with the process of transformation and industrial upgrading orchestrated by Guo Tai Ming.
4.4 Industrial upgrading
The investments we have analyzed can also provide a clue into the shifting nature of Foxconn’s business of activity and show how the company while expanding geographically has also climbed up the ladder of industry, stage by stage, evolving from primarily a contract manufacturer to a more diversified company producing higher-value products. Starting in the 1970s making electronic components like connectors and switches, Foxconn has then entered the contract manufacturing business, assembling components retrieved from other suppliers. Expanding its product portfolio, in the 1990s Foxconn has then become able to control the entire production line except R&D that has been included among the internally performed operations only recently. As already shown while discussing the investments made in Kunshan, more specifically those placed in “Kunshan Eson Technology Inc”, Foxconn continued upgrading its production from that of components, to that of machineries.
To deepen this analysis, we can further look at Foxconn’s investments made in recent years in businesses that have not traditionally been core businesses for Foxconn. Table 3 shows the 2012 and 2013 investments that Foxconn made outside the purview of their normal business.
Table 3: Foxconn 2012 and 2013 investments in non-traditional sectors
N° Company Name Main Activity of Investee Capital
1 Changchun Leiguan Environmental Plastic Products Co., Ltd.
Articles for the conveyance or packing of goods, of plastics 2 Ying Tai Environmental Technology Ltd. Manufacturer of degradable plastic resin
3 Xiang Tai Environmental Technology Ltd. Manufacturer of degradable plastic resin
4 Fox Energy Technology (Funing) Co., Ltd. Engaged in the production and marketing of operating solar energy battery business
5 Hong Fu Jin Precision Industry (Luoyang) Co., Ltd Engaged in the operation of automated equipment, multipurpose industrial robots, the equipment enclosure sheet metal production and marketing business
6 Zhong Zhun Precision Industries (Luo Yang) Co., Ltd.
Reducers, other transmission shafts and cranks 7 Fu Hong Yuan (Shenzhen) Environmental
Technology Co., Ltd.
Environmental technology development and wholesale of pollution controlling equipment
8 Uer Technology (Shenzhen) Co., Ltd. Manufacturing and marketing of lithium batteries
9 Scienbizip Consulting (SZ) Ltd. Provides intellectual property services to manufacturing and technology companies.
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Looking at recent investments, along with public news it possible to predict the direction of the future development of Foxconn. Taking the development pattern discussed above, it is clear that Terry Gou wants to reform the company into a high-tech manufacturer focusing on high-margin, capital-intensive products, as well as expand into new areas of business. The first aspect of the reform seems to be to move up stream on the value chain within the production of electronics. The recent smartphone cooperation with Blackberry shows a changing role for Foxconn. Instead of just producing and assembling the phone, Foxconn is now focused on providing services such as research and development, design, manufacturing and logistics support. By developing and designing smartphones, Foxconn has already started the process of moving up the production chain and developing its own products. The Blackberry phones q20 and z3 launched in 2014 are both developed, designed and produced by Foxconn (Cheng, 2014). The company noted, after the new Blackberry phone was released, “Moving up the value chain to provide a full suite of services has been our ongoing strategy” (Cochrane, 2014). Starting in the late 2000s Foxconn also entered the consumer electronics market by designing and manufacturing their own products. The Foxconn Channel markets Nano PCs, desktops, motherboards, card readers, graphic cards, and LCD monitors, all branded as Foxconn products
In addition to moving up the value chain in traditional electronics, Foxconn has also started looking into new technologies. According to Terry Gou, "E-commerce, 4G mobile services, cloud computing, and other high-tech innovations will drive our growth in next 10 years” (Luk, 2014, January 25). In June 2014, Hon Hai announced a merger between Foxconn subsidiary Amit Microsystems Corp and Asia Pacific Telecom. The deal will give Foxconn a stronger foothold in the 4G and telecommunication networks sectors (Poon, 2014, June 18).
