Foxconn's $12 billion iPad deal in Brazil threatened by local shortcomings

Posted:
in iPad edited January 2014
The $12 billion deal to produce Apple?s iPad in a new Brazil-based Foxconn factory is now in doubt as the parties involved are reportedly unable to reach consensus on several matters.



Negotiations between Foxconn and the Brazilian government have temporarily stalled, according to Reuters. Increased taxation, an unprepared infrastructure and the lack of qualified workers are cited as major reasons that threaten the $12 billion investment and are seen as obstacles in economic growth in the region.



A local Foxconn factory was supposed to begin iPad production in July, but the start date has been pushed back twice, first to September and then to November. At this point it is unknown whether the Taiwan-based company will manufacture any Apple tablets in Brazil, or if production will simply continue only in its Asian factories.



One unidentified Brazilian government official reportedly said that negotiations with Foxconn have been very difficult, saying that the prospect of building iPads in Brazil is "in doubt." He said the Taiwanese company is making "crazy demands" for tax breaks, priority treatment in Brazilian customs, and other special treatment.



Foxconn reportedly wants to build a new industrial complex outside Sao Paulo, an "intelligent city" that would have its own energy facility, roads and infrastructure.



That could put further strain on the Brazilian government, which is already engaged in building other planned projects related to the World Cup and the Summer Olympics the country will host in 2014 and 2016, respectively. Those are projected to cost the nation $1 trillion over the next ten years.



Funding for the initial $12 billion Foxconn project, which is supposed to come from BNDES, the state development bank, is said to be in danger of being withdrawn. In such a case the whole Brazilian iPad endeavor is expected to "collapse."



Another obstacle for the deal, according to the report, is the lack of Brazilian companies to partner with in order to share costs. "It?s a requirement to have Brazilian partners, (but) in the technology area the partners we have do not have the financial muscle for investments near that value," Science and Technology Minister Aloizio Mercadante said.







In mid-September, Mercadante said that the first iPads produced by Foxconn in Brazil would reach markets by December, but that now appears to be in jeopardy, as the final investment may not amount to the original $12 billion proposal. To cut costs, Foxconn or a Brazilian company could assemble imported iPad 2 parts instead of producing them locally as initially expected.



One government official reportedly said that there?s also a possibility of "something smaller" to be built, instead of the iPad.



The iPad project is a critical step for the Brazilian government which would not only generate economic growth, but also help make the iOS tablet more affordable in the country. A 16GB iPad 2 Wi-Fi model is priced at just $499 in the U.S., while the same device would cost close to $900 in Brazil after import taxes and other fees.



Brazilian President Dilma Rousseff, who first announced the Foxconn deal in April, sees tablets as a "low-cost way to increase Internet access to the poor." Internet usage is reported to be high in Brazil for developing-world standards.



Earlier this week an analyst suggested that Apple has cut fourth-quarter iPad 2 orders by as much as 25 percent. Others replied that the start of iPad production in Brazil could explain the company?s decision to reduce tablet orders from Asian-based suppliers.
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Comments

  • Reply 1 of 37
    mstonemstone Posts: 11,510member
    Quote:
    Originally Posted by AppleInsider View Post


    The iPad project is a critical step for the Brazilian government which would not only stem economic growth, but also help make the iOS tablet more affordable in the country.



    Does this sentence make it sound as if 'stem economic growth' is a good thing?
  • Reply 2 of 37
    Quote:
    Originally Posted by mstone View Post


    Does this sentence make it sound as if 'stem economic growth' is a good thing?



    >Originally Posted by AppleInsider

    >The iPad project is a critical step for the Brazilian government which would not only stem economic >growth, but also help make the iOS tablet more affordable in the country.



    Not only that, but it is pretty hard to believe that making iPads somewhat cheaper could be critical to the Brazilian government, all things considered.
  • Reply 3 of 37
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by mstone View Post


    Does this sentence make it sound as if 'stem economic growth' is a good thing?



    stem

    intransitive verb

    : to occur or develop as a consequence : have or trace an origin <her success stems from hard work>
  • Reply 4 of 37
    apple ][apple ][ Posts: 9,233member
    $400 taxes, import fees and other garbage placed on a $500 device making it $900? Well, I guess that's what Brazilians want since they voted for the people in charge, I'm assuming.



