Fox­conn’s bro­ken pledges cast doubt on Trump jobs plan

The com­pany, scru­ti­nized for its iPhone pro­duc­tion prac­tices in China, said it would in­vest $7 bil­lion and hire up to 50,000 work­ers in the United States

The Washington Post Sunday - - BUSINESS - BY TODD C. FRANKEL

harrisburg, pa. — For some res­i­dents of this small city, there was some­thing fa­mil­iar about Fox­conn’s re­cently an­nounced plan to hire up to 50,000 U.S. work­ers, one of the many hir­ing pledges from com­pa­nies rounded up by Pres­i­dent Trump in the first weeks of his ad­min­is­tra­tion. The only dif­fer­ence was the scale. In 2013, Fox­conn’s chair­man sent a jolt through this state cap­i­tal when he said his com­pany — best known for mak­ing Ap­ple iPhones in China — would in­vest $30 mil­lion and hire 500 work­ers for a new high-tech fac­tory in cen­tral Penn­syl­va­nia.

Lo­cals were giddy. Fox­conn had a small of­fice here, but this seemed like the start of an en­tire new in­dus­try. Penn­syl­va­nia’s gov­er­nor boasted about the deal. The Brook­ings In­sti­tu­tion think tank hailed Fox­conn’s de­ci­sion as a sign of U.S. man­u­fac­tur­ing’s strength.

But the fac­tory was never built. The jobs never came. “It just seemed to fade to black” af­ter the an­nounce­ment, re­called a lo­cal of­fi­cial. It was the start of a mys­tery, cre­ated by a chief ex­ec­u­tive known to prom­ise projects all over the world that never quite pan out. Yet few peo­ple seem to no­tice. Fox­conn and oth­ers con­tinue to get credit for deals that never take place. In De­cem­ber, Penn­syl­va­nia’s eco­nomic de­vel­op­ment staff was still tout­ing the $30 mil­lion fac­tory that never was.

What hap­pened in Harrisburg pro­vides a skep­ti­cal lens for view­ing the waves of cor­po­rate in­vest­ment prom­ises be­ing used by Trump as ev­i­dence that he is fol­low­ing through on his cam­paign pledge to rein­vig­o­rate U.S. man­u­fac­tur­ing. “I’m de­liv­er­ing on ev­ery­thing we promised,” Trump said last month dur­ing a meet­ing with man­u­fac­tur­ing ex­ec­u­tives at the White House, not­ing how firms have an­nounced new hir­ing and fac­to­ries. “Peo­ple are say­ing they’ve never seen so much hap­pen in 30 days of a pres­i­dency.”

Fox­conn, for ex­am­ple, an­nounced shortly af­ter Trump’s elec­tion that it plans

to in­vest $7 bil­lion and hire up to 50,000 work­ers in the United States. Such a hir­ing spree would cat­a­pult Fox­conn from a cou­ple thou­sand U.S. work­ers to a ma­jor em­ployer on par with Chrysler.

Other com­pa­nies, too, in­clud­ing SoftBank, Alibaba, In­tel and IBM, have made an un­usual dis­play of loudly an­nounc­ing their in­ten­tions to in­vest in the United States — all with price tags in the bil­lions of dol­lars and the prom­ise of tens of thou­sands of jobs — much to Trump’s de­light.

“Fox­conn is go­ing to spend a tremen­dous amount of money on build­ing a mas­sive plant,” Trump said the day af­ter the in­vest­ment was re­vealed, “and prob­a­bly more than one.”

But, as Harrisburg learned, the gulf be­tween th­ese eye-pop­ping an­nounce­ments and what takes place on the ground can be huge — and fre­quently over­looked.

“They are scram­bling to look good,” Mark Selden, se­nior re­search as­so­ciate at Cor­nell Univer­sity’s East Asian pro­gram, said. “It’s a sign of the pres­sure that Trump is plac­ing on ev­ery­one in the world to de­liver on his agenda.”

Com­pa­nies tend to view th­ese an­nounce­ments as an open­ing bid in a ne­go­ti­a­tion, said Al­berto Moel, a se­nior an­a­lyst with Bern­stein Re­search in Hong Kong. Firms know politi­cians like the splashy head­lines. And if ev­ery­thing falls into place — the busi­ness cli­mate im­proves, they ex­tract enough con­ces­sions such as tax breaks and free land — they might be able to make it hap­pen.

