AFTER THE BELL
After the fox: Watching where Foxconn wanders could map where the global tide will turn
Here is an abstract question, apropos of absolutely nothing: What is the world’s most interesting company? I think the instinctive response of South African investors would be Apple, possibly. Or Tesla, perhaps.
My vote, without question, would go to Foxconn, or, to give it its real name, Hon Hai Precision Industry. The raw statistics of the company are just mind-boggling.
It’s around the 20th-largest company in the world by turnover, and is well known as the producer of Apple products. But that doesn’t even vaguely represent what the company actually does. It is the world’s largest technology manufacturer and service provider.
It’s also one of the world’s largest employers, with a global staff of 1.3 million people. It’s the largest private employer in China. It produces about 40% of global electronics, including all the Apple products we know about, but also the Nokia and Sony devices, including the PlayStations, some Xiaomi devices, Microsoft’s Xbox and Nintendo.
Foxconn has 12 factories in nine Chinese cities, the largest being in Shenzhen, where about 300,000 people work in what is politely called a “walled campus”. It has 15 factories in the complex, and about a quarter of the workers live in dormitories. It has its own grocery stores, banks, restaurants, bookstores and hospitals. And, of course, its own television station.
Working in these factories is, well, less than fun. A recent book called Dying for an iPhone chronicles the conditions at some of these factories, and the picture it paints is pretty grim. The book’s central contention is that Foxconn’s aim to dominate global electronics is closely aligned with China’s goal of becoming a world leader in technology.
But the oddest thing about Foxconn is that it is based in Taiwan.
Its founder, Terry Gou, quite a character, obviously, started the company in 1974 with $7,500 and 10 elderly employees making plastic parts for television sets in a rented shed in Taipei. He is a fabulous salesman and would show up unannounced at US technology companies offering to make electronic products, and apparently that worked. He still owns about 15% of the company.
For companies like Foxconn, the quickly fracturing global balance must be a major headache. Here is a company that makes products in China, but its most important market is the US, and it’s based in a country that is in the middle of a tug-of-war between the two. How do you come close to managing a split like that? So what is it doing to try to square this circle? The obvious. The company has started to move its production out of China and into Vietnam and India.
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This latter move is, I suspect, very interesting. Vestact fund manager Paul Theron pointed out in the company’s daily newsletter on Wednesday morning that Apple plans to begin manufacturing the iPhone 14 in India about two months after the product’s initial release out of China. The lag used to be nine months, and the next version of the phone will come out in the two countries simultaneously.
Despite its huge scale and global footprint, it’s interesting that Foxconn hasn’t been a great investment recently. The company hit a record in 2017, but is about 30% down on that, presumably knocked because of stringent Covid lockdown measures in China.
Foxconn’s move, for me, is an important indicator of where the global focus is heading — and that place is India.
Old Mutual Wealth Investment strategist Izak Odendaal has just put out some interesting research on India, pointing out that it’s about to become the world’s most populous nation and also that its growth rate has overtaken that of China. The IMF’s projection is that India will grow by 7.4% this year and 6.1% in 2023, while the comparable numbers for China are 3.3% and 4.6%, respectively.
The big question is whether India can match China’s growth over the longer term. So many Asian countries achieved rapid economic transformation under authoritarian rule, including Taiwan, but also Korea, Malaysia, Singapore and, of course, China.
India’s average per capita income is now only about one-sixth that of China. Ruchir Sharma noted in the Financial Times last week, “In other Asian nations, the state often granted people economic freedoms first and political freedoms later, as the country grew richer. In India, the state granted a poor nation political freedom first, but in a socialist economy that has never fully embraced economic freedom.”
Similarities with SA
But India is changing fast; it’s much more dynamic and entrepreneurial than it has ever been. “India’s private sector vitality is matched by public sector incompetence,” Sharma notes.
Well, you could say the same thing of South Africa. In some ways, India’s fate could be an indicator, on a much smaller scale, for SA, which in some ways mirrors its politics with a long lag. There are intriguing similarities.
China and the US are going to be crucial components of the global economy for the foreseeable future. But Foxconn’s move into India suggests which way the tide is turning.
Odendaal points out that SA investors should start paying closer attention to India: “In the years ahead, it will become too big to ignore.” BM/DM