Foxconn’s ＂escape＂ to the United States is an uncertain gamble

Foxconn finally ran away. US President Donald Trump)7 announced on July 26th that Foxconn plans to build a new factory in Wisconsin to fulfill its commitment to invest in the United States. Foxconn will invest $10 billion to build a new LCD factory.

It is said that this will be the largest new investment by a foreign company in the United States in history, but it is only the first of many investment plans of Foxconn in the United States, and there will be more in the future, creating 3,000 new jobs for Wisconsin and having the opportunity to explore the scale of 13,000 people. Trump is quite satisfied with Guo Taiming: "He is a great businessman anywhere in the world."

Getting Foxconn to produce in the United States is a dividend for Apple and American manufacturing. Revitalizing the manufacturing industry in the United States and hollowing out the treatment industry can also be regarded as a great achievement project during Trump’s tenure. It has a strong demonstration effect and driving effect on the return policy of American manufacturing industry. In the past 40 years, the scale of industrial employment in the United States has fallen sharply. Therefore, for many years, the slogan that the United States has been shouting is to let the manufacturing industry return.

For the United States, the purpose of manufacturing return is more about employment and the adjustment of economic structure. Therefore, the United States is striving for advanced and high-quality foreign capital and manufacturing giants to enter. The problem in the United States is that the labor cost is high, the scale of manufacturing industrial clusters is not as good as that in China, and the degree of automation is high, so the number of jobs and employment is getting less and less.

Moreover, Foxconn is the largest supplier and foundry of iPhone. Since the Obama era, the US government has continued to put pressure on Apple, hoping that Cook can move the manufacturing of Apple products back to the United States.

Foxconn’s establishment of a factory in the United States can obviously drive Apple to bring some of the production capacity of the industrial chain back to the United States. It can also help Apple to check and balance Foxconn at home. For example, in the future, Apple can increase its control by cooperating with Foxconn to build factories, investing in capital, and infiltrating forces such as technology operation and placement of Apple executives and core technicians. Even Foxconn’s factory building behavior will also play a leading role for many component manufacturers in Apple’s supply chain.

As early as last year, Apple proposed to Foxconn and Pegatron United Technologies the idea of withdrawing all Asian production lines to the United States. At that time, many suppliers did not respond, and Pegatron Technology refused this proposal. Tong Zixian, chairman of Heshuo, said earlier that many suppliers are not interested in building factories in the United States, because the supply chain of the electronics manufacturing industry is huge and complex, and it is very difficult to achieve pure American production.

But now that Foxconn has moved to the United States, many manufacturers in the Apple supplier group may start to feel anxious, which will promote the idea of those wavering manufacturers moving.

Therefore, Foxconn’s investment in the United States has brought great benefits to Apple, because in terms of innovation, if designers, engineers and workshop production employees can gather in the same eco-industrial environment instead of scattered in different countries, close business intersection can enhance their integration and understanding, which can bring greater creativity. Obviously, this is a common dividend between Apple and American manufacturing.

For Foxconn itself, going to the United States to build a factory or completing its industrial upgrading to seek the inevitable road of transformation will help break the brand label of the foundry. Moreover, exporting to domestic market can not only greatly increase Foxconn’s brand premium, but also increase the price and profit of its products.

Trump grabbed Foxconn to build a factory in the United States, but it was difficult to solve the ills of American manufacturing in a short time. On the one hand, the American manufacturing industry has long transferred its production to the third world countries, and only retained R&D and design at home, showing a trend of "de-hard assets". Since the 21st century, the competitiveness of American manufacturing industry has begun to show a downward trend. Nowadays, there are fewer and fewer skilled technical workers in the United States.

On the other hand, the manufacturing industry needs industrial chain clusters, but in the United States, the manufacturing industry has been hollowed out after moving out. Now, if you want to move back and rebuild the manufacturing industry chain clusters, you have lost the talent, technology and industrial chain foundation.

Only relying on political rights can attract the laws of global capital in a short time, but in the long run, the rise and fall of industries and the flow of talents have its long-term economic laws, and capital needs global reproduction and expansion, rather than running around political calls.

For Foxconn, the trouble to set up a factory in the United States is the lack of a large number of skilled industrial workers and supporting facilities for the production of raw materials and parts, and there is no perfect upstream supply chain industrial cluster. It takes time to hire a large number of skilled industrial workers, and the cost rises sharply.

