Strategy: Foxconn Pursues Diversification as it Attempts to Move up the Value Chain

Foxconn, the Taiwanese electronics manufacturer best known for building Apple products, is increasingly adopting a strategy of diversification in response to rising labour costs in China.

Foxconn is the world’s largest manufacturer of electronic goods, with Apple, Dell and HP amongst its multinational customer base.

The scale of Foxconn's electronics manufacturing activities in China is staggering. In this Fortune article ( http://fortune.com/2013/11/27/by-the-numbers-how-foxconn-churns-out-apples-iphone-5s/ ) it is reported that Foxconn us has 1 million employees in China, running 100,000 production lines. 300,000 employees work exclusively on making Aple iPhone 5s, with one factory in Zhengzhou reportedly producing half a million iPhone 5s's each day.

As China’s largest private employer, more than most other Chinese-located firms, Foxconn faces the challenge of rising labour costs in China. Like other manufacturers, Foxconn has relocated production from the most costly manufacturing regions in the east of China to lower labour costs regions like Guiyang. Charles Clover from the FT briefly outlines the rationale for this change in this useful video:

In this Bloomberg video, you are taken behind the scenes of Foxconn’s new industrial part at Guiyang. The video also provides more background on Foxconn's strategy of moving up the value chain!

The video also explains how Foxconn is attempting to diversify into other markets in an attempt to move up the value chain and reduce its reliance on acting as an assembler of electronics products.

A good example is the announcement in April 2014 of a joint venture between Foxconn and HP. The JV was formed to make servers aimed at companies which provide cloud computing services. http://www.reuters.com/article/2014/04/30/us-hp-foxconn-jv-idUSBREA3T0ED20140430

In a separate move, reported here in the Wall Street Journal, Foxconn confirmed that it is planning to open a chain of healthcare resorts in Asia. Foxconn has made headlines over the years for employee suicides and protests. More recently, however, it has gradually improved working conditions by limiting the hours employees can work, raising wages and more. The move into healthcare resorts is an extension of employee wellness programmes that Foxconn has introduced.