“It ac­tu­ally puts the onus on the U.S. in a way,” Moel said. “They are say­ing: ‘I’m along for the ride. Here’s my pro­posal.’ ”

If the deal falls apart, as it of­ten does, no one is go­ing to talk about it.

“The gov­ern­ment them­selves aren’t go­ing to re­mind you of that, Trump has no in­ten­tion of help­ing you re­mem­ber that,” Moel said. “What’s the down­side?”

Trump is far from alone in us­ing cor­po­rate an­nounce­ments as po­lit­i­cal back­drops. It’s why rib­bon­cut­tings and cer­e­mo­nial shov­els ex­ist.

In 2012, Pres­i­dent Barack Obama vis­ited a new $5 bil­lion In­tel com­puter chip plant in Chan­dler, Ariz., cit­ing it as “an ex­am­ple of an Amer­ica that is within our reach.” But the fa­cil­ity, known as Fab 42, was never com­pleted. Last week, In­tel chief ex­ec­u­tive Brian Krzanich stood in the Oval Of­fice with Trump to an­nounce a $7 bil­lion in­vest­ment — es­sen­tially, Fab 42 was back on track, with a new price tag and a new pres­i­dent. Trump tweeted his praise.

Even be­fore he was sworn in, it was clear Trump placed greater im­por­tance on th­ese job an­nounce­ments than past ad­min­is­tra­tions.

Among the first signs came in De­cem­ber when Tokyo-based SoftBank’s chief ex­ec­u­tive, Masayoshi Son, stood with the pres­i­dent-elect to an­nounce a plan to in­vest $50 bil­lion and cre­ate 50,000 new U.S. jobs.

Two days af­ter Trump’s inau­gu­ra­tion, Fox­conn chief ex­ec­u­tive Terry Gou told re­porters in Tai­wan that his com­pany planned to spend $7 bil­lion on a U.S. fac­tory to make com­puter dis­plays. It wasn’t iPhones — which Trump has said he wants to be “Made in the USA” — but Gou said the fac­tory could cre­ate 30,000 to 50,000 U.S. jobs. De­tails were few, but one clue seized on was the pres­ence of a Penn­syl­va­nia state trade rep­re­sen­ta­tive at Gou’s talk.

Fox­conn said in a state­ment that it is “ex­plor­ing a po­ten­tial in­vest­ment that would rep­re­sent an ex­pan­sion of our cur­rent U.S. op­er­a­tions.” But the com­pany could not con­firm “the num­ber of jobs that might be cre­ated.”

Fox­conn is a cov­eted hard­ware man­u­fac­turer be­cause of its size. Last year, it re­ported $136 bil­lion in rev­enue. It has more than 1 mil­lion em­ploy­ees, mostly in China. A sin­gle fac­tory mak­ing iPhones or LCD screens can em­ploy tens of thou­sands of work­ers. When Fox­conn says it will in­vest in a new plant, the de­ci­sion can trans­form a re­gion. That’s why coun­tries all over the world are ea­ger to lure Fox­conn to their shores.

Gou, Fox­conn’s founder, for years has de­scribed the United States as a “must-go mar­ket.”

In 2014, as the Penn­syl­va­nia deal was qui­etly dy­ing, Gou teased the open­ing of a LCD dis­play fac­tory in the states. His com­pany talked with of­fi­cials in Colorado and Ari­zona. Noth­ing hap­pened.

That same year, the com­pany signed a let­ter of in­tent to in­vest up to $1 bil­lion in In­done­sia. That in­vest­ment still has not oc­curred.

Fox­conn said it would in­vest $5 bil­lion over five years in In­dia as part of an am­bi­tious ex­pan­sion in 2014. The deal would cre­ate up to 50,000 jobs, Gou said. But Fox­conn’s in­vest­ment in In­dia has amounted to only a small frac­tion of what it orig­i­nally promised.

Sim­i­lar re­sults were seen in Viet­nam, where Fox­conn com­mit­ted to a $5 bil­lion in­vest­ment in 2007, and in Brazil, where Fox­conn spoke of a $10 bil­lion plan in 2011. The com­pany made its first ma­jor foray in Viet­nam only last year. In Brazil, Fox­conn has an iPhone fac­tory, but its in­vest­ment has fallen far short of ex­pec­ta­tions.

“There’s a pat­tern here,” said Moel, the an­a­lyst.

