Asian firms weigh Mexico factories as China risks grow

Taiwan-based electronics manufacturers Foxconn and Pegatron are among companies eyeing new factories in Mexico, people with direct knowledge of the matter said, as the U.S.-China trade war and coronavirus pandemic prompt firms to reexamine global supply chains. The plans could usher in billions of dollars in badly needed fresh investments over the next few years for Latin America's secondlargest economy, which is primed for its worst recession since the 1930s Great Depression.

Foxconn and Pegatron (4938.TW) are known as contractors for several phone manufacturers including Apple. It was not immediately clear which companies they would work with in Mexico. According to two of the sources, Foxconn has plans to use the factory to make Apple iPhones. However, one of the sources said, there had been no sign of Apple's direct involvement in the plan yet.

Foxconn is likely to make a final decision on a new factory later this year, and work will commence after that, the two people said, adding there was no certainty the company would stick to the plan. Apple spokesman Josh Rosenstock declined to comment. Pegatron is also in early discussions with lenders about an additional facility in Mexico mainly to assemble chips and other electronic components, said the people, who declined to be identified as the talks are confidential. Pegatron declined to comment.

Foxconn has five factories in Mexico mainly making televisions and servers. Its possible expansion would underscore a broader and gradual shift of global supply chains away from China amid a Sino-U.S. trade war and the coronavirus crisis.

The plans come as the idea of "near-shoring" gains ground in Washington. The Trump administration is exploring financial incentives to encourage firms to move production facilities from Asia to the United States, Latin America and the Caribbean.

Brandishing a new deal locking in free trade with the world's biggest consumer market, Mexico also has geography, low wages and time zones in its favor. Despite the global recession and concerns about the business climate under President Andres Manuel Lopez Obrador, government data shows foreign investment largely holding up so far this year.

"The company indeed has contacted the (Mexican) government," a third source said about Foxconn, adding the talks were at an early stage and rising cases of virus in Mexico were a major concern for the possible investment.

Taipei-headquartered Foxconn, formally called Hon Hai Precision Industry Co Ltd, said in a statement that while it continued to expand global operations and is an "active investor" in Mexico, it had no current plans to increase those investments.

Reuters in July reported Foxconn planned to invest up to $1 billion to expand a factory in India where it assembles Apple iPhones. Foxconn Chairman Liu Young-way told an investor conference in Taipei on Aug. 12 the world was split into "G2" - or two groups - following Sino-U.S. tensions, saying his firm was working on "providing two sets of supply chain to service the two markets."

"The world factory no longer exists," he said, adding that about 30% of the company's products were now made outside China and the ratio could increase. Foxconn unit Sharp has said it is stepping up television production in Mexico. Sharp last year said it would set up a plant in Vietnam to shift part of its China production. It said it had no further information to give. China's Luxshare Precision Industry Co (002475.SZ) is also considering building a facility in Mexico this year to offset the tariff war between the world's two largest economies, the two sources said.

It was not immediately clear which product lines were being considered by

Luxshare, which according to media reports is a leading manufacturer of Apple Airpods. Luxshare did not respond to a request for comment. The Taipei Economic and Cultural Office in Mexico, which represents Taiwan's government in the country, said it had heard Foxconn was interested in building another factory in Ciudad Juarez, in the northern border state of Chihuahua. "Pegatron, I also understand, wants to move a production line from China to Mexico," the office's Director General Armando Cheng told Reuters. He said he did not know details of either company's plans.

"Mexico is one of the ideal countries for companies considering readjusting their chain of suppliers," Cheng said. The scale of investment by Asian electronics contract manufacturers, and the employment they would create in Mexico, are not yet clear. Promised investment in new manufacturing capacity has not always materialized.

In 2017, U.S. President Donald Trump said Foxconn would build a $10 billion plant employing 13,000 people making LCD panels in the state of Wisconsin. Those plans have shifted dramatically. In 2019 the company downgraded the size of the planned factory. In April, Foxconn said it would make ventilators at the plant in partnership with Medtronic. Coronavirus ground crossPacific supply chains to a standstill, stranding automobile, electronics and pharmaceutical components from China, exacerbating firms' concerns about having their productive base an ocean away from American consumers.

Additionally, the newly implemented United States-Mexico-Canada trade deal requires more locally sourced inputs for tariff-free exports to the United States. Mexico has spoken to a host of foreign companies in an effort to lure business from Asia to capitalize on the trade deal and was preparing to speak to Apple about relocating manufacturing, Economy Minister Graciela Marquez told Reuters in July.