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FOXCONN: SEEKING DIVERSIFICATION BEYOND CONTRACT MANUFACTURING?

Reference No. 16/003C Publication Year 2016
Author(s) Patricia Tse, Amy Yip
Company Foxconn, Hon Hai Precision Industry Company Ltd
Industry Consumer Goods, Technology Hardware, Software and Services
Geographic setting China, Worldwide
Functional Area Strategy & General Management, Production & Operations Management

Synopsis

From its humble beginnings as a maker of plastic components for television sets in Shenzhen, China, Foxconn had grown into the largest contract manufacturer of consumer electronics devices in the world.  Best known for the assembly work it did for Apple, Foxconn in many ways reflected the rise of the light-manufacturing industry in China since the 1980s.  With a plentiful supply of cheap labor, it was able to gain a competitive advantage in labor-intensive, low-margin assembly work for global brands.  The combination of a highly organized, military-style management, low pay and long hours gave Foxconn factories a “sweatshop” image, which came under intense scrutiny following a series of worker suicides in 2009.

As the largest consumer electronics exporter in China, Foxconn also experienced the challenges now facing the country’s manufacturing sector.  Following three decades of economic development, wages had been increasing and labor was no longer cheap.  Competition for workers became intense as job opportunities in the manufacturing and service sectors increased.  Foxconn also faced slowing growth in the global consumer electronics industry and cutbacks in orders by Apple, its largest customer.

Realizing the limits to further growth of its contract manufacturing business, Foxconn looked for opportunities to diversify into other business areas.  The initiatives reported in the press were wide in scope, indicating that Foxconn was looking for ways to transform and differentiate itself.

Learning Objective

This case describes the contract-manufacturing business pressures faced by Foxconn, including the decline of orders from Apple, rising labor costs and worker shortages, as well as the diversification strategy and tactics aimed at transforming Foxconn from a contract manufacturer to an “information processing technology company.” Students will be required to analyze Foxconn’s diversification efforts and dilemma regarding future directions. Students will also be required to act as Foxconn’s management and give recommendations on prioritizing diversification initiatives.

 

Suggested Questions:

1. Describe the consumer electronics value chain and Foxconn’s position in it.

2. Analyze Foxconn’s diversification efforts in terms of synergies with its existing business, new capabilities required, and challenges involved.

3. What would the benefits and costs be if Foxconn were to launch its own brand of mobile phones?

4. Could Foxconn be trying to do too much?  If you were Foxconn’s management, how would you prioritize these diversification initiatives?