Tag Archives: Foxconn

Fostering Luxshare As The Next Foxconn Suits Apple And Beijing

A screenshot of a Luxshare Precision press release about Apple chief executive Tim Cook visiting a Luxshare Airpods production line in 2017. Photo credit: courtesy Luxshare.

THREE RECENT CHANGING of hands of Chinese factories give a glimpse of the emerging shape of the new world of supply chains and highlight the contradictions and competition that lurks within as companies on both sides of the US-China divide navigate between national policy and commercial self-interest.

The transactions are:

  • the 3.3 billion yuan ($477 million) deal in July by which the fast-rising Shenzhen-based Luxshare Precision Industry bought two electronics assembly plants from the No 3 Taiwanese iPhone assembler, Wistron;
  • Hunan-based Lens Technology’s $1.4 billion acquisition this month of two factories from Catcher Technology, a Taiwanese firm that makes metal casings for the iPhone. Glass-maker Lens already supplies screen glass for iPhones; and
  • the buyout announced this month by the No 2 Taiwanese iPhone assembler, Pegatron, of the remaining shares it does not own of Casetek Holdings, and take the unit private in a deal valued at $1 billion. Casetek is another precision metal chassis maker with factories mostly in and around Shanghai.

Two of the companies central to all the deals are not direct participants. They are Apple, the world’s most valuable tech company, and Foxconn, Taiwan’s No 1 iPhone assembler, the leader in contract electronics manufacture in China and long the linchpin of Apple’s global supply chain.

Apple’s CEO, Tim Cook, seen in the screenshot during a 2017 visit to a Luxshare factory that makes Apple’s AirPods, has been plain that his company is seeking to diversify its supply chain. Foxconn’s chairman, Young Liu, has been equally explicit that his company plans to split its operations to serve the China and US markets separately, declaring that ‘China’s time as factory to the world is finished’.

The commonalities in those two views make the Luxshare deal significant on several counts. While it follows a series of investments by Luxshare in Apple component makers, it moves the company to being an iPhone assembler for the first time since it became an Apple component supplier in 2012. As well as marking a significant milestone in its manufacturing capabilities and status, it also breaks the iPhone assembly monopoly of the Taiwanese trio of Foxconn, Pegatron and Wistron.


It also gives Apple some insurance that the iPhones (and other products) it sells in China can be made in China should producing in-market become essential because of deteriorating relations between Washington and Beijing and the import substitution drive implicit in the ‘dual circulation’ policy. China provides an estimated one-fifth of Apple’s global revenue. It needs to be able to defend that. That, in turn, gives credibility to suggestions that Luxhare’s expansion to let it become more deeply involved in Apple’s Chinese supply chain has the US multinational’s encouragement.  

It is also worth noting that other US multinationals that Luxshare counts as customers include Microsoft, Google, Amazon, HP and Dell. That is an overlapping roster with Foxconn, which sees Luxshare as an emerging competitor to be taken seriously. Luxshare’s founder, Wang Laichun, was once a ‘factory girl’ at a Foxconn affiliate. A lot of Foxconn’s iconic founder Terry Gou has rubbed off on her, by all accounts. Luxshare’s market capitalisation is now larger than that of Foxconn’s parent Hai Hon Precision Industries, and Wang is now one of the wealthiest women in China.

India and Vietnam

Apple and the other US multinationals still have markets to serve outside China. Those increasingly demand supply chains that are not only non-Chinese but also not global. Foxconn is already manufacturing outside China and increasing its capacity to do so in order to avoid US tariffs on Chinese exports, and as insurance against future restrictions.  It already assembles iPhones in India for the Indian market (thus avoiding India’s high customs duties on imported iPhones. Wistron is about to follow suit, one reason it felt able to sell of its assembly plants in China to Luxshare.