Other than the 4G sectors, Foxconn is also making progress in the artificial intelligence, battery sectors and is expanding its medical device business. Their 2012 investment into Luoyang’s Hongfujin Precision Industry is for the research and development of industrial robotics. Robots will be introduced to Foxconn factories to save money on labor, and confine the labor shortage problem thus reducing dependence on permanent employees. These machines have taken over jobs like paint-spraying and loading and unloading from human employees. Robots however have been also developed for applications other than those in the factories. In June 2014, the Japanese tech company Softbank unveiled Pepper, a personal robot that
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Foxconn helped develop. Pepper is designed to interact with humans, and can talk and even read people's emotions (Hornyak, 2014, June 5). This year in February, Foxconn further unveiled a dough-slicing machine in Taiyuan in northern China's Shanxi province, signaling that the company is aiming at entering the restaurant industry (Want China Times, 2015, January 19).
Foxconn also moved further into the car industry, specifically the electric car industry, which is dependent on batteries. Two investments in “Fox Energy Technology (Funing) Co., Ltd.” and “Uer Technology (Shenzhen) Co., Ltd.”, both engaged in the production and marketing of operating solar energy battery business, were the first step toward developing electric car batteries. Now it has already attracted many customers. Foxconn has made an agreement with electrical car company Tesla, an American electric car manufacturer, eager to secure mass-produced, low-cost batteries for its cars (Ward, 2014, June 04) and more recently home batteries. Foxconn is now reportedly investing to develop its own electric car manufacturing in one Chinese province. At time of this writing, the details of the project is yet to be revealed publicly, but moving into electrical automobiles is another example of high-end production for Foxconn.
The above-described trend of industrial upgrading and diversification did not stop in 2014 and it is likely to continue also in the years to come. According to the documents provided by the MOEAIC listing 2014 Taiwan outward investments, Foxconn has kept concentrating its investments in the robot and automated machines industry, automobiles industry, and network applications. Among the directly invested facilities, “fujiang jixieren keji (shen zhen) youxian gongsi”14, as its Chinese name suggests, will produce and sale multi-functional robots and “cifu keji (Zhengzhou) youxian gongsi”15 will produce and sell automated operating equipment.
In Chongqing “chongqing yuanchuang qiche zhengxian jicheng youxian gongsi” will expand Foxconn penetration of the car industry from the mere production to design and development. Finally in the 4G sector, the main activity of “yilingyi zaixianshang jiaoyu keyi youxian gongsi”16will be the provision of network education technology.
14福匠機械人科技（深圳）有限公司
15 賜福科技(鄭州)有限公司
16一零一在線教育科技有限公司
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5 CONCLUSION
The empirical data shows that since the launch of the Open Door Policy in the late 1970s, the flux of Chinese inward FDI has witnessed some changes at least in terms of geographical destination and main activity of the investee capital. Focusing on the world’s largest electronics manufacturer Foxconn, this work has traced the pattern that the company has followed since its foundation. From the geographical investment relocation point of view, Foxconn has evolved into the current global manufacturer in five different steps. The first step was taken in the late 1980s when Deng’s reforms were pushing for a “coastal development strategy” and the Shenzhen Special Economic Zone was opened to foreign capital investments. In 1988, Foxconn set up its first mainland factory in Shenzhen, in the Pearl River Delta (PRD). In the 1990s, Foxconn made its second step taking advantage of the cheap internal migrant labor. The company consolidated its production cluster in the PRD and moved northeast into the Yangtze River Delta (YRD), in cities like Shanghai, Kunshan and Hangzhou. The third step of Foxconn’s globalization is the relocation of production facilities toward the Northeast regions in the early 2000s. Beijing, Tianjin and Yantai were flooded with money in a bid to gain new market shares in the traditional sectors and enter into new marketable segments. The inland relocation that properly started in 2011 and is still ongoing is the fourth step.
Finally the fifth and last step is the expansion outside the perimeter of China setting up factories in Southeast Asia, Europe and America. The transition from East to West is characteristic of companies with manufacturing facilities in China and Foxconn is no exception.
Alongside this geographical evolution, Foxconn has also mirrored the growth of China expanding production into a more diverse and advanced set of products.
