Do you know what your exposure is to Foxconn? What happens when they decide to step into your market with their own products?

FoxconnFor a while now, Apple has had their eye on Samsung as their chief competitor. And it drives Apple crazy that they have to procure their retina displays from Samsung’s LCD manufacturing division. But do they know that, Foxconn may be the competitor that should worry them the most?

Along with many other companies, Apple has been building and funding this electronics manufacturing giant for years. Hon Hai’s Foxconn is the largest of all electronics manufacturing companies. Look at these impressive statistics:

  • They employ over 1 million people. (They are the largest private employer in China.)
  • Their headquarters is in Taipei, Taiwan and they were founded in 1974 by the still acting Chairman, Terry Gou. Terry’s mantra has long been to be the “lowest cost” solution.
  • They run the largest electronics manufacturing facility in the world in Shenzhen, China. Foxconn (or ipod) City is a walled-off complex that covers 3-square km and may employ as many as 450,000 people (other reports state 230,000 and 350,000).
  • They have manufacturing capability around the world in Taiwan, Mexico, Brazil, Czech Republic, Slovenia, Hungary and throughout China.
  • They are China’s largest exporter!

Besides this awesome manufacturing capability, they are also the largest designer and developer of electronic components and the manufacturing processes and tooling used to produce these components. Their developments in nanotechnology, optical plating, SMT (surface mount technology), thermal treatment and network CMOS (integrated circuit development process) produced almost 15,000 patents last year.

Now it appears that they are working on a more direct route to end-user customers rather than working for their current OEM customers. They are doing so in a way that may prevent their largest customers from raising the alarm. The large equity stake in Sharp is a prime example. This equity position may or may not come to fruition, but under their own brand or through other brands, Foxconn will begin to take market share from its customers and exploit its global manufacturing capability and top-notch design and development capability. You can take that to the bank.

So, if you are Dell, HP, Apple, Cisco – what should you do? What is the contingency plan for when Foxconn steps into your market with their own product with a price 50% less than yours? Consider the following preemptive measures:

  1. Know where risk is in your value chain and what risk Foxconn represents to you. We at OPS Rules can help you quantify this and put a strategy in place to address it. Download our CEO Mike Romeri’s paper onmanaging risk in your supply chain.
  2. Continue to innovate and not just on products, but also on manufacturing techniques, processes and tools (see graph below showing Apple’s growing Capital expenditures on manufacturing assets and the recent article about Apple beginning to manufacture in the US again). I guess they are planning ahead. These capabilities will become large differentiators in the future and Foxconn is waiting for the right moment to exploit them.
  3. Begin to spread production across other Component Manufacturers (CM) and Electronic Manufaturing Services (EMS) providers. The best time to make these decisions is during product development, not once the components and process are already underway, so meet with the product teams to bring them along.
  4. Ensure you have sourcing agreements with your tier 2’s and are not relying on Foxconn for procurement and pricing.

With a 10 year Compound Annual Growth Rate (CAGR) of over 50%, it is hard to imagine that this giant will not continue to grow aggressively. And when the time is right, look for Terry Gou and team to take advantage of their resources and capabilities.