Foxconn Needs to Fess Up to Its Trumpian Failure in Wisconsin

(Bloomberg Opinion) -- It’s time for Foxconn Technology Group to come clean. Fanciful plans to create a leading-edge 10.5-generation display plant in Wisconsin never made sense. The sooner the company admits as much, the sooner it can restore its reputation as a reliable business partner.

Two years after agreeing to a massive investment, the Taiwanese company is at the heart of one of the most infamous subsidy-for-investment debacles in American history. Once touted by newly-elected President Donald Trump as the eighth wonder of the world, promises have turned to disappointment and the failure threatens his re-election campaign in Wisconsin, where his narrow 2016 win helped him reach the White House.

With the global supply chain fracturing and the days of mega-factories over, Foxconn needs to rebuild goodwill around the world. Gone are the days when a big-talking billionaire could get politicians on the phone at a whim and talk them into handing out millions of dollars in subsidies and tax credits in the hope of attracting massive jobs-creating projects.

A letter this week from the Wisconsin Economic Development Corp. is a stark reminder that promises need to be kept, or the consequences paid.

The Recipients are ineligible for tax credits because of their failure to carry out the Project.

As Chief Legal Officer Jennifer H. Campbell outlined, the agreement includes a “Generation 10.5 TFT-LCD Fabrication Facility,” investment of up to $10 billion, and generation of as many as 13,000 jobs within a defined economic zone. She went on to note that Foxconn has “acknowledged that they have no formal or informal business plans to build a 10.5 Fab within the Zone.”

That fab has since been downgraded to a much-lesser 6G factory, and Foxconn has missed its hiring target for a second straight year after falling short by 82% in the first. It has invested less than 10% of the money and employed fewer than a quarter of the 2,080 full-time jobs targeted for the end of 2019, even failing to meet a minimum hiring quota of just 520 people, Campbell wrote.

Foxconn says it is still on course to invest in Wisconsin and will abide by the agreement signed with the state, Taiwan’s Central News Agency reported, citing a statement released after news of the WEDC’s letter.

Nobody should be surprised that Foxconn didn’t come through.

For the past four years, I’ve been warning readers to beware of tycoons bearing big job promises. According to one anecdote, a satirical letter I wrote from Foxconn’s founder Terry Gou to President-elect Trump even made it into a briefing packet for Wisconsin’s then-Governor Scott Walker (before being pulled by a sharp-eyed aide). I couldn’t verify this perhaps apocryphal tale, but it speaks to how little political leaders knew about Foxconn before jumping into bed.

There are numerous stories to be told about Gou’s big ideas — from Indonesia, to Pennsylvania, to Brazil — that never quite panned out. In the same week that Trump was inaugurated, it was already obvious that Foxconn’s plans for a U.S. display factory didn’t add up.

But Trump’s vision to restore manufacturing glory to America intersected with voters’ hopes, Gou’s bravado and Walker’s political ego. Nothing could stop the state from going ahead. Wisconsin was eager to offer tax incentives, clear out houses, and build infrastructure. But progress was slow from the beginning, and it quickly became clear that Foxconn’s targets wouldn’t be met.

Today, Wisconsin has a new governor: The Foxconn debacle helped Democrat Tony Evers defeat the Republican Walker in a state that has straddled America’s red-blue divide for a decade. What Evers has inherited is a Wisconsin with dozens of displaced families, a mountain of new debt, a ratings downgrade, and ignored environmental standards. Foxconn, too, has new leadership. Inspired by Trump’s victory in 2016, Gou stepped down last year to seek the candidacy of Taiwan’s opposition Kuomintang, leaving long-time lieutenant Young Liu in charge. (Gou didn’t get the nomination, and the KMT lost in a landslide to incumbent Tsai Ing-wen).Liu’s challenges could grow as big as those Gou faced a decade ago, when a spate of worker suicides at its factories in China forced the founder to reassess how he deals with working conditions. Foxconn came out of that saga maintaining its role as the key assembler of Apple Inc.’s iPhones.

Now, the tech Cold War between Beijing and Washington necessitates that the company decentralize manufacturing away from China, while rising costs make its hubs in Shenzhen and Zhengzhou less attractive. Instead of employing up to a million people in China during peak iPhone season, expect more devices from Apple, Sony Corp., Dell Technologies Inc. and Cisco Systems Inc. to be assembled at an assortment of locations around the world.

This means expanding existing sites — such as in Mexico, the Czech Republic, India, Brazil and Taiwan — and opening new facilities elsewhere. To ensure it has the infrastructure, land and labor to make this happen, Foxconn needs to work with local governments.After this fiasco in the Midwest, you could forgive any politician for being wary. It certainly doesn’t help that Foxconn clings to public claims that all is well in the state of Wisconsin.New management deserves praise for a more open attitude toward investors and the media, installed since Liu took over. He needs to go further in regards to Wisconsin. His team should admit that Foxconn’s plans aren’t what was first promised, explain what went wrong, and outline changes to its global expansion policy. Liu could swallow this bitter pill, as he wasn’t in charge when the deal was signed, yet also contend with the reality that Gou remains a presence despite semi-retirement.

But it needs to be done. The path forward to build new partnerships around the world starts with coming clean in Racine County, Wisconsin.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

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