According to sources consulted by Reuters, with the new free trade agreement, Mexico also has geography, low wages, and time zones in its favor.
MEXICO CITY (Reuters) – Taiwan-based electronics manufacturers Foxconn and Pegatron are among the firms looking for new factories in Mexico, They said that knowledgeable individuals, as the trade war and coronavirus outbreak, prompted companies to re-examine global supply chains.
The plans could generate billions of dollars in much-needed new investment over the next few years for Latin America’s second-largest economy, which is heading for its worst recession since the Great Depression of the 1930s.
Foxconn and Pegatron are well-known contractors to several phone manufacturers, including the U.S. company Apple. It was not immediately clear which companies they would work within Mexico.
According to two of the sources, Foxconn has plans to use the facility to manufacture Apple iPhones. However, there was no sign of Apple’s direct involvement in the plan, according to one source.
Foxconn is likely to make a final decision on a new plant by the end of the year, and work would begin later, two people said, although they added there was no certainty that the company would adhere to the plan.
Pegatron also is in initial talks with lenders about an additional facility in Mexico, primarily to assemble chips and other electronic components, the people said, who refused to be identified because the talks are confidential.
Foxconn has five factories in Mexico that primarily manufacture televisions and servers. Its possible expansion would accentuate a more widespread shift to supply chains outside China, amid a trade war between the Asian country and the United States and the coronavirus crisis.
The plans come as the idea of “close relocation” gains ground in Washington. The Trump administration is exploring financial incentives to encourage companies to move their production facilities from Asia to the United States, Latin America, and the Caribbean.
With a new agreement that ensures free trade with the world’s largest consumer market, Mexico also has geography, low wages, and time zones in its favor.
STABLE INVESTMENT
Despite the global recession and concerns about the business climate under President Andres Manuel Lopez Obrador, Mexican government data show that foreign investment has remained relatively stable so far this year despite the global recession.
“The company has contacted the (Mexican) government,” a third source said of Foxconn, noting that talks are at an early stage and that the increase in coronavirus cases in Mexico is a major concern for potential investment.
Foxconn, based in Taipei, formally called Hon Hai Precision Industry Co Ltd, said that while it continued to expand its global operations and is an “active investor” in Mexico, it has no current plans to increase such investments.
Reuters reported that Foxconn planned to invest up to one billion dollars to expand a factory in India, where it assembles Apple iPhones.
Foxconn President Liu Young-way told an investor conference in Taipei August 12 that the world was divided into “G2,” or two groups, in the wake of tensions between China and the United States, and said his company is working to “provide two sets of supply chains to serve two markets.
“The global factory no longer exists,” he said, adding that about 30 percent of the firm’s products are manufactured outside China and that the proportion could increase.
Sharp, a unit of Foxconn, said it is intensifying the production of televisions in Mexico. Sharp reported last year that it would set up a plant in Vietnam to shift its production to China. He added that he had no additional information to share.
China’s Luxshare Precision Industry Co. is also considering building a Mexico facility 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 media reports describe as a leading manufacturer of Apple Airpods. Luxshare did not respond to a request for comment from Reuters.
The Economic and Cultural Office of Taipei in Mexico, which represents the Taiwanese government in the country, said it had heard that Foxconn is interested in building another factory in Ciudad Juarez, in the northern border state of Chihuahua.
The office’s director-general, Armando Cheng, told Reuters that Pegatron would also be considering expanding in Mexico. However, he clarified that he does not know the details of any of the companies’ plans. “Mexico is one of the ideal countries for companies to reconsider their readjustment, their supply chain,” said Cheng.
The size of the investment by Asian electronics manufacturers and their jobs in Mexico for each contract is not yet clear. The resources promised for new manufacturing capacity have not always materialized.
In 2017, U.S. President Donald Trump said Foxconn would build a $10 billion plant that would employ 13,000 people in the manufacture of LCD panels in the state of Wisconsin.
Those plans have changed dramatically. In 2019, the company reduced the size of the planned factory. In April, Foxconn said it would produce fans at the plant in partnership with Medtronic.
SUPPLY CHAINS
The coronavirus crippled supply chains across the Pacific, stranding many automotive, electronic, and pharmaceutical components from China, exacerbating companies’ concerns about having their production base an ocean away from U.S. consumers.
Besides, the recently implemented trade agreement between Canada, the United States, and Mexico (USMCA) requires more locally sourced inputs for duty-free exports to the United States.
Mexico has spoken to several foreign companies to attract investment from Asia under the trade agreement and was preparing to talk to Apple about relocating its assembly, Economy Secretary Graciela Marquez told Reuters in July.
She said she had not spoken directly to Foxconn, Pegatron, and Luxshare. However, a senior government official said that these companies are among others interested in investing in Mexico.
Despite the potential and solid investment figures, in the eyes of many investors and even members of the Mexican government, Lopez Obrador misses a historic opportunity. “It could have been a tsunami,” said Eduardo Ramos-Gomez, a partner at Duane Morris & Selvam, a law firm that works with Taiwanese and Chinese companies interested in Mexico.
Critics cite Mexico’s mishandling of the pandemic, which ranks third in deaths worldwide, along with López Obrador’s meddling in private investment decisions.
The government’s obstacles to private investment are the cancellation of a billion-dollar brewery by the U.S. firm Constellation Brands, the scrapping of a major airport project, and pressure on energy companies.
Still, Mexico’s appeal does not go unnoticed by some. Samuel Campos, executive director of the real estate brokerage Newmark Knight Frank, said his company is currently helping two Chinese companies, one in the automotive sector and the other in manufacturing, to move to an industrial group in Mexican territory.
