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Asian companies see 'made in USA' opportunities

Trump's vow to bring production home offers a chance to ease dependence on China

Advantech President Chaney Ho said any decisions to move production to the U.S. will be based on commercial rather than political factors. (Photo by Cheng Ting-fang)

TAIPEI U.S. President-elect Donald Trump's promise to bring manufacturing jobs back home not only played well among millions of American voters, it also perked up the ears of Taiwanese tech and other companies, who are now looking stateside for fresh investment opportunities and a chance to reduce their dependence on China.

The day after SoftBank Group CEO Masayoshi Son told Trump of the Japanese IT company's plan to invest billions in the U.S., Taiwanese contract manufacturing powerhouse Hon Hai Precision Industry, also known as Foxconn, said it was considering expanding in the U.S.

"We can confirm that we are in preliminary discussions regarding a potential investment that would represent an expansion of our current U.S. operations," Foxconn said in a Dec. 7 statement, adding that the group had yet to determine the scope of the potential investment.

The Nikkei Asian Review reported in November that Foxconn had been thinking about moving iPhone production to the U.S. after Apple, which accounts for more than half its sales, in June asked it to look into the issue.

AMERICAN DREAM Industry experts say it is not unrealistic to expect U.S. manufacturers to shift production back home. And such a move, they say, could benefit foreign manufacturers.

"It's possible that Apple will transfer some of its iPhone manufacturing processes to the U.S. because the country is the largest market for the gadget," said Chaney Ho, president of Taiwan's Advantech, the world's biggest maker of industrial PCs.

"Given there are only a few iPhone models and each is produced in large quantities, the manufacturing processes can be standardized and highly automated, which enhances the likelihood of the device being made in America," Ho said.

However, such a production shift would hurt an already-slowing Chinese economy, not least of all by causing jobs there to disappear. China's growth in 2016 is expected to be slower than the 6.9% it recorded in 2015, its weakest in 25 years.

Quanta Computer Senior Vice President Mike Yang said his company will double its data center server assembly facilities in the U.S. (Photo by Cheng Ting-fang)

Ho said that although Trump's "made in the USA" policy could be a boon for his company, he is not about to make any hasty investments. "Advantech will increase its U.S. operations once it generates more business, rather than let its expansion plans be dictated by political concerns."

The Taipei-based company counts IBM, General Electric, Cisco Systems and Philips as its customers, though no single client accounts for more than 3% of total sales.

Other Taiwanese tech companies are also considering expanding their U.S. operations, including Quanta Computer, a supplier of data center servers for such majors as Google, Facebook and Amazon and a key assembler for Apple's MacBook range.

Quanta already has server-assembly plants in Nashville, Tennessee, and Fremont, California. As such, a senior executive said, the company has a better chance than its rivals to benefit from Trump's push to make goods locally.

"We have the upper hand now ... . Unlike companies that have to decide whether to move their facilities from Mexico or elsewhere to the U.S., we are already there and are expanding our U.S. operations," said Mike Yang, senior vice president of Quanta and president of the company's cloud-computing unit, Quanta Cloud Technology.

Quanta is also the world's leading contract manufacturer of notebook computers, while the fast-growing QCT ships data center servers and related products worldwide.

Yang said QCT plans to double its server-assembly facilities, production and employees in the U.S. over the next three years.

GOODBYE, CHINA? Manufacturing servers in the U.S. would have advantages over producing them in China, such as shorter delivery times and improved ability to make modifications, according to Yang.

Although Quanta still makes most of its products in China, the company is determined to diversify its product mix and ease its dependence on the mainland. Juicy profits are another factor behind its heightened interest in U.S. production. The margins for its data center-related business are over 10%, compared with just 4-5% for its notebook business.

Advantech is also moving to reduce its reliance on China.

"Output at our Taiwanese sites will likely eventually exceed that of our Chinese base in Kunshan, Jiangsu Province," said Advantech's Ho.

"Making products in China no longer offers any low-cost advantages," he said. "When factoring in all the hidden costs, wages in Taiwan are actually lower than in China."

Tech companies are not the only ones looking to diversify away from China.

Taiwan's Pou Chen, world's largest contract footwear maker, is gradually reducing output in China to diversify risk. The production shift began after its Hong Kong-listed subsidiary, Yue Yuen Industrial Holdings, was forced to fork out $90 million in 2014 to settle a wage dispute with its Chinese employees.

Eclat Textile, Taiwan's largest apparel maker and a supplier for the likes of Nike and Under Armour, said on Dec. 8 it is pulling out of China due to the deteriorating investment environment and surging wages.

Eclat Vice President Roger Lo said that in addition to rising wages, another challenging aspect to making products in China is finding employees willing to work in a garment factory. He said young Chinese tend to have lived a sheltered existence due to the country's former one-child policy.

Lo said the company's sole Chinese plant, in Wuxi, Jiangsu Province, had been losing money for the past three years. Eclat decided to leave the country, he said, because the company saw no way to turn the Chinese operations around.

As for whether the company, which is boosting capacity in Vietnam and considering doing the same elsewhere in Southeast Asia, will try to take advantage of Trump's policies, Eclat is not ruling out the possibility.

"We are watching whether Trump offers some favorable terms to bring manufacturers there," Lo said. "In our case, the garment plants -- which are labor-intensive -- are not likely to move to America. But our fabric-weaving factories, which can be highly automated, could be a possibility when we are assessing our options."

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