Fast Company

Foxconn, Brazil Battle Over Future $12 Billion Game-Changer Factory

rainforest Brazil

Foxconn, most famous as Apple's China-based manufacturer, has set out a stringent list of demands for Brazil to meet before it builds a $12 billion plant there.

Rumors swirled for long while that Foxconn, also known as Hon Hai, was considering expanding its existing local business and opening a multi-billion dollar manufacturing facility in Brazil, with firmer data emerging only earlier this year. Now Foxconn has revealed its list of requirements before it commits over $12 billion in equivalent currency to build all the infrastructure needed to start churning out iPads, iPhones, and more equipment for Dell and Sony (which it already serves through a smaller plant in São Paulo). Some of them are perfectly understandable, some of them tough. In return Brazil is demanding co-operation from Foxconn, including respect for what the international community may deem as archaic and obstructive labor laws. The thing is if both sides can agree then the situation for gadget manufacturing and delivery over the world could change--particularly for Apple gear.

Foxconn's demands have been communicated to the government, and include:

  1. A large facility, housing more than one Foxconn division
  2. High-speed Wi-Fi
  3. Expedited shipping at airports, including São Paulo
  4. Funding support from the Brazilian National Development Bank
  5. Assistance in finding local, smaller investors
  6. Infrastructure improvements to permit fast delivery in and out of the site
  7. Fiber optic Net connections

The government's response, through president Dilma Rousseff, has been to demand Foxconn employ mainly local labor (no doubt to counter concerns it could ship in experts or even low-grade workers on the cheap from China), share technology and afford "basic respect" of Brazil's labor laws.

These laws are tricky, and are famous for their antiquated stance and labyrinthine layers, which are tricky enough that it's habitual for up to a third of Brazil's workforce to be made redundant every year and that legal challenges can draw out over decades. The demand Foxconn respect them is a direct response to public criticism from Foxconn's CEO Terry Gou in 2010 that questioned high wages in Brazil as well as the Brazilian work ethic--two things that Foxconn will find challengingly different than back home in China.

But if the plans went ahead, it could set an interesting precedent, particularly where Apple is concerned. Foxconn in China has been embroiled in a scandal over working conditions, which some allege have pushed the company's employee suicide rate to impossibly high levels. The company is expanding its operations in China, but the demand from its Western clients is still enormous. Though limited supply of component electronics from sub-contracters has played its part, Foxconn will also bear some of the responsibility for supply chain delays that have limited availability of new products like the iPad 2--and notably the slow international roll-out of the iPhone 4.

A South American plant wouldn't necessarily improve this aspect of the business, but it would allow a whole new--and much speedier--distribution pattern to arise. Foxconn Brazil products could be shared around the U.S. much more quickly than from China, leaving the Asian facilities to service the huge European market, and the swiftly growing markets at home in China and other Asian locations. This could change how Apple typically stages its new product roll-outs, leading to a more efficient and thus income-earning launch for new devices. And if Foxconn Brazil works well, there would be a precedent for other firms currently favoring Asian locations to consider secondary facilities in the South American nation too. Which may be favorable, in the aftermath of Japan's earthquake and tsunami disasters.

Apple's (and other Western firms) only concern with the idea may be to ensure that Foxconn's plant and infrastructure changes doesn't damage or pollute a nation that's already in green activists headlights as under environmental risk.

[Image via Flickr, ciat]

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4 Comments

  • Andrew Krause

    Our labor costs are too high. Unless you're building labor intensive durable goods (as in "cars"), it's very difficult to be cost competitive at US labor rates unless you either locate in the rural south or you adopt peice-rate like Lincoln Electric has. On just about everything else, even the high cost of transportation doesn't overcome the labor cost barrier.

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  • XSportSeeker

    That'll be a hard one.
    Unless the brazilian government creates very exceptional rules for Foxconn alone, the demands they are making would shift the whole structure of brazilian economy.
    I don't know that much about the politics and economy behind the deal, but from what I read from a major brazilian newspaper (I'm brazilian), they are demanding for shipping transit to be faster, for environment demands to lower, for changes in customs rules among some others.
    Bureaucracy could just be Brazil's second name. People, industries and international companies has been demanding change in the customs, import taxes and transit policies for decades now. It calls for a major politic reform.
    Now, we've been receiving promises after promises on every election year, that there will be reforms on education, politics, health and other areas.... to no avail.
    There are some cases in Brazil of structures - like power plants - being stuck in limbo for years due to environmental issues. Protecting the environment is a standpoint of some political parties.
    Finally, about wages and work ethics. The main political agenda of the current president is to protect and support workers. It's in her political party name, actually. PT - Partido dos Trabalhadores - translates to Workers' Party.
    Workers are finally seeing some increase in their very low minimum wage, and this has become a very significant flag of the current brazilian politics. I happen to live in the state with the highest minimum wage in Brazil, which is around 445 USDs.

    So, I'm thinking this will be very hard to happen. I can see the potential of this being very good to Brazil, but lots of very big changes will have to be done. The good changes, we are struggling for decades to happen. The bad changes, we struggled for decades to avoid.
    Hopefully, out government will have the guts and find a way to make this happen without sacrificing brazilian rights in between.