    If Brazil doesn't reach an agreement with Foxconn, then it will be no big deal for Foxconn and it will be a loss for Brazil and South America. When two parties negotiate, the weaker party should know their place.



    Brazilian President Dilma Rousseff, who first announced the Foxconn deal in April, sees tablets as a "low-cost to increase Internet access to the poor."



    Maybe Brazil should strike a deal with Amazon instead, since they're looking to help poor people, and $199 is a whole lot cheaper than a $500 device that costs $900 in their country.
  • Reply 5 of 37
    mstonemstone Posts: 11,510member
    Quote:
    Originally Posted by solipsism View Post


    stem

    intransitive verb

    : to occur or develop as a consequence : have or trace an origin <her success stems from hard work>



    Ok but that is like the fifth definition after a couple others that have the exact opposite meaning. Also in your example the word 'from' is critical to the meaning.



    For example:



    Increased economic growth could stem from the iPad project => makes sense



    Stem economic growth means the exact opposite.



    Anyway it is probably a typo which is why I pointed it out but in either case I'm sure the government wants more economic growth and losing the iPad deal is not a good thing.
  • Reply 6 of 37
    Quote:
    Originally Posted by solipsism View Post


    stem

    intransitive verb

    : to occur or develop as a consequence : have or trace an origin <her success stems from hard work>



    Doesn't "intransitive" mean anything to you?
  • Reply 7 of 37
    gatorguygatorguy Posts: 24,176member
    The increasingly difficult relationship between Chinese manufacturers and Brazil extend well beyond Foxconn. Many in the region feel taken advantage of by China, used for their raw materials with few benefits in return. Now that the Chinese are facing inflation pressures in their own country, there's suspicion of China's push to open factories in Brazil with some feeling they're being used again for cheap labor and long hours with few if any benefits.



    Considering many of the complaints began in just the past couple of years, I would not be at all surprised that Foxconn and other Chinese companies decide to forgo more investment in Brazil. China's initial manufacturing endeavors left a sour taste for some of them. In the view of some business and community leaders they're not welcome.



    http://www.eastasiaforum.org/2011/03...se-challenges/



    http://www.reuters.com/article/2011/...7FC14M20110412



    http://www.ft.com/cms/s/0/447cd722-2...#axzz1ZNwjOLne
  • Reply 8 of 37
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by mstone View Post


    Ok but that is like the fifth definition after a couple others that have the exact opposite meaning. Also in your example the word 'from' is critical to the meaning.



    For example:



    Increased economic growth could stem from the iPad project => makes sense



    Stem economic growth means the exact opposite.



    Anyway it is probably a typo which is why I pointed it out but in either case I'm sure the government wants more economic growth and losing the iPad deal is not a good thing.



    I think it's worded confusingesquely but I think that definition is how it's intended to be used.
  • Reply 9 of 37
    Quote:
    Originally Posted by Apple ][ View Post


    If Brazil doesn't reach an agreement with Foxconn, then it will be no big deal for Foxconn and it will be a loss for Brazil and South America. When two parties negotiate, the weaker party should know their place.






    From the timing of production, it looks like Foxconn has already built the factory. Likely they have already taken orders to be made in the former factories too.



    Not only that, but given the timing, they have bought, and probably shipped all the machines and lots of raw materials.



    This is a major problem for both Foxconn and Apple. This sounds like a BIG deal for them.
  • Reply 10 of 37
    wizard69wizard69 Posts: 13,377member
    I've had the good fortune to travel twice to Brazil, and frankly would go back in a minute if I could afford it. However realize that Brazilians struggle with their government and their own competing needs. Almost every thing of value that is imported into the country is taxed excessively as a protectionist policy. The problem is this doesn't actually lead to competitive industries.



    Frankly Brazil is an example of a what would happen to the USA if the Democrats had free reign. In the end they do more harm to their poor than they really help.



    As an example in one of my travels I had to pass a construction site on a regular basis. The site was a mall or large store, in any event the construction work site had hundreds of workers milling about mostly doing nothing. Such a site in the USA might have 20 to 30 people working. Another site I saw a worker hand cutting tiles out of floor, apparently to use over after the floor was cut for under ground access. This time I asked a simple question of the contractor; why not get a saw and cut the floor and be done in a couple of hours. The answer was that the blade for the saw costs him many times more than the cost of the worker with a hammer and chisel, even if he had to work there for a week.



