And more important, who will it affect, and how?
It’s difficult to turn on a TV or read a major newspaper without seeing mention of Foxconn and the $10 billion flat-panel manufacturing facility targeted for southeastern Wisconsin. On one hand, it’s great to hear manufacturing jobs may be created on the scale being bandied about: 3,000 near-term, according to Foxconn’s quotes in several publications, and 13,000 (with an average pay of $53,000 plus benefits), according to Wisconsin Gov. Scott Walker. And while I don’t relish the idea of Foxconn becoming the poster child for the electronics manufacturing services (EMS) industry, after decades of working in and consulting to participants that are rarely known outside of electronics, it is nice to see the industry get this type of national recognition.
But will it happen? Foxconn’s track record isn’t stellar. A highly touted deal in Pennsylvania that involved a $30 million investment and 500 workers didn’t happen. Previously announced investments in Indonesia, India, Vietnam and Brazil have either yet to occur or were far below original projections.
On the flip side, market drivers may be behind this move. Back in 2014, Mexico was touted as the TV manufacturing capital of the world with nowhere to go but up. While the flat-panel displays needed for those TVs were manufactured in Asia, TV assembly plants were popping up along the Mexico-US border. Then Mexico changed the status of flat-panel displays from a component to a finished good, subject to a 16% value-added tax. The TV assembly industry was already experiencing consolidation as margin pressures increased, which contributed to plant closures, and at least two TV manufacturers ceased assembly in Mexico after the additional tax became law. In short, tax policy in Mexico appears to have contributed to a changed investment strategy in the TV assembly market. That didn’t just impact TV manufacturers; it also impacted the EMS companies they outsourced to.
A US flat-panel manufacturing factory would change the playing field again by moving a supply chain that is resident in Asia to the US. This investment could be a shot in the arm for US glass manufacturers and others in the raw material supply chain. It could also be an enticement to the return of TV and monitor assembly to the US market. Let’s face it. Everywhere we look there is a display of some sort. Foxconn has the wherewithal to drive that type of market shift, and this factory would give them a North American market advantage.
But a lot of variables exist. Gov. Walker is lobbying his legislature to change some rules relative to economic incentives, according to multiple articles. If that doesn’t happen, Foxconn can simply say its final terms weren’t met. Similarly, Congress has yet to define what changes may be in store for US corporate tax policy. Failure there may be the reason a lot of previously announced corporate investments go away. The variations in the jobs outlook are also somewhat troubling. I believe the 3,000 number. I have a hard time visualizing a display manufacturing facility with 13,000 workers making an average of $53,000 a year plus benefits as cost-competitive. The automotive industry didn’t seem to be able to make that level of compensation work in its factories.
Worker availability may also be an issue. Younger generations don’t see a future in factory work. Can Wisconsin ramp up workforce training resources and change that dynamic? I watched the state of Alabama do it in 1981 at SCI Systems. It’s doable, but it does require strong public-private partnerships and a much higher level of investment in equipment and training facilities than back in the trailer-based soldering schools of the 1980s.
All that said, I hope it does happen. As I’ve said in previous columns, manufacturing jobs are transformative. They have the ability to take people who work best with their hands and on-the-job learning from a minimum wage job to a family-supporting career. More important, each of these jobs creates the need for other jobs, as people who earn a living wage in turn spend it on products and services. Workers who are able to support themselves tap fewer government benefits and pay taxes. That helps lower state and federal deficits over time. Plus, growing factories also purchase goods and services, feeding a supply chain that also grows within the region. Manufacturers also tend to create hubs of innovation, as engineers and managers spin off with new ventures of their own, either supplying or competing with their former employer. There may also be benefits for other EMS manufacturers. TV manufacturers in Mexico were outsourcing TV assembly to EMS companies there, and that business has shrunk. If the US develops a flat-panel display manufacturing supply chain, TV assembly and concomitant outsourcing may ramp up as well.
My take is this: cautious optimism. The market drivers and economic incentives are present. I believe Foxconn has the ability to make this happen, should it opt to follow through. And if it does happen, it will be a win for the workers and the suppliers in the states it impacts.