Caixin
May 07, 2019 10:24 PM
BUSINESS & TECH

Update: How Foxconn’s Terry Gou Built a Manufacturing Empire on the Mainland

Staff works on a production line at a Foxconn factory in Shenzhen, South China's Guangdong province in May 2017. Photo: IC Photo
Staff works on a production line at a Foxconn factory in Shenzhen, South China's Guangdong province in May 2017. Photo: IC Photo

Hon Hai Precision Industry Co. Ltd., better known by its trading name Foxconn, has the majority of its 1.4 million global workforce on the Chinese mainland, where it runs more of its factories than any other part of the world.

Foxconn is the world’s largest contract manufacturer of electronics and is a key supplier for Apple Inc., Amazon Inc. and other global tech giants. After the company’s founder Terry Gou announced plans last month to run in Taiwan’s next election of its top leadership, Foxconn’s stature rose and Gou’s capability to build such a massive presence on the mainland became a point of interest.

Foxconn began its sojourn on the mainland in the southern city of Shenzhen, where it built its first mainland factory in the late 1980s as the country was opening its economy to the outside world. Foxconn now employs more than 300,000 workers in the city, and its main factory there, where the first iPhone was manufactured, covers 2.3 square kilometers (0.88 square miles).

Gou’s down-to-earth personality and ability to bear hardship helped him gain foothold. Recalling those early days, he once said in an interview that his factories in Shenzhen had to generate their own power because of the lack of infrastructure at the time.

Despite controversies related to reports of long work hours, poor living conditions and low pay, especially after a series of worker suicides in 2010, Foxconn’s business in Shenzhen has been generally seen as a success.

However, the company had been considering opening new facilities or shifting parts of its supply chain to inland China in the early 2000s as labor costs in coastal cities steadily climbed.

In 2003, Gou announced that Foxconn would shift some of its production to North China’s Shanxi province. By the next year, the company had invested 20 billion yuan in total in the province.

Gou’s deep understanding of local politics and his shrewd dealings with officials made him a good negotiator. For local government officials hoping to attract investment and create manufacturing jobs that could be vital to their political career, any Foxconn project is usually too good an opportunity to pass up.

When looking at places to invest, the billionaire usually reaches out to more than one local government, ensuring they compete with each other to host the project.

That’s what happened in 2009, when Foxconn decided to open new facilities in western China. That October, Foxconn signed a $1 billion contract to make display panels in the city of Chengdu. Although it had already made a related deal with the government of nearby Chongqing, it went ahead with the Chengdu contract because of the latter offered incentives to Foxconn, including access to a larger piece of land for its facilities.

Gou also found shrewd ways to elicit attention from officials in places where he wanted to set up shop. In 2009, for example, Foxconn sent a fact-finding team to Zhengzhou, the capital of Central China’s Henan province. During the tour, the team met several government officials, but gave no hint that they wanted to establish a plant in the city. The unexpected visit, however, caught the attention of Guo Gengmao, the then-governor of the populous province, who arranged a one-on-one meeting with Gou, who was an acquaintance.

Fearful of missing out on a Foxconn plant, provincial administrators offered the company a deal. They streamlined the government approval process, eliminated a great deal of red tape and offered Foxconn a five-year tax abatement, plus other concessions.

Within one month, Foxconn was able to get a smartphone assembly plant up and running in Zhengzhou. By 2011, the company had more than 100,000 people on the payroll there.

Another reason that local governments want to attract Foxconn is that the manufacturing giant’s presence stimulates the development of related industries.

In 2017, for example, Foxconn announced a 61 billion yuan investment in a project to make 10.5-generation high-resolution display panels in the southern metropolis of Guangzhou. In addition to the core business, the project attracted 70 more companies in the supply chain to the city.

Once the many benefits of the Guangzhou project became apparent, green lights started flashing from nearly all of the city’s related government departments. Approval times for the project were halved, according to one source familiar with the negotiations.

Contact reporter Mo Yelin (yelinmo@caixin.com)

You've accessed an article available only to subscribers
VIEW OPTIONS
Share this article
Open WeChat and scan the QR code
GALLERY
Copyright © 2017 Caixin Global Limited. All Rights Reserved.