Monday, October 3, 2011

Foxconn and Brazil: Wild Promises and the Realities of Currency Appreciation

Apparently, Foxconn is growing cold on making major manufacturing investments in Brazil (link here).  Well, knock me over with a feather.  As I pointed out in a post earlier this year (link here), it was always highly unlikely (read: never gonna happen) that Foxconn would invest in short order 12 billion USD in manufacturing in Brazil, a figure that represents more than its total manufacturing investment in China.  In the meantime, the Brazilian Reais has continued to appreciate against the dollar (and was appreciating against the renminbi until late July), and the Brazilian government wisely has bargained hard with Foxconn over tax breaks, technology transfer and the like.  Of course, Foxconn's stand is that the Brazilian government has to make it worth Foxconn's while to invest, but such a stance will probably only increase pressure for the Brazilian government to do something to protect local manufacturing due to the currency appreciation shock.  Indeed, for those Brazilians disgruntled by what they perceive to be Foxconn's tough bargaining (would we really expect anything less from hard-nosed Terry Gou?), protectionist measures would likely be most welcomed because they would work to undermine Foxconn's leverage i.e. the firm would have to set up some facilities in Brazil to get around the protectionist barriers whereas right now it can happily ship its goods from China.

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