What signal does the investigation of Foxconn with one hand and the complete cancellation of the list of foreign investment in the manufacturing industry with the other hand send?
◎ Zhigu Trend (ID: zgtrend) | Earthquake Valley
There have been new accidents in China's industrial chain.
This late autumn, more than 20 heads of state gathered in Beijing. Subsequently, we announced that we had completely cancelled the list of foreign investment in the manufacturing industry to attract foreign investment.
But at the same time, Foxconn, which has been in the mainland for more than 30 years, has suddenly been investigated for a number of its companies, mainly involving tax and land use.
In addition to the intriguing timing, what is more interesting is Foxconn's position in the key industrial chain and its complex geographical role.
Foxconn now derives 70 percent of its revenue from products made in China, but the strategic focus for the future will be outside.
The global industrial chain is reshuffled, and Foxconn is just a microcosm of this torrent.
Foxconn in the past: driving changes in China's cities
Can't let Foxconn run away.
In the past, this was the cry of Shenzhen, Zhengzhou, Taiyuan, Chongqing and other cities, but now it has become the focus of more people.
The Global Times quoted sources on October 22 as saying that the tax department recently conducted tax inspections on Foxconn Group's key enterprises in Guangdong, Jiangsu and other places in accordance with the law, and the natural resources department conducted on-site investigations on the land use of Foxconn's key enterprises in Henan, Hubei and other places.
Over the past few decades, riding the elevator of mainland development and with the help of local "nanny" care, Foxconn has expanded from Shenzhen to more than 40 factories in China today, with more than one million employees, and is regarded as a model of China's "world factory".
This symbiotic relationship has also sparked complex public opinion: China or Foxconn, who needs whom more?
Because of this, Foxconn's every move is rich in symbolism and signaling.
For more than 30 years, Foxconn has been living like chasing water and grass, and there is not a day when it is not on the road of change. From China's coastal to the central and western inland, from China to more countries, from OEM electronic technology products to OEM electric vehicles.
The biggest feature of Foxconn's migration route is to find depressions with low labor costs. That is, where the salary is low, go there.
Foxconn's relocation in China is a microcosm of the relocation of the manufacturing industry, which relies heavily on low labor costs.
The watershed came in 2008.
Before 2008, Foxconn was mainly located on the eastern coast, forming the South China area with Shenzhen as the core, the East China area with Kunshan as the core, and the Bohai Rim area with Yantai as the core.
After the 2008 global financial crisis, low-end manufacturing suffered a huge shock, and Foxconn began to set its sights on the Midwest interior.
From the coast to the inland, the most intuitive change is that the local minimum monthly wage has dropped from more than 1,350 yuan in Shenzhen to less than 1,250 yuan in Zhengzhou and other places.
And that's just the change in labor costs. When Foxconn revealed the idea of moving inland, the heads of local investment promotion moved when they heard the news, and the preferential conditions were more attractive than one another.
Guo Gengmao, then deputy secretary of the Henan Provincial Party Committee and governor, was an "old acquaintance" of Foxconn founder Guo Taiming. When Guo Gengmao was the governor of Hebei Province in 2007, he led the landing of Foxconn in Hebei, and later invited Foxconn to build a factory in Henan many times, met with Guo Taiming and invited him to visit the Zhengzhou Airport Area.
The tax incentives given by Zhengzhou include: 5 years before Foxconn is put into operation, the Zhengzhou government exempts corporate tax and value-added tax; Over the next 5 years, taxes are halved. Foxconn employees can pay less social security and other expenses, and the cumulative cost reduction can reach 100 million US dollars per year;
Another example is land, Zhengzhou has planned nearly 10 square kilometers for Foxconn, which is equivalent to the size of 1,400 standard football fields; There are also logistics advantages, airport comprehensive bonded zone advantages and so on.
Chongqing has also set its sights on Foxconn.
At that time, the relevant officials organized special personnel to collect a large amount of information in a short period of time, and they didn't care about going home to eat with their families every day, and stayed up all night for several nights, and finally came up with a plan that read Foxconn thoroughly.
Foxconn has been doing parts processing for a long time, and if it can produce and assemble the whole machine, it will be a good opportunity to upgrade. Therefore, Chongqing directly put the cooperation plan of 15 million complete machines on the table.
