Ryan Pyle Blog: Is Brazil the New China?

Hello,

I found this article a few days back on Reuters and I thought to myself, wow.....really? It seems that Foxconn and Apple are teaming up to build iPhones and iPads in Brazil. The reason behind it seems to be that Apple is under-performing in Brazil and the consumer market there is growing rapidly as new wealth expands the middle class. High import taxes seem to price most of these products out of reach for most consumers, so why not build them in Brazil and cut prices.

But I think it's important to look beyond just producing for the Brazil market. Foxconn and Apple will most likely aim to export to the rest of South and Central America as well as the United States, and perhaps even in a few decades Foxconn will ship iPads from Brazil to China.

With China's increasing wages, raising currency and a spurt of suicides last year; it's become obvious that the cost of doing business in China is on the way up. Foxconn need to start thinking global if they want to continue to produce high-tech products. We are also less than a decade away from Foxconn opening up a plant in Africa some where as well.

For those people out there who think that China will always be the workshop of of the world, think again. These jobs now flow across borders like trade winds. The moment a country becomes too expensive or "un-friendly" companies move to other countries offering better tax breaks.

I'll never forget back in 2004 when my landlord in Shanghai was telling me how he just moved his factory to Vietnam because China was getting too expensive - and that was 7 years ago. Times are changing. The Foxconn / Brazil / Apple article is below.

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Original Link: http://www.reuters.com/article/2011/05/06/us-brazil-foxconn-idUSTRE7454H120110506
Copyright: Reuters
Foxconn Brazil iPad deal facing barriers: reports
Fri, May 6 2011

SAO PAULO (Reuters) - Taiwanese electronics giant Foxconn wants to begin assembling iPads in Brazil by July, but it is still seeking tax breaks and other government concessions as part of an investment plan that could be worth up to $12 billion, Brazilian media reported on Friday.

Foxconn Technology Group, maker of Apple Inc's iPhone and iPad, announced its intention to dramatically ramp up production in Brazil last month during a visit to China by Brazilian President Dilma Rousseff.

Foxconn has moved up its desired start date for assembling iPads in Brazil to July from November, seeking to tap massive demand for the device in Brazil's booming consumer market, according to newspapers Estado de S.Paulo and Folha de S.Paulo. Their reports quoted government officials.

"It's a daring timeline. Whatever is within our reach, we're going to work on making that viable," Science and Technology Minister Aloizio Mercadante told Folha.

Foxconn's plans have generated excitement among Brazilian officials, who are hoping their country can move up the value-added manufacturing chain despite extremely high labor costs, taxes and an overvalued currency that have made business difficult for other factories in recent months.

The project could also give Foxconn and Apple a better foothold in Brazil, where high-tech gadgets are often priced out of the market because of import tariffs and production costs. Apple's cheapest iPad currently retails for about $860 in Brazil, versus $400 in the United States.

Several obstacles remain to the deal's full implementation. Rousseff recently received a long letter from Foxconn chief Terry Tou detailing several conditions for both short-term and long-term investments, the reports said, quoting Mercadante.

The company is negotiating tax incentives for production and other measures that would make it easier to import components for local assembly, the reports said. Foxconn also wants government assistance in dispatching 200 Brazilian engineers to China for training as soon as possible.

Foxconn intends to first begin assembling iPads in Brazil using imported parts, and then start producing screens and other parts locally in coming years, the reports said.

Skilled labor shortages and the likely need for a local partner in the venture have caused some Brazilian economic officials to privately question whether the total investment will reach anywhere near $12 billion, the amount cited by Rousseff last month.
The deal will also require funding from Brazil's BNDES state development bank, Mercadante said, which is under pressure to slow loan growth amid a rise in inflation.
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Ryan Pyle
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ryan@ryanpyle.com
Website: www.ryanpyle.com
Archive: http://archive.ryanpyle.com
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