Foxconn Technology Group, a subsidiary of the world’s largest electronics contract manufacturer Taiwan based Hon Hai Precision Industry Ltd., will likely begin construction of its factory in Indonesia in the second half of this year, a minister has said.
Industry Ministry MS Hidayat said on Tuesday in Jakarta the Taiwanese company made the decision to go ahead with its investment plan after it signed a partnership agreement with its local partner recently.
Under the agreement, Foxconn would team up with leading cell phone distributor and retailer PT Erajaya Swasembada to manufacture and sell cell phones and tablets nationwide, Hidayat added.
At present, apart from distributing major brands like Blackberry, Nokia and Samsung, Erajaya sells cell phones under its own brand, Venera, manufactured by overseas contract makers in China and Taiwan.
“If the business operates well, we can gain stronger control over our domestic market and reduce imports, while also building a component industry,” Hidayat told reporters.
More than 5 million cell phones were imported last year, driven by high demand from an emerging middle class. Overall cell phone imports amounted to US$2.5 billion during the period, according to Central Statistics Agency.
Hidayat did not elaborate on how much Foxconn would spend on its factory, but earlier said that the total investment might amount to $10 billion for several stages of development over a few years.
Earlier last month, Hon Hai spokesman Simon Hsing said that it would not produce Apple products in Indonesia, but only manufactured phones to serve the huge domestic market.
The company’s planned investment is significant as it is attempting to diversify its business and client base amid slower growth in sales of flagship iPhones. It posted a 19 percent decline in the first quarter of this year from the past year due to weaker demand for the iPhone.
Hon Hai gains around 60 to 70 percent of its revenue from assembling iPhones and iPads for Apple Inc. Apart from that, analysts have said higher labor costs in China pushed Foxconn to expand elsewhere to maintain its performance.
Previously, the company had mulled upgrading its facilities in Brazil, aiming for a total investment of $12 billion over five to six years, which would have been its largest overseas investment ever. However, last September the plan was still uncertain due to stagnant negotiations over tax breaks and other
In response to the planned investment, Erajaya spokesman Djatmiko Wardoyo could not confirm on the signing of the partnership agreement, saying that the firm was in talks with Foxconn for a possible partnership, but so far there had only been a feasibility study on the plan.
“Basically we are enthusiastic about the encouragement from the Trade Ministry to localize production because we believe in a long term business plan,” he told The Jakarta Post in a text message.
To spur the growth of the cell phone industry, starting from early this year the Trade Ministry tried to curb surging sales of illegal products by issuing a new regulation to tighten imports of mobile phones. Under the new rule, imports, including smart phones; handhelds, including personal digital assistants (PDA), and tablets, can only be carried out by registered importers with special licenses from the ministry.