Gou’s plans for Harrisburg were re­vealed in 2013 while he was in the United States on a tour with other Tai­wanese busi­ness of­fi­cials to, in part, drum up sup­port for Tai­wan’s bid to join the Trans-Pa­cific Part­ner­ship, known as TPP. (Co­in­ci­den­tally, Trump pulled the United States out of the trade treaty in his first days in of­fice.)

It was a surprise when Gou said Fox­conn planned to in­vest $30 mil­lion over two years in a fac­tory to make tech­nol­ogy equip­ment and servers. Gou noted his com­pany’s his­tory in Harrisburg. He said the goal was to cre­ate “high-pre­ci­sion, high-tech, high value-added man­u­fac­tur­ing in the U.S.”

Gou also said Fox­conn would do­nate $10 mil­lion to Carnegie Mel­lon Univer­sity in Pittsburgh for robotics re­search.

“IPhone maker Fox­conn to in­vest $40 mil­lion in the US,” wrote the China Post. “Fox­conn to build plant in Penn­syl­va­nia,” CNN said. Lo­cal me­dia quoted state of­fi­cials as say­ing Gou would sign a mem­o­ran­dum of un­der­stand­ing and the com­pany was busy scout­ing sites.

“There was this in­tense buzz,” re­called David Black, pres­i­dent of the Harrisburg Re­gional Cham­ber.

“Lots of us were ex­cited by the op­por­tu­nity,” said Bub Man­ning, who at the time co-owned a lo­cal con­struc­tion firm. “Any­time some­thing of that size comes along in cen­tral Penn­syl­va­nia, that’s a big deal.”

For years, Fox­conn has main­tained an of­fice with about 50 work­ers in Harrisburg, a hub of the com­puter con­nec­tor in­dus­try. The of­fice is in an old brick ware­house. On a re­cent visit, the build­ing was filled by a half-empty war­ren of cu­bi­cles. A worker de­clined to com­ment to a re­porter with The Wash­ing­ton Post. Ac­cord­ing to lo­cal gov­ern­ment of­fi­cials, Fox­conn has not done any per­mit­ted al­ter­ations to the build­ing in 15 years.

Man­ning re­called how his firm tried to chase down in­for­ma­tion about the planned $30 mil­lion fac­tory.

“It felt like I was grab­bing Jell-O. It never got any trac­tion,” Man­ning said.

The $30 mil­lion fac­tory faded from view.

Fox­conn said its $10 mil­lion do­na­tion to Carnegie Mel­lon was “mov­ing for­ward very suc­cess­fully,” with half of the funds hav­ing been spent four years later. The school de­clined to com­ment.

None of this has stopped the praise for Fox­conn’s in­vest­ment in Penn­syl­va­nia. Re­cent sto­ries have re­ferred to the phan­tom fac­tory as a sign of Fox­conn’s U.S. beach­head. A state eco­nomic de­vel­op­ment of­fi­cial wrote about Fox­conn’s $30 mil­lion fac­tory as ev­i­dence of for­eign com­pa­nies that op­er­ate in the Key­stone State. (The piece was fixed af­ter The Wash­ing­ton Post in­quired about it.)

State of­fi­cials toured po­ten­tial sites with Fox­conn rep­re­sen­ta­tives, the state Depart­ment of Com­mu­nity and Eco­nomic De­vel­op­ment said in a state­ment. “Un­for­tu­nately, a pro­ject did not come to fruition.” Fox­conn at­trib­uted the fail­ure to “ma­te­rial changes to the busi­ness and op­er­at­ing cli­mate at that time.”

“The proof is al­ways in the pud­ding,” said Scott An­des, a se­nior pol­icy an­a­lyst at Brook­ings.

The as­sump­tion is that com­pa­nies fol­low through on ma­jor an­nounce­ments. “But it is im­por­tant to be skep­ti­cal,” An­des said. “I would hope it’s not just smoke and mir­rors with Fox­conn or any other of th­ese com­pa­nies.”

Feel­ing burned by the fate of the $30 mil­lion fac­tory, some in Harrisburg are cau­tious about get­ting their hopes up again.

“We learned some­thing from that,” said Black of the Harrisburg cham­ber.

But, Man­ning said, it would be hard to not be se­duced by the size of Fox­conn’s am­bi­tion, real or not.

“If you smelled a pro­ject like that,” he said, “you’d get ex­cited even though you know bet­ter.”

MARK MAKELA FOR THE WASH­ING­TON POST

Old cars are parked across the street from the Fox­conn of­fices in Harrisburg, Pa., where the prom­ises of growth have failed to ma­te­ri­al­ize.

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