin Republican Governor Scott Walker, indicated at the White House and press gathering that the Foxconn manufacturing campus will span 20 million square feet. The Governor further coined a new term: “Wisconn Valley”, a new global center for cutting-edge technology.

The company’s founder and then chairman Terry Gou, had personally led the negotiations for the facility and joined President Trump in the announcement. At the time, President Trump had referred to this facility as being the “eighth wonder of the world.”

The then proposed new $10 billion factory, was to be located and built in Southwest Wisconsin and represented an initial investment designed to rebuild a high-tech electronics supply chain within the United States. According to reports at the time, the Wisconsin plant would employ upwards of 3000 people initially and as many as 13,000 people at peak capacity.

Three weeks after the original announcement, there were already differing views and stated skepticism regarding the viability of this project. Prominent U.S. news organizations such as the New York Times and the Washington Post pointed out that Foxconn had a track-record of not following-thru in its multi-billion-dollar plant commitments in other regions such as Brazil, India, Indonesia and Vietnam. Similarly, for a prior announcement to build a $30 million production facility in Pennsylvania.

Since that time, plans and associated commitments have sown confusion, little progress and increased business and political frustrations related to the proposed investment.

In a statement provided yesterday, Foxconn indicated it had: “come to the table with WEDC officials in good faith to discuss new terms of agreement which has consequential impacts to Racine County and the Village of Mount Pleasant, third parties in this development project.”

On their part, Wisconsin state officials indicate that tax subsidies that were agreed to in the initial contract were tied to jobs and capital investment for specific projects, which Foxconn is failing to deliver. This week’s WEDC statements indicate that the manufacturer was expected to have created slightly over 2000 jobs at the proposed production facility by the end of 2019, as well as invested upwards of $3.3 billion.

The CMS provider indicates it has not received any tax credits despite achieving employment levels in excess of 520 workers and investing $750 million in the project including over $500 million of that number in Foxconn Manufacturing Park.

The manufacturer had initially planned a termed Generation 10.5 liquid-crystal display production facility to produce large screen televisions but has since scaled back plans toward a far smaller, Generation 6 scope facility aimed at producing displays for mobile phones, tablets, notebooks and wearable devices.

 

Implications of This Development

It would seem that a large potential high-tech manufacturing and jobs creation opportunity for the U.S. is now cast in official limbo, not that it was already the topic on ongoing skepticism.

In early 2019, one year after the initial announcement, the provider was already communicating a reduced scope strategy, after negotiating record-breaking financial incentives from the State of Wisconsin. An exclusive report by Reuters at the time, citing informed sources, indicated that Foxconn was already prepared to walk away if it was unable to meet Wisconsin’s job creation and capital investment requirements. It would now appear that the State development commission has now made the formal move to seek re-negotiation of this proposed manufacturing presence.

Where this ends-up is obviously subject to added speculation, especially since the political hype of the ongoing U.S. Presidential election is at its peak. Political debate surrounding “WisCon Valley” in part caused Wisconsin voters to elect a Democratic Party affiliated governor who had campaigned on the perceived false promises on the scope of this project.

This week’s development further comes as Foxconn continues to communicate that it will accommodate needs of its high-tech OEM customers including Apple to have an alternative manufacturing presence outside of China, given the heightened trade tensions involving the U.S. and China.

In a Supply Chain Matters blog published in August, we highlighted a published Nikkei Asian Review report indicating that Foxconn was already executing a strategic supply network strategy to buffer the increasing decoupling of U.S. and China supply networks. Alternative Foxconn production sites for smartphone and other high-tech components now include increased presence in India and Taiwan. India itself has now announced a cumulative $143 billion in incentives over a five-year period to attract added high tech manufacturing presence. Thus, Foxconn along with other high tech electronics manufacturers will continue to seek out the most attractive incentives.

By our lens, what remains the silent voice in all these developments surrounding a potential renewed high-tech manufacturing presence in the U.S. in indeed the silence of Apple and its influence on any renewal of a U.S. centric supply network strategy. That premise seems to continue to be non-economically viable when more attractive lower cost alternatives continue to exist across Asia, and when profitability and investor needs outweigh social responsibility rhetoric.

 

 

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