It appears that Foxconn’s plans to manufacture LCD televisions in Wisconsin are being shelved, for an engineering center, instead. By the original plan, Foxconn had promised the state of Wisconsin an investment of $10 billion to build a 22-million-square-foot liquid-crystal display panel plant and hiring 13,000 employees, primarily factory workers.
Now, WSJ reports that Foxconn is
considering using the site for research purposes rather than just display manufacturing as originally promised because of high costs associated with production.
(Emphasis mine).
Note: Foxconn has denied the details in the WSJ report. Foxconn is “rethinking” the plant, and has denied plans to scrap.
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It was always known that the production cost of manufacturing in Wisconsin — in fact, anywhere in the United States — was high. Hence, the timing of the sudden realization of production cost by Foxconn is quite dubious.
As I mentioned in the post Sights and Sounds of 2018, the excellent podcast episode by Reply All covered the difficult nature of the project — eminent domain, raucous town hall meetings, hope, despair, and high tension in Mount Pleasant Wisconsin.
I would like to hold at bay, the politics of decision making around this issue and look at the operational fundamentals. The wages at any Wisconsin production plant — unionized or not — was always going to high.
In my view, the advantage of any local plant is premised upon the following.
- Efficiency and Distance to market: The eventual landed cost of manufacturing & delivery to the customer is sufficiently low because the production facility is located within the consumer market.
- Product Characteristics: Product should be of high margin and healthy demand, to allow for the learning period to improve the efficiency at the factory, and also overcome generally higher operational costs.
- Labor Supply: High availability of trained labor in the area of manufacturing.
Point 1 was a fair bet to make.
Point 2. LCD TVs were the chosen product. In this respect, the choice of LCD TVs as a product to manufacture was a curious choice fraught with problems. First, TVs are short lifecycle products. With each new technology, TVs get significantly upgraded as almost different products. See the article on LED TVs. In addition, the landscape is competitive and margins are constantly diminishing. (I wrote about how the high margins for Tesla luxury electric vehicles have worked out well in this respect).
Point 3. I think that there is a labor supply problem: Wisconsin has a trained labor supply constraint. Last year, I covered the book Janesville: An American Story by Amy Goldstein, which covered the retraining issue in Wisconsin, in the light of the shut-down of Janesville GM plant. There is a big difference between “engineering theory” and “workplace engineering”.
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Indeed, from Foxconn’s perspective, setting up an engineering design center in Wisconsin a more attractive option than building a plant.
First, the University of Wisconsin at Madison — a top-notch university, which boasts of a highly rated engineering program — is only 100 miles away. (Engineering center, for sure, has many benefits, but this plan is of no solace to hopeful aspirants to the 13,000 blue-collar jobs that were promised).
Second, manufacturing in Wisconsin is less attractive to Foxconn given that Foxconn is significantly diversified already. Foxconn owns facilities in Mexico in Ciudad de Juarez and Tijuana — No LCDs are manufactured there — where the cost of manufacturing is lower than in the US, and the manufacturing location is also arguably closer to swaths of the consumer market in the United States.
As this informative article on Digital Screen Supply Chain argues,
For a period of 25 years, display suppliers have built an infrastructure and expertise in Asia, and while importing components and materials is possible (and for certain materials like liquid crystal, importing the raw chemicals is likely the most economical solution), a local supply base is essential for making a productive fab.
A reason why LCDs are manufactured in China is that suppliers (think of glass manufacturers like Corning) are all nearby, and Cell-assembly steps before the final assembly are highly labor-intensive. This supply capacity is not available in Wisconsin (or nearby) yet.
I think that reshoring manufacturing to the US continues to be an exciting possibility for high-value goods, but it just seems that Foxconn plans in Wisconsin — for various reasons, some covered here and some not — are not working out as well.
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Late Update: Apparently, Foxconn plans are back again. Color me skeptical, because the fundamentals as I have described in the post, haven’t really changed.