Germany’s Le Monde said that in less than 20 years, factories in the United States disappeared by nearly a quarter. Friedman, a famous American columnist and author of "The World is Flat", once said that the United States is now a small town with 200 start-ups, each of which employs 50 people. It is difficult for the traditional "Made in America" manufacturers to come back.

Therefore, for Foxconn, the most difficult thing is to obtain a large number of skilled workers and related supporting industrial chains, although it may obtain tax incentives provided by local, state and federal governments in the next few years. Industrial agglomeration plays an increasingly important role in manufacturing industry.

On the other hand, the region has little connection with Foxconn’s suppliers and customers and industrial layout, and there is not much reserve of skilled workers, let alone industrial agglomeration, which means that Foxconn is faced with many uncertain risks and has to bear too much infrastructure construction costs.

Because OEM manufacturers like Foxconn need to rely on numerous suppliers’ industrial support to produce, Foxconn will almost start to cultivate talents and develop industrial support in this state, which will drive the development of relevant supply chains in the United States and directly or indirectly bring many employment opportunities. Therefore, in the final analysis, the benefits that Foxconn brings to this state in the United States still far outweigh the benefits that Foxconn has gained.

Therefore, although people know that a profit-oriented enterprise should be counted as an economic account, here at Foxconn, there is also the meaning of political flattery and accommodating people.

Analysts from foreign research institutions have clearly pointed out that Foxconn is trying to avoid the increasing pressure from the US government, which is a political expedient. Because from a commercial point of view, it is not so reasonable to choose to build a factory in the midwest of the United States rather than other regions.

Moreover, it is still a question whether Foxconn’s corporate culture is suitable for Americans, because today, it is difficult for Americans to return to the assembly line and work like blue-collar workers in China, Viet Nam, Southeast Asia and other countries.

Because industrial correlation, demand, environment and industrial ecological correlation are the main driving factors of investment choice. However, Foxconn has not settled this account here. After all, where the depression effect can be generated, where will the money flow? Here at Foxconn, there is obviously a sense of political flattery.

After all, Trump pressured Apple to move the iPhone back to the United States for production. Foxconn needs to hold Apple’s thigh tightly and share the pressure for it in order to win more orders from Apple in the future. In addition, in response to Trump’s new administration’s call for the manufacturing industry to return, it will make some profits, but it will also facilitate Foxconn to go further in the US market and build its brand awareness and influence in the US manufacturing field and internationally.

On the other hand, although the American manufacturing industry itself is declining, it has always been at the top in terms of technology research and development and accumulation and the right to speak in the industrial chain. To become a super giant with upstream and downstream connectivity, Foxconn needs to stand on the basis of American manufacturing and technology research and development. Complete the transformation.

Due to its own manufacturing genes, most employees of Foxconn have long been screws in the product line and rarely participated in upstream research and development. Although Foxconn faces the problem of skilled workers in the United States, it also has the opportunity to attract more cutting-edge scientific and technological talents, participate in the upstream R&D links of American manufacturing, and promote the overall innovation.

But generally speaking, in the modern economy, industrial agglomeration determines the position of manufacturing industry, and there is no integrated industrial related manufacturing cluster in the United States, so Foxconn’s establishment in the United States has mixed advantages and disadvantages, and it is still a gamble. Entering the United States does not mean that you can have global supply capacity. On the contrary, it is prematurely washed away by higher-dimensional industrial science and technology forces due to insufficient innate foundation.

At present, not only Foxconn and Softbank, but also many enterprises are on their way to the United States after the implementation of large tax cuts in the United States. Although they all have a little political contribution, it seems that the collective visit of international manufacturing companies to the United States has become a hot outlet.

For example, Samsung Electronics recently announced that it will invest 380 million US dollars to build a home appliance manufacturing factory in South Carolina. In February this year, Intel announced that it would invest $7 billion in building a semiconductor factory to produce seven-nanometer chips in the next three to four years. In May this year, some media reported that Infosys, a world-renowned software outsourcing giant, announced that it would invest in the United States and create 10,000 jobs. In March 2017, LG Home Appliances will also establish a new factory in the United States.

The collective action of global industrial capital may be based on the demand for optimal allocation of resources on the one hand, and on the other hand, it is based on showing kindness and standing in line with the Trump administration in order to obtain the new government’s policy dividend for manufacturing industry and find a new direction for industrial layout, so that the integration of manufacturing industry into the US market can enhance its international competitiveness and attract better technology and talents.

