In U.S. gambit, Hon Hai hoping to pull suppliers with it

2017/11/01 16:52:19 fontsize-small fontsize-default fontsize-big
 U.S. President Donald Trump (left) and Hon Hai Chairman Terry Gou (郭台銘, middle)/CNA file photo

U.S. President Donald Trump (left) and Hon Hai Chairman Terry Gou (郭台銘, middle)/CNA file photo

By Frances Huang, CNA staff writer

Some of the questions associated with the ambitious gambit of Taiwan-based manufacturing giant Hon Hai Precision Industry Co. (鴻海) to invest US$10 billion in the United States to build a state-of-the-art flat panel plant have been answered.

The Wisconsin state legislature approved in mid-September incentives worth nearly US$3 billion to secure Hon Hai's investment, the biggest package of subsidies ever to a foreign company by a U.S. state.


Hon Hai Chairman Terry Gou (郭台銘, left) and Wisconsin Governor Scott Walker (right)/CNA file photo

The challenge of finding the land to accommodate the massive project seems to have also been settled, with Hon Hai, known as Foxconn internationally, choosing Mount Pleasant in Wisconsin's Racine County in October as the site of its advanced flat panel plant.

For many observers, the next question is whether Hon Hai will be able to get its long-time suppliers to follow it to Wisconsin and whether they will form an industrial cluster there, as proponents of the plan in the state hope.


Hon Hai Chairman Terry Gou (郭台銘, left) and Wisconsin Governor Scott Walker (right)/CNA file photo

Dachrahn Wu (吳大任), director of National Central University's Research Center for Taiwan Economic Development, expects the cluster to take shape.

"Taiwan's industries generally operate based on vertically integrated business models," Wu said. "Hon Hai and its suppliers have worked together for a long time and developed strong mutual trust so I expect the company will bring them to Wisconsin."

Wu is one of the local economists and analysts who believe Hon Hai's suppliers will join the manufacturing Goliath in locating themselves in the U.S. and creating a supply chain cluster in southeastern Wisconsin.

Cut good deals for suppliers

"It's such a massive deal. I think Gou is able to cut attractive deals with Wisconsin for his suppliers, helping them settle on the company's manufacturing campus," Wu said, referring to Hon Hai Chairman Terry Gou (郭台銘).


Hon Hai Chairman Terry Gou (郭台銘)/CNA file photo

"Gou has set up similar production models in China and India by accommodating his suppliers. He is expected to replicate that in Wisconsin."

According to Racine County, the Foxconn manufacturing campus will occupy an area of about 20 million square feet (185.8 hectares), making it the largest project ever in the state.

On its website, Racine County said Hon Hai has started hiring. Under the agreement signed by Foxconn and Wisconsin, the investment is expected to create about 3,000 jobs in its initial stage and boost the number of new jobs to 13,000 over the next six years.

"Hon Hai's made the decision to pour large amounts of funds into the U.S. because it is eying the market and wants to get closer to its customers," Wu said. "The consideration of where the market is dominates Gou's thinking."

Alex Huang (黃國偉), an analyst with Mega International Investment Services Corp., said he anticipates that the US$3 billion incentive package will also cover Hon Hai's suppliers.

Signature project of Trump's 'America First' policy

"Hon Hai's investment has been an important accomplishment of U.S. President Donald Trump since he came to power (in January) as he strongly advocated the 'America First' policy to bring jobs to America," Huang said.

"So the decision to grant Hon Hai such a big incentive package was very political and symbolic.

"I think Wisconsin is willing to allow Hon Hai's benefits to trickle down to its suppliers, in particular, the company's subsidiaries, which could become beneficiaries of the incentives," Huang said.



Foxsemicon Integrated Technology Inc. (京鼎), a Hon Hai subsidiary that provides automation solutions, is reportedly planning to help the parent company strengthen automation in its Wisconsin plant.

The existence of subsidies may be critical to whether other suppliers follow, Ball State University economics professor Michael Hicks was cited as saying in a mid-September article on the technology website Venture Beat.

For most of the component suppliers, relocating to Wisconsin "would never be enough to justify the wage differential of an American worker in Southern Wisconsin, unless the state pitched in," Hicks was quoted as saying.

He was skeptical that the project could spark the emergence of a technology cluster that could, for example, rival Silicon Valley.

"There are almost no development clusters anywhere in the world where the production is located at the same place where the high-end jobs of manufacturing and R&D are...The scope of this is antithetical to creating a technology cluster there," Hicks said, according to Venture Beat.

But while the project may not be a magnet for other enterprises to head to Wisconsin, it may create some momentum for other Taiwanese companies to invest in the United States, even if, as Alex Huang says, they won't get as good a deal as Hon Hai did.

Gordon Sun (孫明德), director of the Taiwan Institute of Economic Research's (TIER) Economic Forecasting Center, said his institution is conducting a survey that has found the willingness of Taiwan's local information technology sector to go to the U.S. to be on the rise.

The center will not release the survey results until mid-November, but Sun told CNA that many Taiwanese IT firms have put market proximity at the top of their agenda, and the U.S. market will be the next investment destination for Taiwanese IT firms after China, India and Southeast Asia.

"Investing in the U.S. market by Taiwanese firms is a way for them to build another production base similar to what has already been done in China or India," Sun said. "Their attention has now shifted to the U.S."

He added that Hon Hai "deserves our blessings because its investment overseas is expected to extend Taiwan's economic clout globally and boost the country's global visibility."

While many manufacturers may follow Hon Hai to the United States, Sun urged the government to try hard to encourage the semiconductor industry to stay put in Taiwan as it is at the core of the domestic high-tech sector's long-term growth.

Both Foxconn, TSMC important to Taiwan

Sun's appeal got off to a good start in late September, when Taiwan Semiconductor Manufacturing Co. (台積電), the world's largest contract chipmaker, announced it will build an advanced 3 nanometer process fab in Tainan, southern Taiwan.

It has been estimated by local media that the facility will cost at least NT$500 billion (US$16.55 billion) to build.

Before the decision, TSMC was said to have been considering building the 3nm process plant in the U.S. largely due to potential shortages of power and water in Taiwan.

"I think the government gave strong assurances to TSMC on the supply of water and power for the 3nm fab, so TSMC decided to stay. But what about TSMC's next project?" Sun wondered.

He urged the government to build an investment-friendly environment to facilitate the pace of industrial innovation and produce more business minds like Gou and TSMC Chairman Morris Chang (張忠謀).

"Taiwan needs more entrepreneurs like Chang and Gou to move industrial development forward," Sun said.

(By Frances Huang)
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