Foxconn considers expansion into low-cost Indonesia

Taiwanese electronics manufacturer Foxconn Technology Group said it was in exploratory talks with Indonesian officials over serving its domestic market in some capacity, but does not have immediate plans to build factories in the country.

"There is no investment plan right now. Building a 10 billion, 1 billion factory, there is no such plan," said Foxconn spokesman Simon Hsing in an interview on Wednesday.

The maker of Apple's iPhone and iPad could invest as much as US$10 billion to build facilities in the country according to news reports. Foxconn already has factories in China and Brazil that manufacture many of the world's electronics for export to other countries.

The company, however, is still evaluating what kind of opportunities Indonesia can provide the company, Hsing said.

"They (Indonesia's government officials) are really hoping that Foxconn will invest," he said. "Foxconn is in Brazil, China and India, but it has no investment in Indonesia. The officials really hope that we can bring a lot of projects to the country."

While Foxconn has built factories to export products to the rest of the world, the company would likely use a different manufacturing model for Indonesia, Hsing said. Instead, Foxconn would target its investment to build electronics for Indonesia's domestic market, selling the products to local consumers with the help of a partner.

Indonesia, one of the world's largest countries, has almost 250 million people. "The country doesn't have a major electronics high tech industry, that's why the government officials want us to go there," Hsing added.

The talks first began when Indonesian government officials approached Foxconn, a month or two ago, about establishing an investment in the country. Hsing said it could be another month or even until the end of the year, when the company has a clearer plan for Indonesia.

Indonesian government officials could not be immediately reached for comment.

Labor wages in Indonesia are significantly lower when compared to China, where Foxconn has many of its factories, said James Roy, a senior analyst with China Market Research Group.

"Foxconn has been facing the problem of rapidly rising wages in China, which have been growing by double digit percentages for the last several years running," he said. In response, the company has been relocating its manufacturing base from the eastern coast into inland China, where wages are lower, while also investing in adding automated systems to its manufacturing processes.

While Foxconn said its immediate plans for Indonesia would be contained only to its domestic market, over the long-term the company could be eyeing the country as a way to further diversify its manufacturing base, Roy said.

"This could be a first move to see how the manufacturing presence works in Indonesia, by testing on a small scale," he said. "I wouldn't rule out the possibility of this eventually becoming something on a heavier scale."

Foxconn, a maker of products for Microsoft, HP, and Sony, has seen its reputation marred in recent years after reports of poor working conditions at its factories in China. Foxconn, however, maintains it takes care of its workers. Earlier this year, the company raised wages for its workers and said it will restrict workers' overtime, following an audit from the Fair Labor Association.

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