What the FoxConn deal might mean

It’s easy to be cynical about the announcement that FoxConn Technology Group will invest $10 billion in southeast Wisconsin. The deal could have been purely a political gesture aimed at providing a short-term boost to President Trump and House Speaker Paul Ryan, not to mention Wisconsin Governor Scott Walker. They were all hungry for a quick political win and FoxConn was clever enough to read the tea leaves. The announcement means that FoxConn’s big customer, Apple, gets a break from the Trump Administration’s pressure to bring manufacturing back home China. Everyone’s happy in the short-term which is all that seems to matter anymore. No plant is ever built. It would not be the first time that FoxConn has announced a plant that was never built.

The big question is where will the display panels that the Wisconsin factory is supposed to make actually be used? The display panels presumably have to be incorporated into some sort of computing or digital product. But that industry has been wiped out in the United States. I remember visiting the old RCA plant in Bloomington, Indiana. It was the last electronics factory to close. There are no factories that make electronic products in America.

It would not make any sense to ship the displays back across the Pacific Ocean to where almost all the world’s consumer electronics are manufactured. So is FoxConn CEO Terry Gou thinking that a consumer electronics industry will be re-established in the United States? Will other manufacturers pile on?

If that is what he is thinking, and this is not just a cheap political trick, the implications are possibly enormous. The Boston Consulting Group’s Hal Sirkin, the Reshoring Initiative and I, and perhaps others, have been watching to see what happens if the total costs of manufacturing in China even out with total costs of manufacturing in the United States. The trend lines have been headed that way. Labor costs have exploded in China while they have remained stagnant here. Electricity and energy are cheaper now in some parts of the United States than in China. The costs of shipping and storage have increased and the total coordination costs have increased. It is this last piece of the puzzle–the cost of managing operations 12 or 13 time zones away–that many CEOs did not contemplate when they first rushed offshore. As Harry Moser of the Reshoring Initiative points out, when those costs are added in to the calculation, the picture often looks differently than it did at first glance.

Terry Gou might be smart enough to see all this happening and is betting that he can making high quality products in Wisconsin at near the cost of making them in China. If that’s the case, it calls into question the strategy of every manufacturer that makes things in China for sale in the United States. This could mark the onset of large scale movement of operations back from China to the United States. That would be incredibly good news for the American economy and its workers. We just have to get over our initial cynicism.



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