Foxconn to tap cheap labor in Indonesia, huge consumer market

Wed Aug 15, 2012 7:10am EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Neil Chatterjee

JAKARTA (Reuters) - Foxconn Technology Group's investment of up to $10 billion in Indonesia will allow the main supplier of Apple Inc to tap one of the cheapest labor forces in Asia and a duty-free zone of some 600 million consumers.

Such cost savings could be vital for the mass producer, which relies on economies of scale to survive. Foxconn has seen rising wages and labor unrest at its main factories in China and has declared a strategy to diversify its production into other Asian markets.

Illustrating the cost pressures, Foxconn subsidiary Hon Hai Precision Industry, which makes Apple products such as iPads and iPhones, posted a profit margin of just 0.9 percent for January-March compared with the American firm's 39 percent.

"Foxconn already has factories in China and Brazil, and not yet one in Southeast Asia. I think Indonesia is a right decision from a market perspective," said Ali Soebroto Oentayo, chairman of Indonesia's electronics association, forecasting 20 percent growth in the country's electronics sales this year.

Taiwan-based Foxconn plans to start building a plant in October in an industrial zone near Jakarta to assemble 3 million handsets a year and then to increase output and products later, Indonesia's Trade Minister Gita Wirjawan said on Tuesday. The investment would be between $5 billion and $10 billion, he said.

"The fact they are going ahead with Indonesia is a testament to what Indonesia has achieved from a macro sense," he told Reuters on Wednesday.

The investment, courted by an Indonesian government seeking to upgrade its raw commodity-based economy into higher value manufacturing, will also give Foxconn access to a planned Southeast Asian duty-free zone with twice the number of consumers as the United States.

Foxconn has not separately confirmed the investment and the company was not available for comment. Chairman Terry Gou said earlier this year that it would expand operations in Brazil, invest in Japan and Germany, and that the next stops would be Indonesia and Myanmar.   Continued...

Workers walk out of the entrance to a Foxconn factory in Chengdu, Sichuan province July 4, 2012. REUTERS/Stringer