HONG KONG / TAIPEI / MEXICO CITY (Reuters) – Taiwan-based electronics manufacturers Foxconn and Pegatron are among companies looking at new factories in Mexico, said people with immediate knowledge of the matter, such as the US-China trade war and coronavirus pandemic prompt companies have re-examined global supply chains.
FILE PHOTO: A sign announces the production complex of Foxconn PCE Technology, in Ciudad Juarez, Mexico February 6, 2020. Image taken February 6, 2020. REUTERS / Jose Luis Gonzalez / File Photo
The plans could in the coming years raise billions of dollars in much-needed fresh investment for Latin America’s second largest economy, which has been plagued by its worst recession since the Great Depression of the 1930s.
Foxconn (2317.TW) (2354.TW) and Pegatron (4938.TW) are known as contractors for several phone manufacturers including Apple (AAPL.O). It was not immediately clear which companies they will be working with in Mexico.
According to two sources, Foxconn has plans to use the factory to make Apple iPhones. One source, however, said there was still no sign of Apple’s direct involvement in the plan.
Foxconn is likely to make a final decision on a new factory after this year, and work will begin thereafter, the two people said, adding that there was no certainty that the company would stick to the plan.
Apple spokesman Josh Rosenstock declined to comment.
Pegatron is also in early talks with lenders about an additional facility in Mexico primarily to assemble chips and other electronic components, said the people, who declined to identify if the talks were confidential. Pegatron declined to comment.
Foxconn has five factories in Mexico that mainly manufacture televisions and servers. The possible expansion would underscore a broader and slow shift of global supply chains away from China amid a Sino-American trade war and the coronavirus crisis.
The plans come as the idea of ’near-shoring’ gains in Washington. The Trump administration is investigating financial incentives to encourage companies to relocate production facilities from Asia to the United States, Latin America and the Caribbean.
In conjunction with a new deal concluded in free trade with the world’s largest consumer market, Mexico also has geography, low wages and time zones to its advantage. Despite the global recession and concerns about the business climate under President Andres Manuel Lopez Obrador, government data show that foreign investment has been halting for the most part so far this year.
“The company has in fact contacted the (Mexican) government,” a third source told Foxconn. The addition of the talks were at an early stage and increasing cases of coronavirus in Mexico were a major concern for the potential investment.
Foxconn, headquartered in Taipei, formally called Hon Hai Precision Industry Co. Ltd, said in a statement that although it continues to expand worldwide operations and is an “active investor” in Mexico, it has no current plans to increase those investments.
Reuters reported in July Foxconn plans to invest up to $ 1 billion to expand a factory in India where it assembled 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-American tensions, saying his firm was working to “supply two sets of supply chain to service the two markets.”
“The world factory no longer exists,” he said, adding that about 30% of the company’s products were now made outside China and the ratio could increase.
Foxconn unit Sharp has said it is increasing television production in Mexico. Sharp said last year that 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 Co. (002475.SZ) 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 are 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 economic and cultural bureau of Taipei in Mexico, which represents the Taiwanese government in the country, said it had heard that Foxconn was interested in building a new 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,” Director-General Armando Cheng of the agency told Reuters. He said he knew no details of plans from either company.
“Mexico is one of the ideal countries for companies considering adjusting their chain of suppliers,” Cheng said.
The scale of investment by Asian electronics contractors, and the employment they would create in Mexico, are not yet clear.
Promised investment in new production capacity is not always materialized.
In 2017, US President Donald Trump said Foxconn would build a $ 10 billion plant with 13,000 people deploying 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 build fans at the plant in partnership with Medtronic.
Coronavirus shuts down cross-Pacific supply chains, shuts down automotive, electronics and pharmaceutical parts from China, and increases companies’ concerns about having their productive base an ocean away from U.S. consumers.
In addition, the newly implemented United States-Mexico-Canada trade sales require more local input for tariff-free exports to the United States.
Mexico spoke with a host of foreign companies in an attempt to lure companies from Asia to capitalize on the trade contract and was ready to talk to Apple about moving manufacturing, Economy Minister Graciela Marquez told Reuters in July.
She said she had not spoken directly to Foxconn, Pegatron and Luxshare. A senior government official said these companies were interested in investing in Mexico, among other places.
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 crushing a historic opportunity.
“It could have been an air base,” said Eduardo Ramos-Gomez, a partner at Duane Morris & Selvam, a law firm working with Taiwanese and Chinese companies looking to Mexico.
Critics cite Mexico’s poor handling of the pandemic – it is third in global deaths – along with Lopez Obrador’s involvement in private investment decisions such as the cancellation of a $ 1 billion brewery by US firm Constellation Brands (STZ.N), scraping a major airport project and putting pressure on energy companies.
The government denied that such decisions were anti-corporate.
However, Mexico’s appeal attracts some.
Samuel Campos, executive director of broker Newmark Knight Frank, said his company is currently helping two Chinese companies, one in the automotive sector and the other in manufacturing, move to an industrial cluster in Mexico.
Campos said electronics, medical and automotive companies in Asia are likely to help drive investment in Mexico in the fourth quarter.
For Alan Russell, CEO and Chairman of Tecma Group, a company that manages factories in Mexico, manufacturers in China who want to keep market share in North America have a few choices.
“They will have their supply chain short and be more regional,” he said. “It looks like the virus has tipped the scales.”
Report by Sumeet Chatterjee in Hong Kong, Yimou Lee in Taipei and Anthony Esposito and Daina Beth Solomon in Mexico City; Additional Reporting by Stephen Nellis in San Francisco and Josh Horwitz in Shanghai; Edited by Frank Jack Daniel and Cynthia Osterman