Foxconn Technology Group, maker of Apple Inc's iPhone and iPad, said it is looking at investment opportunities in Brazil in line with its strategy of being where the market is, a plan that would boost its presence in a fast-growing market for electronic devices.
Foxconn announced the decision in a statement on Wednesday from Taiwan-listed unit Hon Hai Precision Industry Co Ltd, a day after Brazilian President Dilma Rousseff said the company was considering investing $12 billion in Brazil.
The statement did not give specific details, noting only that Brazil had tremendous economic development potential and was strategically positioned to meet the needs of growing markets throughout Latin America.
Technology companies are keen to sell to Brazilian consumers hungry for high-end electronics, but devices are often priced out of the market because of high production costs and import tariffs. Apple's cheapest iPad, for example, retails for about $860 in Brazil, versus $400 in the United States.
If its client Apple is targeting Brazil, it's necessary for Foxconn to provide services locally. It can save costs on tariffs and can target a most promising consumer market, said Simon Yang, vice-president at Taiwanese market research firm Topology Research Institute.
Rousseff herself has identified tablet computers as a relatively cheap way to promote Internet access for Brazil's emerging lower middle-class, which accounts for about half of the 190 million population.
Brazil has one of the steepest import-tariff regimes in South America, and is one of the world's most expensive places to do business because of a heavy tax load, an overvalued currency and restrictive labor laws.
Foxconn already makes mobile phone handsets in Brazil.
The biggest benefits for Foxconn would be the huge tariff savings and closer access to the U.S. and Latin American markets, thanks to a free trade deal between Brazil and the U.S., said Maggie Chou, portfolio manager of the Brazil Fund at PCA, a Taiwan unit of British insurer Prudential Plc.
An investment in Brazil is not likely to signal a move away from China, where Foxconn is the largest private-sector employer. While it has been diversifying away from its traditional production bases in southern China, like several rivals and clients, the company will need to stay close to its main supply chain.
It would be premature to say Foxconn is shifting production from China to Brazil, said PCA's Chou. Foxconn needs to spread out geographically, but all of the key component suppliers are in Asia, including Taiwan, Japan and South Korea.
Facing higher wages in the southern China manufacturing belt, which was the scene of a series of labor disputes last year, some Taiwanese manufacturers have opted to shift some operations to the country's interior, where costs are lower.
Foxconn also has plants in North America and Mexico, as well as in European countries including Slovakia and Poland.
(Reporting by Jonathan Standing, Argin Chang and Faith Hung; Editing by Chris Lewis)