One of the new locations that Foxconn is looking at for expansion is in northern Vietnam. There, as it happens, it would be a near neighbour of another plant where Luxshare makes AirPods. Apple will also make some of its smartwatches at Luxshare factories in Vietnam and is considering one for iPhone assembly. 

Luxshare, which established a company in India last year, is also reportedly considering building a plant in Mexico, where Foxconn and the other Taiwanese electronics manufacturers like Pegatron have been eyeing new locations, too. Foxconn already has a series of production lines there, which can take advantage of.tariff-free exports to North America under the new US-Mexico-Canada trade agreement. 

Reconfiguration conundrums

This reconfiguration of global supply chains into regional and local ones also contains several self-contradictions that reflect the illogicalities of the decoupling of the US and Chinese economies in the tech sphere. Building up Luxshare gives Apple supply chain diversification, local production in China and, as a bonus, some bargaining power with Foxconn. However, Beijing sees Luxshare as a way to diminish the Taiwanese, and especially Foxconn’s sway over contract electronics manufacturing in China, to build an indigenous industry, and to tie in the China business of Apple and other multinationals, more closely to national economic management. 

The Lens Technology deal falls into many of those categories, too. It is seeking to follow Luxshare in moving up from being a component supplier to Apple to an iPhone assembler, taking advantage of Beijing’s drive to foster indigenous technologies and the supply chains to turn them into products. Pegatron’s tightening grip on Casetek is a direct counter to that.

New Foxconn or next Huawei?

However, it is Luxshare that Beijing views as the leading candidate to dent Foxconn’s dominant presence. Thus it comes as no surprise that it is a leading recipient of subsidies from the 147.2 billion yuan fund set up last year to upgrade China’s manufacturing capability.

The perversity is that the more subsidies Luxshare gets, the cheaper it can sell its services to Apple, which means the cheaper Apple can sell its products, and not just in China. One risk is that that might put it on the same US radar that has been locked on Huawei Technologies.

Leave a comment

Filed under China-U.S., Taiwan, Technology

Suffer The Little Children, But Not On Foxconn Assembly Lines

This is not going to play well around the world in places where China’s employment practices are seen as fountains of unfairly cheap labour. Officials in Yantai in Shandong have removed 56 schoolchildren working as interns from a Foxconn factory in the city. China’s labour laws specifies 16 as the minimum working age. The interns were between 14 and 16.

How they got there is the question. Hon Hai Precision, Foxconn’s Taiwanese parent, says its Yantai factory asked the local development zone for help in covering a severe labour shortage last month. The interns were supplied by the development zone from local vocational schools. This Bystander suspects that blind eyes were turned on both sides as  children turned up among the thousands of other legal-aged temporary workers supplied to do the tedious and waring work on production lines. And before you ask, no, it doesn’t make iPhones or any other Apple gizmos there; it produces Nintendo Wii gamepads.

Hon Hai says employing underage interns is a violation of its own policies as well as China’s labour laws. It says an internal investigation has turned up no further cases of underage interns working in its factories. It will let interns of legal working age leave if they so choose. Its interns don’t work for free but are paid a fraction of a regular wage.

We do know of a previous case where local officials in Henan were given targets by their township to recruit staff to Foxconn factories there, with their work performance judged according to whether they fulfilled their quotas. But once bitten twice shy. We suspect that the Yantai case will result in some exemplary punishments. We’ll be looking to see whose are the harshest, the company’s or the authorities’, and, if the later, from what level they are handed out.

Leave a comment

Filed under Economy

Foxconn Expands Inland Production Capacity

Foxconn, the Taiwanese-owned electronics contractor whose Shenzhen plants were hit by a wave of suicides earlier this year, is to expand its presence in Chengdu with a new assembly plant there, the latest of a number of new inland factories. Foxconn is owned by Hon Hai Group and numbers some of the best known global technology brands among its customers such as Apple, HP, Sony and Nokia.