Foxconn was pleasantly surprised by this business, which originally only had half an hour of meeting time, but was finally extended to three and a half hours, and basically finalized the intention of cooperation.
Unconsciously, Foxconn has become the driving force behind the great changes in China's cities, especially the fate of cities in the central and western regions.
According to statistics from Zhigu Trend two years ago, Zhengzhou, Taiyuan, Hengyang, Nanning, Chengdu and many other places are suffering from "Foxconn dependence", and the proportion of Foxconn foundry exports in the total export volume is more than 20%.
In 2020, Foxconn Zhengzhou achieved a total export volume of 31.64 billion US dollars, ranking first among all export enterprises in the country, contributing more than eighty percent of Zhengzhou's exports, and also supporting half of Henan's import and export;
The emergence of Foxconn has changed Zhengzhou's image as a labor-exporting city in one fell swoop, and its permanent population has soared by 46% in ten years, making it one of the largest cities with a population of 10 million.
Foxconn's Zhengzhou Science and Technology Park alone once employed 400,000 people, which is more than the population of Zurich, Switzerland's largest city.
According to Foxconn's official website, its total imports in 2022 will be about 540 billion yuan, accounting for 3.0% of Chinese mainland's total imports; The total export value is about 849 billion yuan, accounting for 3.5% of Chinese mainland's total exports.
Foxconn's pull on the local economy should not be underestimated, however, Chinese mainland cities must also face a problem - Taiwanese capital, has always been accustomed to global layout.
After 2008, setting up factories abroad was also put on the agenda by Foxconn many times. In other words, moving inland and deploying overseas are two things that Foxconn is doing at the same time.
Wages are cheaper inland than those on the coast, but countries such as Vietnam, Brazil, Indonesia, and India have an advantage in the price competition for human capital.
Water flows downward, especially for low-end manufacturing.
However, while the trend is certain, in the decade from 2008 to 2018, Foxconn's overseas expansion has always given the impression of thunder and rain.
Just like in 2015, Vinh Phuc province in Vietnam finally revoked the investment permit granted to Foxconn, because despite Vietnam's countless urgings, Foxconn has not started construction for 6 years after obtaining the investment permit, angering the local government of Vinh Phuc province.
This decade is also the decade of the rise of Zhengzhou Apple City. Perhaps for Foxconn at that time, staying on the seashore in a foreign country or running into the mountains, the tangled point was just to make more money and earn less.
Foxconn at the moment: follow Apple to bet on India
But in recent years, Foxconn's considerations have added a lot of factors other than the economy.
Foxconn's official level has said that it "will reduce its dependence on Chinese mainland as its main source of income." ”
On the one hand, Apple is taking the initiative to de-risk, and Foxconn, as its largest OEM, can only bet first; On the other hand, China has made it clear that it needs to balance development and security, and the influence of bottom-line thinking is getting bigger and bigger.
India's population surpasses that of China, the consumer electronics market is not yet saturated, and the low cost of labor and land all make Apple a huge attraction.
With the landing of Apple's industrial chain and the first retail store in India, Foxconn is also increasing its weight in India.
"Finance Eleven" reported that Foxconn's Chennai campus, which is mainly responsible for the production of iPhones in India, had only three production lines last year and will expand to six this year. The new plant in Bangalore has around 18 planned production lines and is expected to start production in 2024.
Foxconn's Chennai campus was previously small, mainly producing Xiaomi phones, and began to produce Apple phones around 2017.
A significant increase in production capacity occurred last year. In the past, the difference between China and India Apple parks was whether they had the ability to have their own NPI.
NPI is the most important trial production stage before the mass production of Apple's new products, which requires the foundry to prepare all materials, test production, verification, and timely adjustment. This is not difficult for China, which already has a strong and rich industrial chain, because all suppliers need to work together, but not in India. So we had to do the NPI in China before we moved the production capacity to India. As a result, the Indian campus tends to produce products later than the time to release them.
But starting with last year's iPhone 14 series, for the first time, production and new product launches have been synchronized at the India campus. And this year, the iPhone 15 series is NPI in China and India at the same time.
In order to speed up the Indian campus, Foxconn specially dispatched department heads from Zhengzhou, Shenzhen, and Taiwan to India to train local employees and build factories from scratch. The management structure has also become that every Chinese executive is matched to an Indian executive.