We know that manufacturing is the foundation of a country’s economy and the guarantee of people’s livelihood and employment stability. This is an important reason why the United States does not hesitate to compete for manufacturing giants with tax, cost and policy concessions on a global scale.

As early as 2016, during the two sessions of the National People’s Congress, Cao Dewang submitted a proposal, saying that the rising labor in China, transportation costs, high industrial land costs, tax burden, resource prices, etc., made the unreasonable cost factors more prominent. On the contrary, China’s neighboring countries with late-developing advantages such as demographic dividend are creating conditions to attract investment.

At present, in the United States, except that labor is higher than that in China, the costs of energy, land, logistics and finance are all lower than those in China. In particular, it is mentioned in the industry that the land price difference between China and the United States is as high as nine times, and the tariff problem in the United States, if you export after manufacturing in the United States, the product price is almost the same, and you can get a higher brand premium. So early layout in the United States is obviously a more cost-effective choice.

It is also an indisputable fact that part of China’s manufacturing investment is flowing to the United States. According to the data of the Ministry of Commerce, by 2015, the manufacturing industry has surpassed the financial industry and become the most important industry for China’s direct investment in the United States. Wang Shouwen, Vice Minister of Commerce, revealed that in 2016, the scale of foreign capital utilization in China is expected to be the same as that in 2015. Compared with the year-on-year growth rate of 6.4% in 2015, China’s attracting foreign investment slowed down significantly last year.

Moreover, the domestic manufacturing industry has always been given the impression of cheap, backward production capacity and low-end sweatshops, which has long been stigmatized. Nowadays, young people in China are increasingly reluctant to flow into the manufacturing industry. Zong Qinghou, chairman of Wahaha, also complained before: the taxes and fees in the real economy are relatively high, the profit rate is very low and it is very hard, and many people are unwilling to work in the real economy.

Many people don’t want to work in the real economy, and the environment of the real economy is not good, which also makes China local and foreign manufacturing investors in China start to weigh and wait and see those countries that release friendship and dividends.

An important reason why the high-end upgrading of domestic manufacturing industry has not been successful is that the profits of manufacturing industry have not been used to invest in high-end technology research and development to complete the transformation from low-end cheap factories to capital-intensive and technology-intensive enterprises, but have been used to participate in shares or flow into real estate and other hot industries.

In current China, it is not clear which industries can replace real estate to drive growth. On the other hand, China’s manufacturing industry is also experiencing the same path as American manufacturing. For example, we can see that many of Shenzhen’s once prosperous clothing and toy factories have moved to Vietnam and other countries with lower costs.

Now, some consumer electronics manufacturers are also moving out. Many enterprises are saying that they will use robots instead of manpower to cut costs, while some enterprises have already replaced machines on the assembly line. At this time, the United States shouted that the manufacturing industry was returning, and Foxconn moved its factory to the United States. In fact, it was a warning to China’s manufacturing industry.

We know that China’s manufacturing industry and the real economy are abnormal in the current environment. It is not that the United States naturally develops to the top and then naturally expands globally to Zhang Zhilu. Instead, when the industrial base and scientific and technological development level of manufacturing industry are still in the development stage, capital, labor and talents are accelerating away from manufacturing industry, and then flow to real estate, Internet industry, financial industry and other fields where money is fast coming, and there is a lack of real respect and attention to the real economy and manufacturing industry.

On the one hand, the United States is vigorously promoting measures to attract outstanding global manufacturing enterprises, while at home, including Samsung, Toshiba, Panasonic and Sony, they are all considering reducing their capital in China and focusing on countries with lower costs.

If the manufacturing industry is marching towards the era of Industry 4.0, but the soil, cost, atmosphere and technical level of China’s manufacturing industry are still not enough to support the development and cost-effective advantages of high-end manufacturing industry, then in the future, more and more outstanding manufacturing entities will run to countries with more dividends. Of course, many international high-end manufacturing entities will not completely abandon China’s manufacturing industry at present, but more and more will tend to focus on both hands and put their eggs in multiple baskets.

Today, with the gradual loss of demographic dividend, the competitive advantage of domestic manufacturing industry and its attraction to foreign investment cannot still rely on lower-cost labor resources. Therefore, what the current manufacturing industry leaves us is not only reflection, but also crisis.