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Foxconn Eyes Brazil
TaksonIC.com    Issue Date: [2011-04-20]   Browse Times: [2917]

The world's biggest electronics manufacturing services (EMS) provider wants to help its OEM clients serve their customers in South America, and it's willing to invest as much as $12 billion on that effort.

The way Foxconn Electronics Inc. sees it, mulling over plans to invest in manufacturing plants in Brazil is in line with the company's strategy of "being where the market is" -- and Brazil is ripe for expansion in the fast-growing market for electronic devices.

Today, April 13, Foxconn issued a statement that was sparse on details but noted that Brazil had "tremendous economic development potential" and was "strategically positioned to meet the needs of growing markets throughout Latin America."

If all goes well, and Foxconn invests $12 billion in Brazil to establish manufacturing facilities there, the move will have significant implications for high-tech manufacturing because companies like Apple, Dell, Cisco, and Hewlett-Packard could piggyback on Foxconns Brazilian operations to circumvent the burdensome import tariffs on products sold in the country.

Brazilian president Dilma Rousseff, who is visiting China on her first state visit since taking office in January, reportedly said on Tuesday that her government is studying Foxconn's investment plan, which would give high-tech companies a launching pad to manufacture and sell products in Brazil, one of the fastest-growing countries of the BRIC (Brazil, Russia, India, and China) group.

Giving her assessment of discussions with various technology companies, Rousseff told reporters: "You've got an ample range of investments that go from $300 to $400 million to $12 billion over 5 to 6 years in the case of Foxconn. They're proposing a partnership. They came to us and said we want to invest in Brazil."

Plans seem to be far along. Reports are that Foxconn, which manufactures Apples iPod, iPhone, and iPad at its Shenzhen, China, factories, has been in discussions for three months, and the Brazilian government and Foxconn are now negotiating a range of details, including the location of facilities, financing, taxes, broadband infrastructure, and logistics.

Brazil's science and technology minister, Aloizio Mercadante, told reporters that Foxconn is planning to begin assembling Apple's iPad tablet PC at its plants in Brazil by the end of November. It would appear that Foxconn, a Taiwanese company that is part of Hon Hai, is having a better time engaging with Brazil than Apple Inc. (Nasdaq: AAPL) CEO Steve Jobs.

IfoAppleStore.com, a website dedicated to following Apple's retail news, reported last year that Steve Jobs allegedly told a Brazilian government official in an email that there were no plans to open a retail store in the country because of its "super crazy" import taxes.

In light of Foxconn's plans, Jobs may change his mind. A Foxconn factory that enjoys the benefits of being considered a local Brazilian manufacturing facility producing Apple products would bypass import taxes, take advantage of local tax incentives, and spur the sale of iPads, iPhones, and iPods. Currently, Apple's cheapest iPad sells for about $860 in Brazil, but iPad prices could be reduced if a Foxconn manufacturing facility is established.

Furthermore, a Brazilian manufacturing plant could bring the electronics supply chain closer to the US, in addition to fueling sales among Brazil's burgeoning middle class, many of them first-time buyers of personal computers and other high-end consumer electronic products.

By all accounts, while Foxconn has had its own problems -- namely, the recent spate of suicides among company employees -- the Brazilian authorities are welcoming the company with open arms.

It's not surprising that China and Brazil would want to adopt a much more expansive trading relationship in the high-tech sector. Last year, the flow of trade between the two countries reached $56 billion, a growth of 52 percent from 2009, which was the year when China usurped the US to become Brazil's largest trading partner.

If Foxconn does establish operations in Brazil, it will be part of a growing trade phenomenon between two countries that are high-tech powerhouses. It will be interesting to see what impact this will have on high-tech OEMs' sourcing plans and distribution strategies.

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