The real question is, can we eliminateappleAnd the worries of Foxconn and others in producing, operating and investing in China?

Written by Chen Bai

The news of Foxconn's return to China continues to ferment.

In the previous few years, Foxconn had moved some of its production lines to Southeast Asia and South Asia, and even invested an additional 5.5 billion yuan in its Vietnam factory. At that time, it seemed that it had made up its mind to leave.

However, Foxconn recently announced that it will invest 1 billion yuan to build a new business headquarters building in Zhengzhou, Henan, and expand its supply chain.This move was immediately interpreted by the outside world as its "return" to mainland China from its production bases in India and Vietnam.

The subsequent wave of recruitment further verified this judgment: According to media reports, the Foxconn factory in Zhengzhou has recently begun to increase its recruitment efforts, entering the peak recruitment season nearly half a month earlier than in previous years, recruiting 50,000 workers in two weeks with generous remuneration.

As the largest Apple supply chain OEM, Foxconn's every move is closely watched because it means huge jobs and significant import and export trade volume.

How big is Foxconn's influence? Henan Province's data can tell everything: According to annual data, Henan exported 57.61 million mobile phones in 2023, a year-on-year decrease of 14.5%. In the first quarter of this year, this downward trend continued to expand.

According to Zhengzhou Customs data, Henan Province exported 16.88 million mobile phones in the first quarter of 2023, while only 6.64 million were exported in the first quarter of 2024, a decrease of 10.24 million. The export value of mobile phones dropped from 71.1 billion yuan in the first quarter of 2023 to 27.2 billion yuan in the first quarter of 2024.

The pain of the change in macro data may not be so obvious, but in the micro world, groups of workers dragging suitcases return to their hometowns disappointed. Although the familiar path of "working in a factory" in the past 30 years has been controversial, it does not prevent it from being an employment option with almost no threshold.

But later, the road began to become narrower and narrower.

Perhaps we only know how to cherish something when we lose it. When the news of Foxconn’s return to China appeared, and when the recruitment information from Zhengzhou Airport to Shenzhen Longhua appeared again, people were so ecstatic.Having a stable income from working in a factory may mean that a family's livelihood can continue.

However, although Foxconn has returned, many of the problems that existed when they "broke up" have not been truly resolved. The two most critical questions are: why did Foxconn leave in the first place? What will keep Foxconn in the future?

01

Why did Foxconn return to China? The answer is simple, because Vietnam and India are not as good as originally imagined.

Taking the Indian market as an example, the Made in India manufacturing industry, which carries Cook's great hopes, has been disappointing beyond many people's imagination: there have been recent reports that the yield rate of iPhone 15s assembled in Indian factories is only 50%. According to European standards, the yield rate is only 34%. In contrast, the yield rate of iPhones produced in the Zhengzhou factory has remained above 99% for many years.

What's even more embarrassing is that the iPhone 15 produced in India actually exceeded the E. coli standard. E. coli is a common bacterium that usually exists in the intestines and feces of humans and animals. The amount of this bacteria is generally used to assess the sanitation quality of food and water sources.

But no one expected that this process, which should have been the production process of precision instruments, would face basic hygiene problems.This is just the tip of the iceberg of the difficulties faced by Indian manufacturing. India has always been regarded as a "graveyard for foreign investment". From European and American companies to Chinese and Japanese companies, they have all suffered setbacks in India. Not long ago, Xiaomi and Vivo also suffered major setbacks in India. The requirement for senior executives to be of Indian descent has made many multinational companies hesitate.

As for Southeast Asia, there are also some problems that you can't imagine before you go there. According to Hong Kong media reports, the root cause of Foxconn's "return" lies in the quality of workers, industrial chain and infrastructure construction.

Because workers in India and Southeast Asia are far less educated than those in China, coupled with cultural differences, Foxconn faces huge management difficulties in the local area.

Another major reason is the incomplete supply chain. Although the labor costs in the two countries are lower than in China, many parts needed by factories in Vietnam and India still have to be imported from China, and the factories have to pay expensive transportation costs.Increased the total cost.

In addition, the lack of infrastructure has also become the "last straw that broke the camel's back". The electricity supply in India and Vietnam is backward, and factories face the dilemma of power rationing during the peak period of electricity production. The phenomenon of electricity theft among the Indian people is also widespread, further increasing production costs.

Now, photos of Foxconn bringing machines back from Vietnam are constantly circulating on domestic social media. From announcing in 2017 that it would go to the United States to later move to India and Southeast Asia, it has been proven that after traveling around the world, Foxconn has found that "Made in China" still has the best cost-effectiveness.

02

Many people are pleased with Foxconn's return, but few people would think: Since "Made in China" is so good, why has Foxconn always wanted to leave in recent years?