    There are actually many examples of issues with the way that Brazil has "protected" itself and its markets that actually haven't helped Brazil as a country much at all.



    Quote:
    Originally Posted by Apple ][ View Post


    $400 taxes, import fees and other garbage placed on a $500 device making it $900? Well, I guess that's what Brazilians want since they voted for the people in charge, I'm assuming.



    Yes it is silly. Frankly I think Foxconn is probably more reasonable than Brazil here. I don't especially agree with the desire to get tax breaks and special considerations but in the case of Brazil the system is so out of whack with reality that it would be a failure to try to do business in the country otherwise.

    Quote:

    If Brazil doesn't reach an agreement with Foxconn, then it will be no big deal for Foxconn and it will be a loss for Brazil and South America. When two parties negotiate, the weaker party should know their place.



    There in lies the problem, from Brazils standpoint they are the stronger party in the discussion. If they don't get what they want they have a nice heavy punitive tax in place for anything imported into the country. The country of Brazil doesn't loose the Brazilian people do. That might be what you meant but the weaker party loosing here is the poorer people of Brazil.

    Quote:

    Brazilian President Dilma Rousseff, who first announced the Foxconn deal in April, sees tablets as a "low-cost to increase Internet access to the poor."



    I'm sure he does. The problem is he has the same political problems all presidents have anywhere in the world. That is getting the legislators to see reason.

    Quote:



    Maybe Brazil should strike a deal with Amazon instead, since they're looking to help poor people, and $199 is a whole lot cheaper than a $500 device that costs $900 in their country.



    Amazon isn't looking to help poor people. Rather they are out to nickel and dime them to death. Amazons new tablet is designed to push high profit micro sales. Not that Apple is any better with iBooks, appStore, movies and whatever.
  • Reply 11 of 37
    Quote:
    Originally Posted by andyapple View Post


    Doesn't "intransitive" mean anything to you?



    On IA fora, it means whatever the poster wants it to mean.
  • Reply 12 of 37
    Quote:
    Originally Posted by Apple ][ View Post


    $400 taxes, import fees and other garbage placed on a $500 device making it $900? Well, I guess that's what Brazilians want since they voted for the people in charge, I'm assuming.



    If Brazil doesn't reach an agreement with Foxconn, then it will be no big deal for Foxconn and it will be a loss for Brazil and South America. When two parties negotiate, the weaker party should know their place.



    Brazilian President Dilma Rousseff, who first announced the Foxconn deal in April, sees tablets as a "low-cost to increase Internet access to the poor."



    Maybe Brazil should strike a deal with Amazon instead, since they're looking to help poor people, and $199 is a whole lot cheaper than a $500 device that costs $900 in their country.



    If Brazil is going to spend $1 trillion over the next 10 years for Olympics etc. then the only class of people it will have is the poor.
  • Reply 13 of 37
    apple ][apple ][ Posts: 9,233member
    Quote:
    Originally Posted by wizard69 View Post


    That might be what you meant but the weaker party loosing here is the poorer people of Brazil.



    Yes, that's what I meant. The weaker party is Brazil.



    Quote:
    Originally Posted by wizard69 View Post


    I'm sure he does. The problem is he has the same political problems all presidents have anywhere in the world. That is getting the legislators to see reason.



    It's not that big of a deal, but the he is actually a she.



    Quote:
    Originally Posted by wizard69 View Post


    Amazon isn't looking to help poor people. Rather they are out to nickel and dime them to death. Amazons new tablet is designed to push high profit micro sales. Not that Apple is any better with iBooks, appStore, movies and whatever.



    Yes, Apple and Amazon are similar in that they both have their content stores which sells apps, music, movies etc.
  • Reply 14 of 37
    If you believe the article, you believe the following:



    1 - That Foxconn would risk production delays of their BIGGEST client (Apple) on a brand new facility in a new region?

    2 - That these issues were never worked through, but yet Foxconn "expected" to transition iPad production to this new facility?



    If you believe this report, you're crazy...plus, it's been written in a horrible manner. What does this sentence even mean?



