A shuttle bus of Foxconn Technology Group in the Longhua Science and Technology Park in Shenzhen, Guangdong province. Foxconn is a key supplier to top technology brands, including Apple.[Photo / Agencies]
IPhone maker considers investing $12b to expand operations overseas
BEIJING - IPhone maker Foxconn Technology Group is considering investing $12 billion in Brazil, a move that may help Apple Inc and other tech companies expand in the world's eighth-largest economy.
Brazilian President Dilma Rousseff said on Tuesday her government is studying Foxconn's investment plan, the latest move by the manufacturer to expand its manufacturing operations beyond the booming southern Chinese city of Shenzhen.
Rising labor costs have forced many companies to set up operations in cheaper parts of China, but a Foxconn move into Brazil will help tech companies sidestep hefty import tariffs on products they sell in the South American country. Its other clients include Hewlett-Packard Co and Dell Inc. Tech companies are keen to sell to Brazilian consumers hungry for high-end electronics, but gadgets are often priced out of the market because of high production costs and import tariffs. Apple's cheapest iPad, for example, retails for about $860 in Brazil, versus $400 in the United States.
"It makes a lot of sense," said Peter Misek, Jefferies & Co's analyst, citing "punitive" import taxes. "If you're trying to serve Latin America, Brazil is certainly the biggest country you have to hit."
"I don't think Foxconn is building this without a big marquee customer."
A deal will hand Brazil's president a major victory on her Asian trip.
"You've got an ample range of investments that go from $300 to $400 million to $12 billion over five to six years in the case of Foxconn," Rousseff told reporters, speaking of discussions her government was having with various technology companies.
"They're proposing a partnership. They came to us and said we want to invest in Brazil," she said during a visit to Beijing.
Foxconn, which also controls Hon Hai, manufactures most of Apple's products - including the latest hit gadget, the iPad - at its Shenzhen factories.
"We've been talking to them for three months," said Aloizio Mercadante, Brazil's science and technology minister.
Rousseff herself has identified tablet computers as a relatively cheap way to promote Internet access for Brazil's emerging lower middle-class, which accounts for about half of the 190 million population.
Brazil has one of the steepest import-tariff regimes in South America and is one of the world's most expensive places to do business because of a heavy tax load, an overvalued currency and restrictive labor laws.
To get around hefty tax burdens, electronics vendors have increasingly set up local manufacturing, partly also to hitch a ride on attractive tax benefits. Almost all locally assembled electronic goods are produced near the Amazon city of Manaus, where duty-free status helps make costs more viable.
The Brazilian government and Foxconn are now negotiating a range of details, including the location of facilities and taxes.
Mercadante also told reporters Foxconn is planning to begin assembling Apple's iPad tablet PC at its plants in the South American country by the end of November.
"The negotiations are far from complete, but I'm confident," Mercadante said.
Foxconn is a key supplier to top technology brands, which typically do their own research and design work in-house and outsource manufacturing to Foxconn and rivals such as Flextronics.
Foxconn's last major investment outside of Shenzhen was in October, when it announced a $2 billion plant in Chengdu, Sichuan province. The company has roughly 1 million workers in China and is the country's largest private sector employer.
Reuters