Since the suicides put the company into the international spotlight it has opened new assembly plants in Henan, Hebei, Shanxi and Hubei provinces as well as raising wages and improving living conditions for workers at its giant Shenzhen operations. The Chengdu plant is expected to produce advanced panels for LCD TVs and tablet PCs. Foxconn has already has started producing Apple’s iPads there and the new plant will let it expand production of these. Hon Hai has reportedly allocated $275 million for investment in six new Chinese plants, most of them inland.

Leave a comment

Filed under Industry

China’s Welcome Rising Wages

Much of the commentary about China written by non-Chinese, scholarly, commercial, journalistic, is written by Americans, as weight of numbers suggests it would. That may be, though, why historical perspective is often missing. America is a country where history is regarded as the refuse of the present rather than prologue to the future. As we read coverage of the strikes and pay rises at the likes of the Foxconn and Honda factories and of Uncle Wen Jiabao’s tribute to the migrant workers filling all the other workshops and assembly plants of China’s industrial heartland, this strikes us as being particularly the case when it comes to China’s economic development.

There is an arc to industrial revolutions. Economies transverse it in their own ways and at their own speeds, but they don’t avoid it. That is as true for China as it was for England, Germany, the U.S., Japan, South Korea and many others before it.  One characteristic of China’s industrial revolution is that it is being carried out under the umbrella of state-owned capitalism. Another is that, unlike, say, Japan, which became the low-cost export manufacturer to the world by taking labour out of manufacturing, China did so by putting low-cost labour in.

That was always going to be unsustainable as China’s industries started moving up the development ladder as they are now doing. One measure of that is the rising level of capital per employee. Another is the rising skill levels being required from workers. The inevitable consequence is a rise in productivity. The International Labor Organization’s most recent biennial international productivity study shows China’s productivity increasing by an annual average of 5.7% since 1980 (the figures run to 2006 but the trend is clear). Wages should be rising to reflect that, just as wages in England and America did at comparative stages of development. (Not that those pay rises didn’t come without their share of labor struggles.)

Even the scale of pay rises being seen at Foxconn, a special situation anyway, and Honda would not materially change retail prices for China’s exports. Labour accounts for about 5% of the price of consumer electronic goods like an iPhone. There a plenty of points along global supply chains where some if not all of any wage cost increases can be absorbed. If wage inflation is to push manufacturing out of the present industrial heartlands it is more likely to go to inland than to Vietnam or other lower-cost countries. True, some Western multinationals are looking at shortening their international supply chains, but that is more because of factors such as event risk (think volcanic dust disrupting transport) and carbon footprint concerns than labour costs.

There is one more reason to cheer rising wages in China. More money in the pockets of Chinese workers and thus more purchasing power. That is a prerequisite for domestic-demand driven growth.

Leave a comment

Filed under Economy, Industry, Politics & Society

The Strange Case Of Factory Suicides

We are not sure what to make of stories circulating about a series of suspected suicides at a Foxconn plant in Shenzhen. The Taiwanese company is an contract manufacturer of electronics equipment. Customers include U.S. multinationals such as Apple, Sony and Hewlett-Packard and products produced include the iPhone and Wii.

At least 10 of its workers, all under 25, have apparently committed suicide, the most recent a 19-year old  employee from Hunan who is thought to have jumped from a dormitory building. There are said to have been at least 20 failed attempts. The company has hired Buddhist monks to rid the place of evil spirits and taken practical measures such as erecting 3-meter high fences around the dormitories, hiring psychiatrists and playing music to calm workers on the assembly lines.

The plant is huge; it employs 420,000 and there is talk of poor working conditions and long hours. (An English translation of an undercover investigation by Southern Weekend is here.)  A BBC report says theories range from the presence of a suicide cluster (essentially a spate of copycat attempts) to that number of suicides being what would be expected in a population that large. Whatever the reason, factory suicides are not uncommon even if those at Foxconn are getting the most attention. Tt is a disturbing underbelly to factory life.


Filed under Industry