Indonesia's latest big gamble: Foxconn
One of the world's most powerful men in the electronics industry, Terry Gou, was in Jakarta last week on a courtesy call ahead of a plan to make Indonesia the next production base for Foxconn Technology, the maker of iPad, iPhone, Kindle, Playstation 3, Xbox 360 and more.Foxconn's factories in Asia, Europe and South America assemble 40 per cent of all consumer-electronic products in the world. The company is a subsidiary of Honhai Precision Industry, a company he founded almost four decades ago in Taiwan.
Gou's plan entails strategic investments that will redraw the industrial landscape and give birth to a new star in the constellation of local manufacturing giants. The investments are said to be comparable to Foxconn's presence in China, where the company operates 13 factories in nine cities and employs more than 1 million people. Although it will not be on the same scale, Gou mulls spreading Foxconn's operations over the six economic corridors stipulated in Indonesia's master plan for economic acceleration (MP3EI). The aim is to benefit from the specialities offered by each of the corridors, be they labour, raw materials, energy or services; and also from a tax holiday for new investments outside Java.
But much is at stake in Gou's bet on Indonesia, for the company and the biggest economy in Southeast Asia. Foxconn owes it to major clients such as Apple, Sony or Microsoft that his risk assessment is foolproof.
Indonesia, on the other hand, cannot afford to let this deal be scuttled by traditional impediments and bottlenecks or risk global embarrassment. It is widely understood that problems surrounding land acquisition, infrastructure and law enforcement are still unresolved.
In early June, Trade Minister Gita Wirjawan and Sofjan Wanandi, one of the key guardians of Indonesia-Taiwan business relations, travelled to Taipei and met with Gou and his executives. At the meeting, both men presented the case on why investing in Indonesia would be better than anywhere else.
The trip to Taipei came at an opportune time. Foxconn has been under pressure from clients to expand its production capacity. The first obvious option was Brazil, where it has five factories. Brazil's President Dilma Rousseff said in April 2011 that Foxconn was considering spending around US$12 billion over five to six years, its largest overseas investment ever.
By the end of September, however, reports claimed that the deal was in doubt due to stagnant negotiations over tax breaks and other special treatments. Local media later reported that a deal had been achieved by January. Despite the news, there hasn't been an update whether the factory construction will finally kick off.
In the midst of the uncertainty over the new investments, thousands of Foxconn's Brazilian workers made repeated threats to strike over what they claim are poor working conditions. These are workers who get at least $580 a month. This is where Indonesia easily stands out, even when compared to what Foxconn workers earn in China, where they are paid $400 a month before overtime, plus other benefits to avoid suicides. The company has so far witnessed 18 suicide attempts and 14 deaths.
In Indonesia, the highest minimum salary is a little over $160 a month, and that is for workers in the capital Jakarta, where living costs are highest. There are other equally competitive regions in the country where companies are allowed to pay half that.
Neither is the level of education an issue for what are entry-level manufacturing jobs that require only a short period of training.
Another competitive factor of Indonesian labour may include its cultural traits; it is very unlikely a strike here would involve hundreds of people making suicide threats, as happened in Foxconn's Wuhan, China facility in April.
As the biggest economy in Southeast Asia, Indonesia also offers a large consumer base. Buoyed by strong purchasing power, they have helped companies expand and get more sophisticated.
The domestic ecosystem seems in place; Foxconn's entry into Indonesia has come at the right time. It is now up to the Yudhoyono administration to live up to its side of the bargain.