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Foxconn, Pegatron, More Asian Firms Said to Consider Mexico Factories as China Risks Grow

Foxconn, Pegatron, More Asian Firms Said to Consider Mexico Factories as China Risks Grow

Plans could usher in billions of dollars in badly needed fresh investments over the next few years for Mexico.

By Reuters | Updated: 24 August 2020 18:14 IST

Foxconn, Pegatron, More Asian Firms Said to Consider Mexico Factories as China Risks Grow

Government data shows foreign investment largely holding up in Mexico so far this year.

Highlights

Foxconn and Pegatron are among companies eyeing new factories in Mexico
US-China trade war prompt firms to re-examine global supply chains
Foxconn and Pegatron are contractors for phone manufacturers like Apple

Taiwan-based electronics manufacturers Foxconn and Pegatron are among companies eyeing new factories in Mexico, people with direct knowledge of the matter said, as the US-China trade war and coronavirus pandemic prompt firms to reexamine global supply chains.

The plans could usher in billions of dollars in badly needed fresh investments over the next few years for Latin America's second-largest economy, which is primed for its worst recession since the 1930s Great Depression.

Foxconn and Pegatron are known as contractors for several phone manufacturers including Apple. It was not immediately clear which companies they would work with in Mexico.

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According to two of the sources, Foxconn has plans to use the factory to make Apple iPhones. However, one of the sources said, there had been no sign of Apple's direct involvement in the plan yet.

Foxconn is likely to make a final decision on a new factory later this year, and work will commence after that, the two people said, adding there was no certainty the company would stick to the plan.

Apple spokesman Josh Rosenstock declined to comment.

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Pegatron is also in early discussions with lenders about an additional facility in Mexico mainly to assemble chips and other electronic components, said the people, who declined to be identified as the talks are confidential. Pegatron declined to comment.

Foxconn has five factories in Mexico mainly making televisions and servers. Its possible expansion would underscore a broader and gradual shift of global supply chains away from China amid a Sino-US trade war and the coronavirus crisis.

The plans come as the idea of "near-shoring" gains ground in Washington. The Trump administration is exploring financial incentives to encourage firms to move production facilities from Asia to the United States, Latin America and the Caribbean.

Brandishing a new deal locking in free trade with the world's biggest consumer market, Mexico also has geography, low wages and time zones in its favor. Despite the global recession and concerns about the business climate under President Andres Manuel Lopez Obrador, government data shows foreign investment largely holding up so far this year.

"The company indeed has contacted the (Mexican) government," a third source said about Foxconn, adding the talks were at an early stage and rising cases of coronavirus in Mexico were a major concern for the possible investment.

Taipei-headquartered Foxconn, formally called Hon Hai Precision Industry, said in a statement that while it continued to expand global operations and is an "active investor" in Mexico, it had no current plans to increase those investments.

Reuters in July reported Foxconn planned to invest up to $1 billion (roughly Rs. 7,409 crores) to expand a factory in India where it assembles Apple iPhones.

Foxconn Chairman Liu Young-way told an investor conference in Taipei on August 12 the world was split into "G2", or two groups, following Sino-US tensions, saying his firm was working on "providing two sets of supply chain to service the two markets."

"The world factory no longer exists," he said, adding that about 30 percent of the company's products were now made outside China and the ratio could increase.

Foxconn unit Sharp has said it is stepping up television production in Mexico. Sharp last year said it would set up a plant in Vietnam to shift part of its China production. It said it had no further information to give.

China's Luxshare Precision Industry is also considering building a facility in Mexico this year to offset the tariff war between the world's two largest economies, the two sources said.

It was not immediately clear which product lines were being considered by Luxshare, which according to media reports is a leading manufacturer of Apple Airpods. Luxshare did not respond to a request for comment.

The Taipei Economic and Cultural Office in Mexico, which represents Taiwan's government in the country, said it had heard Foxconn was interested in building another factory in Ciudad Juarez, in the northern border state of Chihuahua.

"Pegatron, I also understand, wants to move a production line from China to Mexico," the office's Director General Armando Cheng told Reuters. He said he did not know details of either company's plans.

"Mexico is one of the ideal countries for companies considering readjusting their chain of suppliers," Cheng said.

The scale of investment by Asian electronics contract manufacturers, and the employment they would create in Mexico, are not yet clear.

Promised investment in new manufacturing capacity has not always materialized.

In 2017, US President Donald Trump said Foxconn would build a $10 billion (roughly Rs. 74090 crores) plant employing 13,000 people making LCD panels in the state of Wisconsin.

Those plans have shifted dramatically. In 2019 the company downgraded the size of the planned factory. In April, Foxconn said it would make ventilators at the plant in partnership with Medtronic.

Stretched supply chains

Coronavirus ground cross-Pacific supply chains to a standstill, stranding automobile, electronics and pharmaceutical components from China, exacerbating firms' concerns about having their productive base an ocean away from American consumers.

Additionally, the newly implemented United States-Mexico-Canada trade deal requires more locally sourced inputs for tariff-free exports to the United States.

Mexico has spoken to a host of foreign companies in an effort to lure business from Asia to capitalise on the trade deal and was preparing to speak to Apple about relocating manufacturing, Economy Minister Graciela Marquez told Reuters in July.

She said she had not spoken to Foxconn, Pegatron and Luxshare directly. A senior government official said those companies were among others interested in investing in Mexico.

The government did not respond to a request for further comment prior to publication.

Despite the potential and solid investment figures, many investors see Lopez Obrador squandering a historic opportunity.

"It could have been a tidal wave," said Eduardo Ramos-Gomez, a partner at Duane Morris & Selvam, a law firm working with Taiwanese and Chinese companies looking at Mexico.

Critics cite Mexico's poor handling of the pandemic, it is third in global deaths, along with Lopez Obrador's meddling in private investment decisions such as the cancellation of a $1 billion (roughly Rs. 7409 crores) brewery by US firm Constellation Brands, the scrapping of a major airport project and pressure on energy companies.

The government has denied such decisions were anti-business.

Regardless, Mexico's appeal is attracting some.

Samuel Campos, an executive managing director of real estate brokerage Newmark Knight Frank, said his company is currently helping two Chinese companies, one in the autos sector and the other in manufacturing, relocate to an industrial cluster in Mexico.

Campos said electronics, medical and automotive firms in Asia are likely to help drive investments into Mexico in the fourth quarter this year.

For Alan Russell, chief executive and chairman of Tecma Group, a company managing factories in Mexico, manufacturers in China that want to keep market share in North America have few choices.

"They're going to have shorten their supply chain and be more regional," he said. "It seems the virus has tipped the scale."

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