    "In mid-September, Mercadante said that the first iPads produced by Foxconn in Brazil would reach markets by December, but that now appears to be in jeopardy, as the final investment may not amount to the original $12 billion proposal. To cut costs, Foxconn or a Brazilian company could assemble imported iPad 2 parts instead of producing them locally as initially expected."
  • Reply 15 of 37
    apple ][apple ][ Posts: 9,233member
    Quote:
    Originally Posted by ConradJoe View Post


    This is a major problem for both Foxconn and Apple. This sounds like a BIG deal for them.



    I doubt it. Apple makes money quicker than they count it almost. Not making iPads in South America will mostly hurt South America, because they could have gotten a chance to get much cheaper iPads. It's mainly their loss.



    Even if iPads were completely banned from Brazil and another one was never sold in that country again, Apple would keep on posting record profits, record sales and record demand for their products.
  • Reply 16 of 37
    Brazil can't produce the parts locally. Most parts are from Samsung or LG, like LCD screen, flash memory, cpu. The battery is from Japan. Some other parts from China or Taiwan.
  • Reply 17 of 37
    mstonemstone Posts: 11,510member
    Quote:
    Originally Posted by island hermit View Post


    $1 trillion over the next 10 years for Olympics etc....



    A trillion dollars isn't what it used to be. Especially over 10 years. Hell they built their capital city in the middle of the Amazon jungle 1200 km from civilization. Just fixing the pot holes in the road to get there might cost $100 million.
  • Reply 18 of 37
    wizard69wizard69 Posts: 13,377member
    Quote:
    Originally Posted by Gatorguy View Post


    The increasingly difficult relationship between Chinese manufacturers and Brazil extend well beyond Foxconn. Many in the region feel taken advantage of by China, used for their raw materials with few benefits in return.



    Note that if this goes through they will have a significant benefit, that is low cost iPads without the high import taxes. The problem is their is a segment in Brazil that loves those high import taxes as it helps to keep the poor impoverished.

    Quote:

    Now that the Chinese are facing inflation pressures in their own country, there's suspicion of China's push to open factories in Brazil with some feeling they're being used again for cheap labor and long hours with few if any benefits.



    That is pretty much what factory work is all about. Lets cut to the chase here, Brazil doesn't have a huge technical base to support the factories so all they can offer up is labor, however labor is plentiful in Brazil.

    Quote:

    Considering many of the complaints began in just the past couple of years, I would not be at all surprised that Foxconn and other Chinese companies decide to forgo more investment in Brazil.



    Until the people of Brazil wean themselves of their protectionist policies they will never really know what it takes for a factory to survive in the wild.

    Quote:

    China's initial manufacturing endeavors left a sour taste for some of them. In the view of some business and community leaders they're not welcome.



    Well the old ways die hard! Look at it this way, if you where Foxconn would you want everything you imported into the country to be taxed at 100 or 200 percent.



    As to the local Business leaders, I'm certain they don't want to get their businesses in shape for international competition. After all why should they when their markets are protected and they are assured fat profits.



    Like I said in another post Brazil is a great place, friendly people and fantastic food. However they don't have a clue in many cases about the international business world. Sadly many people in Brazil have the opinion that their policies actually protect the country, where in reality it has just pushed them farther and farther behind.
  • Reply 19 of 37
    wizard69wizard69 Posts: 13,377member
    Quote:
    Originally Posted by Apple ][ View Post


    Yes, that's what I meant. The weaker party is Brazil.



    The country of Brazil, that is the government and other organizations will not loose. Even the wealthy will not loose, the only losers are the poorer people in Brazil. Frankly the wealthy are very familiar with the black market in Brazil and have the means to get around the governmental obstructions.

    Quote:

    It's not that big of a deal, but the he is actually a she.



    Oh really? Brazilian woman are very pretty, better hope Bill clinton doesn't take a trip there!

    Quote:

    Yes, Apple and Amazon are similar in that they both have their content stores which sells apps, music, movies etc.



    Yeah at a great profit to themselves and often a huge rip off to the local populations. Of course this is sometimes, but in the large the move to electronic distribution has not benefited the consumer all that much anywhere in the world.
  • Reply 20 of 37
    Quote:
    Originally Posted by Gatorguy View Post


    The increasingly difficult relationship between Chinese manufacturers and Brazil extend well beyond Foxconn. Many in the region feel taken advantage of by China, used for their raw materials with few benefits in return.




    What do you mean Brazil doesn't benefit? China paid good money for raw materials.
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