The hidden meaning of Sharp's production line relocation, the secret that Foxconn can only do but not tell

Sharp, a subsidiary of Hon Hai, the world's largest electronics contract manufacturer, has officially closed its last white goods production line in Japan and moved it to its factory in Thailand. This seems to be a practice that meets the need to reduce costs, but from another perspective, it means that under the impact of the trade war, Hon Hai Group has to shape Southeast Asia into another production base, and Japan is no longer suitable for manufacturing.

It cannot be denied that the production costs in mainland China are indeed continuing to rise. For the assembly industry with high labor demand, the increase in labor costs represents an erosion of profits, so shifting production lines is inevitable. This is especially true for Foxconn. On the one hand, it cannot do without skilled labor in mainland China to meet manufacturing needs, but the continued rise in labor costs is also one of the key factors that suppress Foxconn's gross profit.

As for Sharp, it faces more serious labor problems than Foxconn. After all, Japan has the most serious aging population and declining birthrate in the world, so there is already a huge gap in labor supply. If it had followed past practices, Sharp could have handed over the manufacturing issues to Foxconn. However, due to the trade war, in order to avoid unnecessary interference from tariffs, Sharp finally gave up what was theoretically the best option and turned to Southeast Asian countries.

Southeast Asia’s demographic dividend becomes an alternative

Industry insiders said that in the past, Southeast Asian countries used to export labor to neighboring countries, but in order to transform and upgrade their own industries, Southeast Asian countries have also begun to restrict the export of labor. This not only allows manufacturers to have sufficient manpower supply overseas, but also becomes their biggest advantage in this wave of trade war.

Looking closely at Sharp's production line planning, Sharp Chairman and CEO Tai Jeng-wu once said during the reorganization of Japan's LCD TV factories that it was difficult to make a profit by mass-producing LCD TVs in Japan and that production must be moved overseas. Although Sharp's LCD TV production in Japan will not become zero, it will inevitably promote automated production.

As for Thailand and Malaysia in Southeast Asia, they are both key development targets targeted by Sharp, including manufacturing and sales. Sharp has put a lot of effort into these two areas. For example, in April 2018, Sharp signed a memorandum of cooperation with the Tourism Authority of Thailand, planning to use Sharp's 8K photography equipment and 8K panels to help Thailand promote its tourism industry. The Tourism Authority of Thailand has also become the first government tourism organization in Asia to directly cooperate with Sharp.

Sharp also said that Thailand is a country where Sharp's overseas branches have performed outstandingly, and it has been established for nearly 90 years. In addition to the two-year cooperation plan, it also looks forward to further cooperation through 8K technology in the future. Sharp's decision to move the refrigerator production line from Japan to Thailand just echoes Sharp's past layout strategy for Southeast Asia.

Sharp Japan's transformation into a research and development center is a foregone conclusion

In its statement on the relocation of its production line at its Yao factory in Osaka, Sharp emphasized that moving the production line overseas is part of the company's management reforms being promoted by Chairman and CEO Tai Jeng-wu, with the goal of improving cost competitiveness and expanding overseas sales, but the company will still insist on keeping its core technology in Japan.

This statement clearly points out that in Japan, where there is a shortage of manpower, no matter how hard Sharp tries to improve automation, it may not be able to maintain basic production capacity. In other words, at the Japanese headquarters with a relatively solid R&D foundation, the only thing that will not be replaced is R&D. This is also the main reason why Foxconn still wants to invest in Sharp after so many years.

Industry insiders said that it is basically impossible for Foxconn to move its production lines out of the mainland. As the trade war continues to go on and off, the only thing Foxconn can do is to continue to diversify its production lines. However, this is something that can only be done but not said. Therefore, through its subsidiaries, including Hon Teng and Sharp, different production bases have been gradually established to prepare for emergencies.

Industry insiders stressed that building a new production base now is somewhat uneconomical in terms of cost, but in emerging markets, building a production base can help companies understand the market first, which is beneficial for marketing and sales layout. It is not a big investment for Foxconn. It can only be said that before the variables of the trade war are resolved, companies should not put all their eggs in one basket, which is the way they will and must go.