How Foxconn Could Shape The Future of Struggling Sharp

[Anonymous]

How Foxconn Could Shape The Future of Struggling Sharp
Here comes the Robots
It’s three times bigger than FedEx Corp.
It has more workers than the U.S. Army has troops.
Its annual sales exceed the output of 150 nations.
And it could soon have a foothold in Memphis.

Hon Hai Precision Industry Co. is a huge manufacturer from Taiwan ready to shore up and possibly take over Japan’s ailing Sharp Corp.

Regarded as a flagship of Japan’s economic resurgence in the mid-20th Century, Sharp put plants in America a generation ago when Japanese consumer electronics was considered unsurpassed. One of those opened in 1978 in Memphis — Sharp Manufacturing Co. of America, which still runs on the city’s southeast side, turning out solar panels seven days per week in a 500-employee plant.

Hard hit by slumping sales of liquid crystal displays for television sets, Osaka-based Sharp Corp., which owns the Memphis plant, this month reported a quarterly loss of $1.8 billion, announced 5,000 future layoffs of employees worldwide and talked again to Hon Hai about a cash infusion.

Despite the situation in Tokyo, there’s been no mention of possible layoffs in the Memphis plant, said Paul Shaffer, business agent for Local 474 of the International Brotherhood of Electrical Workers, a union which represents Sharp production workers in Memphis. Sharp officials did not return calls seeking comment.

Although the plant is producing at full-bore, it could get caught up in the Hon Hai drama unfolding in Japan. Into the 1980s, Japanese electronics makers such as Sony Corp., Panasonic Corp. and Sharp were cash rich. These days, they’re slumping. A slowing global economy has undercut them along with better innovation from American companies and lower costs among South Korean rivals like Samsung Group.

So far, Sharp has soldiered on alone and taken in no cash from Hon Hai, possibly because Hon Hai founder Tai-ming "Terry" Gou, industry analysts say, has angled for a large stake in Sharp as the price of a bailout.

"If Hon Hai has its way to increase its stake in Sharp over 10 percent, the Taiwan giant will get the right to ask a court to dissolve Sharp, thus allowing Hon Hai to increase its voice in controlling the ultimate destiny of one of the oldest Japanese companies," Junko Yoshida, chief international correspondent for the trade journal Electronic Engineering Times, wrote last week.

If Gou does take control of Sharp, analysts say, Memphis could see one of two widely different courses emerge:

Solar output could fade. Gou never has owned a global brand like Sharp that designs, engineers, makes and markets it own wares.

Unfamiliar with design engineering and brand marketing, Hon Hai could lose sight of trends in the solar panel market. Rivals then could capture customers.

"I’m sure Foxconn has brand ambitions, but it’s a great manufacturing company. It’s not a consumer electronics brand company," said Milton Kotler, founder of Kotler Marketing Group Inc., a Washington business consultant active in China.

Hon Hai and its massive Foxconn unit employ an estimated 961,000 workers, chiefly in China, assembling electronic goods such as Apple iPods, Hewlett-Packard personal computers, Motorola cellphones and Nintendo video game consoles.

Hon Hai could pour capital into Memphis. Gou wants to open a wave of U.S. electronics plants that could supply Apple and other U.S.-based customers, but also export worldwide.

Sharp’s presence here could make Memphis a starting point for Gou’s expansion, particularly because of FedEx, which flies freight airliners on daily nonstop routes between its Memphis hub and China.

Memphis officials aren’t now courting Hon Hai, but many other cities and states in search of jobs are active in Taiwan and China recruiting investment back to America.

Taiwan, a small island nation on the South China Sea that calls itself the Republic of China, split away from mainland China after communists took control in the 1940s. Fifty years later, Taiwanese like Gou familiar with American and mainland ways helped surge Chinese exports to America. This year through June, U.S. imports from China were valued at $198 billion, compared to $6.5 billion in the first half of 1990.

While few Chinese companies have ventured overseas and put up plants like the Japanese did in the 1980s in the United States, mayors of many hard-pressed American cities are urging the Chinese to bring over job-creating investments.

"Michigan, Maryland, New York, Chicago, they’re all over there. A lot of cities and states are over there. Most of them. They have permanent offices in Beijing," Kotler said in an interview. "China’s on the march. They have the money."

Tennessee Gov. Bill Haslam organized a China trade mission earlier this year looking for export business for the state’s medical device makers. In July, the Greater Memphis Chamber of Commerce hosted the Chongqing Foreign Trade and Economic Relations Commission, a 31-member delegation focused on bioscience and logistics investments.

Other states, however, are going to China, trying to lure investment money in an era when capital spending by American companies has declined. Arkansas Gov. Mike Beebe traveled there in April. Mississippi’s Development Authority will lead a trade delegation to Beijing next month for Inter Airport 2012, a massive trade show. A St. Louis group headed by former Missouri Sen. Christopher Bond will court Chinese companies in Beijing, Shanghai, Nanjing and Hangzhou in December. Los Angeles Mayor Antonio Villaraigosa sought Chinese financiers for L.A.’s mass transit ambitions. Atlanta Mayor Kasim Reed’s 10-day tour this summer produced a memorandum seeking trade with industrial dynamo Shenzhen, a city of 10 million population. Washington Mayor Vincent Gray’s trade mission recently returned from China.

Although China gets the attention, one of its largest private employers is Foxconn, a business of more than 600,000 workers run by entrepreneur Terry Gou. Considered Taiwan’s third richest billionaire, Gou oversees an empire that Fortune magazine ranked as the world’s 43rd largest corporation with annual sales of about $118 billion. That sales volume makes Hon Hai larger than American tech stalwarts Apple, Hewlett-Packard and IBM.

In terms of employment, Hon Hai stands at No. 5 worldwide, trailing No. 1 Wal-Mart Stores Inc. The Arkansas-based merchant, the leading U.S. importer of Chinese products, employs 2.2 million people, chiefly in its U.S. stores.

Gou, whose career started by making plastic TV parts in his garage in 1974, came under criticism following a recent spate of suicides in Foxconn plants. Now he wants his Chinese workforce to take on more sophisticated chores than repetitive hand assembly. To do that, he intends to buy one million industrial robots at a cost of $50 billion for the new wave of plants.

Put to work in the United States, the robots could help wipe out the cost gap that sent manufacturing abroad. Hackett Group, a Miami consultant, figures rising fuel prices and higher Chinese wages could narrow the gap to 16 percent by the end of 2013. Robots could close it further.

Hon Hai’s robot strategy is part of a larger investment wave just beginning to reach the United States. Notes Kottler’s China Blog: Chinese "companies like Sany, AVIC, Huawei, ZTE, Goodpower, BYD, Haier and many other well capitalized industrial manufacturers have an open door foothold to build facilities in the U.S."

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August 28, 2012 at 8:54 AM