Data shows that the largest category of Foxconn products is computers and computer casing. The category includes assembling and manufacturing of computers as well as components of tablets and smart phones. Computer production has been the largest investment area of Foxconn the last 10 years with a total investment of
$2,500,000,000.
Although contract manufacturing still makes up the bulk of Foxconn’s business (and will continue to in the near future), the diversification of the company into higher margin products and services is apparent. Founded in Taiwan in 1974
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starting out making connectors and switches, a pivotal break came in the 1990s as the company shifted its focus to production of computers. Further evolution in Foxconn came in 2000 with the establishment of the subsidiary “Foxconn International Holdings Ltd”. With the company Foxconn diversified its production area to include cellphones and LCD monitors. During the 2000s Foxconn expanded massively on several fronts. The company made a transition from being solely a contract manufacturer to researching and developing their own products. In addition to the 6C electronics and parts, the company produces automotive parts and equipment, lighting, batteries, and large commercial electronic equipment. Furthermore, Foxconn is working on joint projects with established companies in developing new products.
This represents a new step for the company; the development of high end products combined with investments in facilities for software, cloud networks, as well as in robotics, shows Foxconn’s eagerness to develop higher margin products.
This work has also explained why Foxconn has evolved this way. Since the two processes of factory relocation and industrial upgrading are the main focus of the flying geese theory, and some scholars have already adopted this model to describe the phenomenon of factory relocation that is taking place within the Chinese national borders, I also resorted to the model. Through it I explained that when a country enters the world economy, FDI flock into to benefit from different comparative advantage positions. In most cases the industries that invest are those in which the investing country is losing comparative advantage while the receiving country is gaining it, or is expected to gain it. I further highlighted how the national industrial population of the developing country does not remain static; conversely it is able to climb up the ladder of industrial upgrading stage by stage. This is done absorbing industrial knowledge and basic technologies at first, and then drawing upon the processes of intra-industry diversification and inter-industry pluralization in a later phase. This way the developing country will accomplish the scaling of the ladder of industry, starting from labor-intensive low-tier industries, and moving towards more capital-intensive high-tier ones. The climb up of the industrial upgrading ladder will lead to investment relocation towards the developing countries that follows behind.
Even though most of Foxconn investments are coherent with the precepts of the flying geese model, however the process of investment relocation taking place within China has fundamental differences from that described by Akamatsu. The differences with what expected by the FGM are mainly due to the strong role of state
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intervention in the Chinese Economy. Since China is a “Socialist Market Economy”
that is a country in which central planned economy and the market self-regulating behaviors coexist, and the role of Chinese central and local governmental policies also need to be considered as a factor affecting investment location.
In China the central government affected investment location through the creation of economic “growth engines”, which spark regional economic growth and agglomeration. In the 1980s Shenzhen became the first engine for the PRD when many foreign companies set up their operations there following the launch of the economic reforms. A few years later, new national policies pulled FDI northward toward the YRD, where Pudong became a second engine in the 1990s. At the beginning of the new century renewed political efforts decided to let the northeast regions develop building in Binhai the third engine. Nowadays, thirty years after the launch of the Open Door, many FDI are now flowing toward the undeveloped inland Central China, where the West Triangle Economic Zone is becoming the fourth engine.
If national policies were fundamental in establishing an investment-conducive environment, local policies played a key role in meeting the needs and solving the problems of the single industry. Concentrating on the Foxconn experience, I highlighted some cases where the local government has helped investors by offering the company with benefits like cheap labor free land, tax reductions and subsidies.
Answering the two main research questions, this work has also joined in the scholar debate about the flying geese model and its ability to explain the latest development of Chinese economic growth, more specifically the inland industry relocation. In this respect, this work has made clear that the model falls short in explaining some aspects of the phenomenon. Those scholar who fully rely on the model without considering the state intervention, concentrated on the post 2008 global financial crisis relocation and overlooked the importance of the preceding years and the role played by the Chinese central and local policies. Inland industry relocation is a four-step process strongly affected by state intervention.