New U.S. address in Foxconn's future? Don't bet on it

November 10, 2012

The contract manufacturer for many of tech's biggest companies -- including Apple -- tells CNET it is not expanding its North American presence.

With unemployment close to 8 percent, you can understand why this headline would grab peoples' attention. A story in Digitimes reports that Foxconn is scouting prospective sites in the United States for future manufacturing plants.

I was skeptical about this story -- which talks about production of LCD TVs, not iPhones -- and that might have been the end of it.

But maybe it's not quite as crazy as it seems. A spokeswoman for Foxconn told me in an e-mail that the company "already has multiple facilities based in the U.S." but she also went on to say that "there are no current plans to expand our operations there at this time."

Suppose, however, you want to make the case that once the camel gets its nose under the tent, why should it stop there? I'd imagine Exhibit A could include the comments offered up the other day by Foxconn's Chairman Terry Gou, who revealed just how badly the company was straining just to keep pace with current iPhone production demands. Any extra manufacturing capacity coming online would go a long way to help relieve that crunch. Then there's the political benefit of turning out products with "Made in the U.S.A." labels stamped on the back, no small benefit given the touchy state of U.S.-Sino trade relations these days. And it is entirely possible that Foxconn is getting prodded by one of its major customers because of those same political considerations.

And more jobs equals good politics. The two cities mentioned by Digitimes are Detroit and Los Angeles where both Mayors Dave Bing and Antonio Villaraigosa would be eager to put out the welcome mat: Los Angeles, with an 11.2 percent unemployment rate and Detroit, where 18.1 percent of the labor force is out of work, are doing far worse than the national average of just under 8 percent.

"If you want to make things in America, we know how to make things," said Ned Staebler, formerly of the Michigan Economic Development Corporation and now Wayne State's vice president for economic development.

Michigan business circles have indeed been buzzing about "a big announcement" related to technology, according to Staebler, though it's still unclear whether we're talking about Foxconn or some other company. Word has it that the site in question might ultimately wind up in one of Detroit's suburbs. The announcement also may have more to do with software than hardware. We'll know more in a few weeks.

Now to the question whether Foxconn would ever employ Americans to put together iPhones or iPads in the U.S. The skeptics will note that while Foxconn has already crossed the Pacific to Brazil -- last year it began operating an assembly plant not far from Sao Paulo in a the bedroom community of Jundai -- average wages in Brazil remain lower than in the U.S. This becomes a case where math really matters. Foxconn -- and by extension its bigger clients, like Apple -- rake in fat profits from Chinese sites where hourly wages and production costs are much lower than those in the United States. (Foxconn pays its assembly workers a monthly wage of 2,500 RMB ($400).) It's hard to imagine that tax breaks from Detroit, L.A. or Oshkosh would be enough to compensate for taking lower margins just for the "benefit" of being on U.S. soil. Economists have estimated that paying a U.S. labor force to make the devices" would add between $65 to $100 to the cost of an iPhone.

"It would be a positive if Apple made at least some percentage of their products (here) and I would like to see them do that," notes Scott Nova, the executive director of the Worker Rights Consortium, a Washington D.C.-based labor rights monitoring organization. "But it would be a huge leap from their current manufacturing policy... and would be a radical change You cannot replicate Chinese working conditions in LA."

Foxconn would also have a tough selling job to win hearts and minds given its spotty labor history, which is rife with complaints about worker conditions in factories making iPhones and other high-volume tech products. As much as Foxconn would want to keep the unions out, a new U.S. factory would still have to conform to local labor standards. Would it be worth the hassle?

Nothing is out of the realm of possibilities, but those aren't the sorts of jobs that the political class says America ought to invest in for the future. As President Obama noted during his third debate with Mitt Romney, echoing what the late Steve Jobs told him during a dinner in Silicon Valley in 2011, "There are some jobs that are not going to come back, because they're low-wage, low-skill jobs."

And in this case, it may be a good enough reason not to invite them back. To be continued.

http://news.cnet.com/8301-13579_3-57547212-37/new-u.s-address-in-foxconns-future-dont-bet-on-it/