Notably, Foxconn's representative in India said in a LinkedIn post that the company's "goal for next year is to double employment opportunities, foreign direct investment (FDI), and enterprise size again." ”
Previously, Foxconn already owned an iPhone factory in the Indian state of Tamil Nadu, employing 40,000 people. If it doubles next year, it will increase to at least 80,000.
In August, Karnataka said Foxconn would invest $600 million in two local projects to produce iPhone case components and chip-making equipment.
But how much capacity can be converted into these huge investments?
Foxconn's goal is to have the same production capacity in India as Zhengzhou in the next three years.
In 2020, India-made iPhones accounted for only 1.3 percent of its global production, rising to 4 percent in 2022 and expected to rise to 7 percent this year, Counterpoint reported. In contrast, China's iPhone production accounted for 96% last year and is expected to fall to 93% this year.
For India's ability to produce Apple's mobile phones, the American investment bank Morgan Stanley gave the most optimistic prediction at present: by 2025, India's local iPhone production capacity is expected to reach 25% of the world's total.
Judging from the trend, although the core position of the Chinese factory will not be shaken for the time being, India is likely to become another core base for Apple production.
The Foxconn of the future: OEM electric vehicles like OEM Apple
Both the rise of Make in India and Apple's bet have become a reality. But the question is, will Foxconn really keep up behind Apple?
Foxconn's abacus is to OEM electric vehicles like OEM Apple products.
Some time ago, Foxconn wrote in the announcement of its 50th anniversary: "In the first fifty years, we provided products that changed the scientific and technological life of mankind; In the next 50 years, we hope to provide products that can change people's mobile lives through business model innovation. ”
"Changing people's mobile life" means that electric vehicles will become the focus of their future development.
In March, Foxconn announced plans to produce electric vehicle batteries in Wisconsin and Ohio. In June, Foxconn announced that it would shift its focus from focusing on iPhone and laptops in China to producing electric vehicles in several countries, including the United States, Thailand, Indonesia and India.
Liu Yangwei, chairman of Foxconn, said that building cars is essentially a less concentrated business, explaining: "It doesn't make sense to produce electric vehicles in one place, and it is very natural to produce cars regionally." ”
Jun Seki, head of Foxconn's electric vehicle business, also said that he was in talks with 14 potential customers, without disclosing the specific list, but believed that India and Japan are countries with broad prospects for the development of electric vehicles.
Foxconn's goal is to capture 5% of the global market share by 2025, and the long-term goal is to have half of the global share. Electric vehicle brands only need to develop and hand over production to Foxconn.
In the matter of building cars, Foxconn has even shown greater ambitions - unwilling to only do low-end manufacturing.
At its annual Hon Hai Technology Day (HHTD) last week, Foxconn said it would use Nvidia's chips and software to build a new type of data center, the so-called artificial intelligence factory, for a range of applications, including self-driving cars.
In January, Foxconn and Nvidia announced a partnership to develop a self-driving car platform that will produce automotive electronic control units based on Nvidia's DRIVE Orin chips and then sell them globally.
This may mean that Foxconn is trying to change from a manufacturing company to a platform company that provides manufacturing solutions.
Interestingly, anxious Zhengzhou, when looking for a way, also looked at new energy vehicles.
In June this year, the mayor of Zhengzhou publicly shouted: "I hope that (Tesla) will seize opportunities such as green and low-carbon development, industrial transformation and upgrading, increase investment and business layout in Zhengzhou, provide more new products, new technologies and new services for Zhengzhou, and help Zhengzhou modernize as a national central city." ”
Showing goodwill to Tesla, Zhengzhou's development anxiety is about to come out.
Zhengzhou's dependence on Foxconn is too deep, which means that once Foxconn, a giant foundry, reduces investment and relocates the industrial chain, Zhengzhou will face the problem of an industrial vacuum.
Zhengzhou is a microcosm of Foxconn's industrial chain, and from Foxconn's relocation, we can get a glimpse of the wave of changes in the global industrial chain.
Relying on the unique conditions and shelter of Chinese mainland, Foxconn has grown into the world's largest foundry. But in the coming decades, Foxconn's strategic focus will no longer be in Chinese mainland, and even involve the shift of the global manufacturing center of gravity between the two major countries.
Today, while 70% of Foxconn's revenue comes from products made in China, its future strategic focus has drifted far away.