Foxconn’s departure can be said to have been “long-planned.”

From a business perspective, the primary reason why Foxconn wants to leave is that the costs of "Made in China" have begun to rise, including labor costs, land costs, etc. In addition, the policy orientation has gradually begun to shift to the expression of "emptying the cage and replacing the bird" and transformation and upgrading. Considering multiple factors, not only Foxconn, but many labor-intensive manufacturing companies have begun to move to Southeast Asia.

As early as around 2016, Foxconn began exploring the possibility of establishing production bases in emerging markets such as India. This move was intended to take advantage of lower labor costs while also opening up new markets for major customers such as Apple. However, despite the cost advantages offered by India, actual operations encountered challenges such as immature supply chains, weak infrastructure, and uncertain regulatory rules.

As a result, Foxconn turned its attention to the United States, the base of its major customer Apple.

In July 2017, Foxconn founder Terry Gou and Trump announced at the White House that they would invest $10 billion in the United States over the next four years to build a giant production factory, creating 13,000 direct jobs in the United States.

At that time, Trump's slogans of returning manufacturing to China and "making America great again" were very persuasive during the election, but the reality was far less than what politicians imagined: shortly after the construction of the factory in the United States began, Foxconn held a large-scale job fair, but only 300 people went for the interview.

In 2021, Foxconn announced that it would significantly reduce its investment in Wisconsin from the original US$10 billion to US$672 million. This means that the investment scale has shrunk by nearly 93%. Foxconn's trip to the United States eventually came to nothing.

But under the pressure of geopolitical conflicts, both upstream Apple and OEM Foxconn are strongly motivated to seek factory replacements to balance risks.

In recent years, although Cook has been emphasizing that China is irreplaceable, Apple has actually implemented a strategy of "de-risking" and diversifying the supply chain, shifting orders to India. As part of the Apple supply chain, Foxconn needs to follow Apple's pace from any perspective.

In addition, Foxconn itself is increasingly facing huge controversy in China. Since the slogan "Don't let Li Ka-shing run away", the subtle changes in social sentiment towards capital and capitalists are believed to be one of the huge pressures felt by Foxconn.

But as mentioned above,Whether it is Apple or Foxconn, under the above pressures, the actual process of transferring the industrial chain has not been smooth.

In other words, even though Foxconn has returned, it may still want to leave. The reason why it wanted to leave in the first place has not really disappeared. The reason why Foxconn and others came back is just because they don't have a better choice for the time being.

03

Compared with the pain of Foxconn's industrial chain transfer, during the time when Foxconn was away, we truly felt what it felt like to have "capital run away."

Henan's feelings are undoubtedly the strongest.

Foxconn Factory in Zhengzhou is the world's largest production base for Apple mobile phones, employing 350,000 employees at its peak. In 2017, Zhengzhou's mobile phone production was close to 300 million units, but it fell to 143 million units in 2023, shrinking by more than half. Customs data showed that in the first five months of this year, Henan exported 11 million mobile phones with a total export value of 44.526 billion yuan, a year-on-year decrease of more than 50 billion yuan.

Previously, a Foxconn employee revealed that there would be only 60,000 to 70,000 employees still working in the Foxconn campus in 2023. More than 200,000 laid-off Foxconn workers were forced to go out to make a living, and some upstream and downstream companies gathered around Foxconn in Zhengzhou dispersed. The population outflow from Henan is equivalent to 1.5 Hainans.

That is to say,If Foxconn and other companies are gone, even working on the factory assembly line to screw screws may become a luxury.

Of course, some people may say that Foxconn and Apple can seek alternatives to "Made in China". We can also look for alternatives to Foxconn and Apple - fromBYDFrom "Hualian" to "Hualian", we are all trying to prove that we can find industrial alternatives.

But the logic of replacing one bird with another is far from being as simple as it seems. The market that Apple and its supply chain are based on is the global demand, including developed countries such as the United States and Europe. Further deduction, Foxconn's manufacturing management capabilities are also at the world's top level.

This substitution seems simple, but a series of data can tell it all.

For example, Zhengzhou has vigorously introduced BYD's super factory in recent years, but from Zhengzhou's import and export data, we can find that Foxconn, as a global leader in the field of electronic product OEM, has a solid position in the global consumer electronics supply chain. BYD, which mainly focuses on manufacturing in the new energy vehicle industry, may be able to solve employment substitution, but it is far from solving trade substitution.

At this moment, we should be thankful that the hardworking Chinese people and the strong resilience of "Made in China" have helped us keep Foxconn from moving. But the real question is, can we build on this and eliminate the worries of Apple and Foxconn in producing, operating and investing in China?

The inherent attraction of “making people not want to leave” always looks much more decent than the threat of “don’t let people run away”.