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 When Taiwan's Foxconn Technology Group agreed in April 2011 to make
Apple products here, President Dilma Rousseff and her advisers
promised that up to $12 billion in investments over six years would
transform the Brazilian technology sector, putting it on the cutting
edge of touch screen development. A new supply chain would be
created, generating high-quality jobs and bringing down prices of
the coveted gadgets.
Four years later, none of that has come true.
Foxconn has created only a small fraction of the 100,000 jobs that
the government projected, and most of the work is in low-skill
assembly. There is little sign that it has catalyzed Brazil's
technology sector or created much of a local supply chain.
The iPhones now rolling off an assembly line near São Paulo, the
only ones in the world made outside China, carry a retail price tag
of nearly $1,000 for a 32-gigabyte iPhone 5S without a contract -
among the highest prices in the world and about twice what they sell
for in the U.S.
That Brazil has so little to show for the Foxconn investment
underscores the shortcomings of its industrial policy, defined by
costly tax incentives that have driven a widening government budget
deficit without spurring growth. The economy currently hovers close
to recession and the productivity of Brazil's workforce is stagnant.
Apple Inc’s <AAPL.O> iPhone sales in Brazil have still been rising.
Wholesale shipments increased more than 40 percent to 2.9 million
last year, according to research firm Gartner.
Apple declined to comment for this story. Representatives for the
Brazilian government and Foxconn declined to comment on why the
investment fell so far short of initial projections.
With wages rising quickly in China, home to most of its 1.3 million
employees, Foxconn is trying to control costs by using more robotics
and expanding its global footprint to make more electronics in
markets where they are sold.
But navigating politics and managing expectations beyond China has
been tricky for Foxconn, whose flagship listed unit is Hon Hai
Precision Industry Co Ltd.
For instance, Indonesia's government has said for years that Foxconn
would invest up to $10 billion, but plans remain in limbo due to
political snags.
In Brazil as in Indonesia, politicians and government officials were
the ones making the big forecasts after conversations with Foxconn,
which has been more circumspect in its own public statements and
projections.
CITY OF EXAGGERATIONS
Still, as Foxconn ramped up assembly of iPhones and iPads in Brazil
during 2012, reaping tax benefits, the company made a public
commitment. The company pledged an initial investment of 1 billion
reais ($325 million) to anchor an industrial park producing
components locally within two years.
The location: Itu, a sleepy tourist town in São Paulo state
nicknamed "The City of Exaggerations."
Today the site remains an empty expanse of dirt, where bulldozers
have been leveling the land since late last year.
City councilor Givanildo Soares da Silva, who helped lead the push
to donate nearly 100 acres of land to Foxconn, has since turned
against the project.
"People are really frustrated," Silva said. "We were expecting all
these jobs by now and it's still just empty promises."
The Itu mayor's office said in a statement it had given all the
support necessary to bring Foxconn to the city, declining to comment
on reasons for the delay.
Foxconn said in a statement the facility should be operational by
the end of this year, bringing its Brazilian workforce to more than
10,000, though it did not provide a specific number of jobs or
disclose how many are working on Apple products.
Apple's official list of its top 200 suppliers, accounting for 97
percent of materials and manufacturing costs, includes just two
companies in Brazil: Foxconn and fellow Taiwanese electronics
company Lite-On Technology Corp <2301.TW>.
Foxconn currently has five facilities in the country that make
products under contract for various technology companies, including
just one unit producing Apple devices in Jundiaí, about 30 miles (50
kilometers) east of Itu.
"Foxconn continues to invest in our operations in Brazil," the
company said in a statement. "We are committed to our goal of
introducing innovative technologies that enable our employees in
Brazil to focus on high value-added elements."
Workers interviewed outside the Jundiaí plant said they had yet to
see that skilled work.
"You hear 'Foxconn' and 'Apple' so you think it's something special.
But there's no glamour in there. It's a dead-end job," said Andressa
Silva, 19.
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Silva tests iPhones at the plant for about $80 a week, just $15
above the minimum wage. She and several colleagues complained of
monotonous work and a lack of promotion opportunities.
Evandro Oliveira Santos, the head of the local metalworkers' union,
told Reuters the union was organizing for a strike at the factory.
It would be the fourth in as many years.
The union wants better working conditions and professional
development for the roughly 3,000 workers at the facility.
Foxconn turned down a request to tour the plant, but said in a
statement it worked to meet international workplace standards,
cooperated with unions and listened to feedback from employees.
ALL THE DANCING
When Terry Gou, the founder and chairman of Foxconn, discussed
Brazilian labor in the past, his take was withering.
"Brazilian workers' wages are very high. But Brazilians, as soon as
they hear 'soccer,' they stop working. And there's all the dancing.
It's crazy," he told the Wall Street Journal in 2010.
Those comments made few Brazilian friends for Gou, who deftly built
a manufacturing empire in China, but the underlying complaint was
familiar to business leaders here.
Economists consider low productivity one of the chief reasons for
the steep cost of consumer goods in Brazil, along with high tariffs
and interest rates.
Analysts who follow Foxconn say the company may have underestimated
those challenges during talks in early 2011 with Brazilian
officials.
One of the clearest signs that the announcements in Beijing were
premature came when a proposed deal for Foxconn to make touch
screens in Brazil fell apart the next year.
Foxconn pushed to make cheaper screens rather than use the latest
screen technology, and the company was reluctant to commit its own
capital, according to press reports at the time.
"There was a misunderstanding," said Maria Luisa Cravo, the head of
investments at APEX, Brazil's federal agency promoting foreign trade
and investment. "Brazil expected one thing and Foxconn expected
something else. But talks have restarted on this," she told Reuters.
Officials at three Brazilian ministries involved in the project
declined requests for interviews about Foxconn's investments.
A spokeswoman at Brazil's science and technology ministry said the
tax breaks benefiting Foxconn require it to reinvest 4 percent of
Brazilian revenue in research and development. Local content and
assembly contribute at least 20 percent of the value of the devices
that Foxconn makes in Brazil, she added.
With that, an industrial sales tax of around 15 percent and a
value-added tax of about 9 percent on imported iPhones and iPads are
largely eliminated when the products are made in Brazil, tax experts
said. In addition, locally made devices avoid heavy import duties,
and a Sao Paulo state consumption tax would be less than half the 18
percent levied on foreign goods.
Some companies have passed the lighter tax burden along to
consumers. For example, camera company GoPro said in November it
would cut prices by up to 30 percent on models that contract
manufacturer Flextronics started making in São Paulo state.
Apple enthusiasts have had no such luck.
At the time the Foxconn investment was announced, Aloizio Mercadante,
then the minister of science and technology, said the price of iPads
in Brazil could fall as much as 30 percent.
Four years ago a ten-inch iPad with 16 gigabytes of storage and no
cellular card cost 1,549 reais. Today a new device with those
specifications costs 1,599 reais ($520). In the U.S., it would cost
$399.
"If we're buying it at that price, then why would they bring it
down?" said Luzangelo de Jesus, 23, a technical support analyst
looking over the latest iPad at a São Paulo mall. "I don't even know
what the next iPad does, but I know I need it."
(Additional reporting by J.R. Wu in Taipei, Eveline Danubrata in
Jakarta and Anthony Boadle in Brasilia; Editing by Todd Benson and
Martin Howell)
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