Between heated trade wars in two of the world’s trading giants and ongoing crises brought about by the Pandemic, businesses have had to consider and adopt many strategy changes. In the middle of the chaos, Foxconn, one of the largest manufacturers for iPhones, is considering shifting its factories to Mexico.
According to Reuters reports, the Taiwan-based electronics manufacturers Foxconn is eyeing new factories in Mexico. One source reported that the company is looking to set up Apple assembly lines itself. But there has been no confirmation regarding the news from either Foxconn or Apple.
Foxconn’s agendas aren’t finalized yet. Reportedly, Apple hasn’t been involved in the idea directly so far and has chosen to remain silent on the matter. But Foxconn should conclude on a decision by the end of this year. Other Apple manufacturers like Luxshare and Pegatron are also exploring investing in new factories in Mexico.
Why the shift?
Foxconn is a growing company. It has been known to hold contractors with several phone manufacturers, including Apple. As per Foxconn back in July, they do not plan on shifting or setting up new factories, but they do have expansion in mind.
Currently, Foxconn owns five factories in Mexico. The work as manufacturers of televisions and servers. Establishing phone assembly lines would be a massive shift. But this change is not entirely surprising.
One of the most likely explanations behind the shift has to be the Sino-US trade war. Especially when it comes to products like Apple phones, the US is a big consumer base. With the ongoing tiff, businesses need to start looking further into the future.
According to Reuters, Foxconn Chairman Liu Young-way told an investor conference in Taipei that the world was splitting into two groups following the rising tensions.
“The world factory no longer exists,” he said, adding that about 30% of the company’s products were now made outside China and the ratio could increase.
Source: Reuters Reports
This move is likely an afore-thought to providing two sets of the supply chain to the two emerging markets. Foxconn had already made clear that it would be stepping up in its current productions in Mexico last year.
The Scope Of Mexico
Foxconn has a good foothold in Mexico already. But other strategic and political factors also make it an ideal place for expansion.
The idea of “near-shoring” is getting heat in the USA. The Trump administration has made it clear that it is exploring new ways, including lucrative incentives to encourage firms to move production facilities. It aims to shift the hub from Asia to Latin America, the United States, and the Caribbean.
Mexico has also been putting efforts into attracting foreign investments. Reportedly, it has contacted many businesses to lure them from Asia to capitalize on the trade deal. Additionally, it was also preparing to contact Apple regarding the relocation.
Mexico’s handling of the virus has not been at par, so the investment is out of question anytime soon. Further, the global recession brings any new plans to a standstill. However, it has many pulls to it. Mexico currently boasts free trade with the USA and Canda, ideal geography, low wages, and suitable time zones as well.
This country has yet another advantage if Foxconn relocates. As per the newly implemented United States-Mexico-Canada trade deal, an increase in locally sourced inputs would mean tariff-free exports to the United States from Mexico.
Expanding The Supply Chains
Ever since the USA-China war began, Apple has been active in cutting down its earlier heavy reliance on China. Foxconn has recently spent over a billion dollars in the Indian market while setting up factories. The expansion has already started getting pace. Foxconn further claims that it will be making flagships phone in India, starting with locally produced iPhone SE. Now, the next target seems to be Mexico.
However, Foxconn is not the only industry thinking of a significant reorganization in its assembly line. Multiple gigantic producers of electronic components would be thinking about expanding factories outside China, mainly targeting Mexico. According to Reuters, among the brands are big names like Foxconn, Pegatron, and Luxshare.
Though Foxconn’s plans seem to be inclining towards a particular side, the same can not be said about Pegatron. Pegatron’s idea is still vague, with tiny details available. Further, it is yet to be known whether Apple would be included in their predicted shift.
Reuters also mentions that Luxshare is considering a new factory in Mexico. However, the product line being considered for shifting is not apparent. Luxshare is the primary manufacturer of AirPods for Apple.
What does this mean for Apple suppliers and buyers?
Apple usually has a global pricing strategy, and that is rarely customized for a local market, even where it produces hardware. Additionally, Apple is still not capable of meeting the real demand for a specific model with locally produced units. Therefore, the price should not change on a local scale.
However, there might be a price surge associated with the shift. The increase is more related to the trade war and crisis more than the relocation. The producers and suppliers who choose to remain in China will probably have to face the brunt, increase the price for the consumer, or reduce profit margins.
Considering these scenarios, it is for the best of both the consumers and suppliers that companies are considering this two-way supply chain mechanism.
With the threat of the virus still looming, it’s hard to say for sure which direction this will tip-in. However, Foxconn is likely to make a final decision by the end of the year. Once the decision is made, the work should commence shortly. Stay tuned as we will be here with all the latest advancements on it.