Foxconn in the Age of Isolationism - Technology and Operations Management (2024)

“NAFTA is the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country,” President Trump.

In an unexpected turn of events, China, historically known for its protectionist policies, is now arguably the guardian of globalization and free trade. As labor arbitrage has continued to remove unskilled jobs from the United States and shifted them to lower income areas, the populist voices in U.S. society have begun speaking up. Each industry is being affected by the rise of isolationist and nationalist policies, but manufacturing seems to be in the forefront of the world’s focus. The rate of global trade is cooling faster than global growth which is signaling the rise of isolationist policies around the world.[1] As firms continue to compete against one another, governments around the world are taking a more engaged role in deterring or promoting global firms from operating.[2] Government interaction is ultimately bad for the consumer, because it awards firms based on relationships and bureaucratic acumen rather than competitive advantage.

Source: “The Retreat of the Global Company; Multinationals.”The Economist (US), January 28, 2017.

Pathways to Just Digital Future

Foxconn Technology is a multinational corporation that manufactures electronics in Asia, South America, Europe and Mexico with a $10-billion factory in the works for Wisconsin.[3] The electronics they produce or assemble are present in forty percent of all electronics worldwide.[4] Sixty percent of Foxconn’s business is conducted within China, suggesting that the firm may be overly reliant on one specific country for both their supply and demand for products.[5] Foxconn is especially susceptible to isolationist policies because Foxconn specializes in manufacturing parts for other technology companies. Foxconn’s near-term strategy appears to be centered around strengthening relationships with existing governments[6], diversifying global demand through mergers and acquisitions[7], and optimizing existing supply chains. The long-term plan of Foxconn is much more difficult to ascertain due to numerous and countervailing global trends. The rise of isolationist policies is a considerable threat to Foxconn’s long-term profitability. Their supply chains span a multitude of countries and relies heavily on speedy and efficient transitions over borders. Their proposed investment in the United States, mentioned above, is a move to further diversify their manufacturing, but fails to address their overreliance on cross-border trade along long and complex supply chains.

Global demand for electronics continues to increase so Foxconn needs to remain proactive by incrementally increasing supply to keep pace. The challenge is that manufacturing is a highly capital-intensive business, especially with respect to the rise of advanced robotics, so the payback periods for factory investments can be long[8]. The rise of populist movements in the West threaten Foxconn’s ability to seamlessly move supplies across borders. Their competitive advantage comes from their ability to produce different parts in different locations based on cost. Due to the decentralized nature of their current global operations, they would not be successful without full access to their Chinese manufacturing sites. As the tides of globalization recede and isolationist walls are built, Foxconn needs to prepare for potentially damaging effects to their supply chain.

The success of multinational firms derives from a number of economic drivers. Some claim that the recent stagnation of multinational firms, to include Foxconn, is solely a byproduct of isolationist policies. In recent years, wages across China have been increasing, the cost of robotics has been decreasing[9], and host nations have been less hospitable to multinational firms. Foxconn should continue to diversify their global operations to deal with their potential overreliance on China. They need to take a regional approach to their global operations and seek to create sustainability on a national scale. Though it seems counterintuitive, as a multinational firm they need to hedge their business against the possibility of a trade war. When times are good, each of their national businesses will collaborate and achieve synergies through economies of scale and specialization, but during periods dominated by isolationist polices, they will still have sustainable business units.

Foxconn is a bellwether for globalization because of its involvement in so many products across the world. In recent years, multinational firms have stalled, leaving many unsure whether they have a place in the future global economy. Is isolationism, or the threat thereof, truly the cause of this recent trend? Assuming global labor prices continue on current trends and the development of AI and robotics continues, does the world need multinational supply chains? Will Foxconn’s current distributed production model allow it to compete in the future with highly automated, nimble, local competitors in the future?

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[1] “The Retreat of the Global Company; Multinationals.”The Economist (US), January 28, 2017.

[2] Nougayrède, Natalie. “France’s Gamble: As America Retreats, Macron Steps Up.”Foreign Affairs96, no. 5: 2-8.Business Source Complete, EBSCOhost,accessed November 2017.

[3] Starner, Ron. “Bagging the Big One: How Wisconsin Landed Foxconn”,Site Selection, 62, 5, pp. 117-123, Business Source Complete, EBSCOhost, accessed November 2017.