Tue, Apr 14, 2015 - Page 14 News List

Reality limits Foxconn’s Itu dreams

Reuters, ITU, Brazil

The Brazilian iPhone was meant to mark a new era.

When Foxconn Technology Group (富士康科技集團) agreed in April 2011 to make Apple Inc products in Itu, Brazilian President Dilma Rousseff and her advisers promised that up to US$12 billion in investments over six years would transform the Brazilian technology sector, putting it on the cutting edge of touch screen development.

A new supply chain would be created, generating high-quality jobs and bringing down prices of the coveted gadgets.

Four years later, none of that has come true.

Foxconn has created only a small fraction of the 100,000 jobs that the government projected, and most of the work is in low-skill assembly. There is little sign that it has catalyzed Brazil’s technology sector or created much of a local supply chain.

The iPhones now rolling off an assembly line near Sao Paulo, the only ones made outside China, carry a retail price tag of nearly US$1,000 for a 32-gigabyte iPhone 5S without a contract — among the highest prices in the world and about twice what they sell for in the US.

That Brazil has so little to show for the Foxconn investment underscores the shortcomings of its industrial policy, defined by costly tax incentives that have driven a widening government budget deficit without spurring growth.

The economy currently hovers close to recession and the productivity of Brazil’s workforce is stagnant.

Apple’s iPhone sales in Brazil have still been rising. Wholesale shipments increased by more than 40 percent to 2.9 million last year, according to research firm Gartner.

Apple declined to comment for this story.

Representatives for the Brazilian government and Foxconn declined to comment on why the investment fell so far short of initial projections.

With wages rising quickly in China, home to most of its 1.3 million employees, Foxconn is trying to control costs by using more robotics and expanding its global footprint to make more electronics in markets where they are sold.

However, navigating politics and managing expectations beyond China has been tricky for Foxconn, whose flagship listed unit is Hon Hai Precision Industry Co Ltd (鴻海精密).

For instance, Indonesia’s government has said for years that Foxconn would invest up to US$10 billion, but plans remain in limbo due to political snags.

In Brazil as in Indonesia, politicians and government officials were the ones making the big forecasts after conversations with Foxconn, which has been more circumspect in its own public statements and projections.

Still, as Foxconn ramped up assembly of iPhones and iPads in Brazil during 2012, reaping tax benefits, the company made a public commitment.

The company pledged an initial investment of 1 billion reais (US$325 million) to anchor an industrial park producing components locally within two years.

The location: Itu, a sleepy tourist town in Sao Paulo state nicknamed “The City of Exaggerations.”

Today the site remains an empty expanse of dirt, where bulldozers have been leveling the land since late last year.

Itu City Councilor Givanildo Soares da Silva, who helped lead the push to donate nearly 40.5 hectares of land to Foxconn, has since turned against the project.

“People are really frustrated,” Silva said. “We were expecting all these jobs by now and it’s still just empty promises.”

The Itu mayor’s office said in a statement it had given all the support necessary to bring Foxconn to the city, declining to comment on reasons for the delay.

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