Talking Point

Taiwan’s Trump?

Foxconn boss Terry Gou is running for president in Taiwan

Terry-Gou-Trump-w

Presidential pairing? Foxconn's Terry Gou talks to Donald Trump during a meeting at the White House

The Financial Times described him last week as “Taiwan’s disrupter-in-chief”, while the Wall Street Journal went with “a brash billionaire” that’s in the same mould as Donald Trump.

The man in question is Terry Gou, the tycoon from Taiwan who made his fortune from a company that assembles the iPhone.

Not too long ago the boss of Hon Hai, or Foxconn (the names are used pretty interchangeably), was known for being media shy. Back in 2007 – the same year that Steve Jobs launched the iPhone – the Wall Street Journal reported that Gou was “little noticed by the wider world”. But even so, it was only granted an interview with him after more than five years of requests. Mainland Chinese media also noted that the Taiwanese businessman had shunned publicity even as his company grew into China’s biggest private sector employer. Underlining how his presentational style seems to have flipped 180 degrees, Gou now has a reputation as “Taiwan’s Trump”. And the 69 year-old brought media interest to the boil last week when he announced his candidacy for next year’s presidential election in Taiwan.

First things first, the politics…

Taiwan’s 2020 election campaign is already underway with Tsai Ing-wen, the current president, announcing her plan to seek re-election during an interview with CNN in February. Tsai’s independence-leaning Democratic Progressive Party (DPP) defeated the mainland China-friendly Kuomintang (KMT) in 2016. But since taking office, Tsai has irked Beijing for rejecting the “one-China” framework of mutual understanding reached by both sides of the Taiwan Strait in 1992.

Coming off the 40th anniversary of mainland China’s re-establishment of relations with the US, the presidential election will also take place at a time when both Beijing and Washington are rethinking their respective policies towards the island (see WiC436).

“For Taiwanese people, the year of 2020 is an important watershed as to whether Taiwan will maintain its sovereignty and independence, or be forced into the process of being annexed,” Tsai warned the island’s 24 million people during her CNN interview.

Beijing has tried to exert pressure on Tsai’s administration, which has taken its toll on the Taiwanese economy and fed through into lower popularity for Tsai and the DPP.

The ruling party lost heavily in a key by-election last November and the latest opinion polls have suggested that the KMT is primed to retake office – provided it can find the right candidate to run for the presidency.

Step forward Terry Gou…

As we reported earlier this month, speculation had been mounting that Gou was going to be the KMT’s wild card in challenging the DPP next year – even though Han Kuo-yu, the mayor of the southern city Kaohsiung, looked to be a popular choice too (see WiC447).

Han’s star has been on the rise since he dramatically ended the DPP’s 20-year reign in Kaohsiung last year (see WiC436). But he announced this week that he won’t take part in the presidential run-off “in its current form” because he disapproves of the “closed-door meddling” of senior KMT figures.

Most political analysts see his statement as opening the way for Gou to make a clear run. That said, the KMT has a long history of being undone by its internal feuds. One example: Lee Teng-hui, president of Taiwan from 1988 to 2000, was expelled from the KMT after he switched horses, bringing the DPP to power in 2000.

Senior KMT politicians seem determined to forge a united front this time around, probably by throwing their weight behind Gou. The tycoon has been a KMT member since 1970, four years before he founded Hon Hai. His membership lapsed in 2000 (the year the KMT’s political reign ended for the first time) with Taiwanese media reporting that the billionaire did not cough up his “party fee”. But citing a NT$45 million ($1.5 million) donation in 2016 in the name of Gou’s mother, KMT officials allowed him to renew his membership this month, making him eligible to run in its presidential primaries.

Taiwanese elections are rarely predictable – a prime example being the controversial assassination attempt that helped Chen Shui-bian to win in 2004.

In 2016 senior KMT cadres also revoked the results of their primary, choosing to handpick their own presidential candidate instead.

Recent opinion polls might make it easier this time. According to United Daily News, although Gou’s popularity rating is still lagging Han’s, the polling also says Gou should comfortably defeat the DPP in a two-horse race.

Who is pushing for Gou to stand?

Typically, aspiring politicians claim to have been begged by others to run for office. Here Gou breaks the mould by insisting that his inspiration came from divine intervention. Gou unveiled his presidential bid at the Cihui Temple, explaining to reporters that Mazu, Taiwan’s sea goddess, had appeared to him in a dream, telling him to come forward and help to maintain peace between Taipei and Beijing.

Taiwan’s most famous businessman then went to the KMT’s headquarters and announced his intention to take part.

That may sound a little folksy but many Taiwanese originate from the coastal areas of mainland China, such as Fujian, and Mazu is the most revered goddess on the island.

The Foxconn boss even told reporters last week that he thought of himself as “the godson of Mazu”. (Confronted by reporters for seeming too superstitious, Gou countered that Steve Jobs was a member of a Vajrayana Buddhist group.)

Wherever Foxconn opens a new factory – Wisconsin included (see WiC440) – Gou says he brings along a Mazu statue to keep his godmother “always by his side”. He also wears a red jacket blessed by Mazu when he is in combative mode, such as when he lashed out at Microsoft at a press conference last month (see WiC445).

There are other sources of inspiration too: Gou claims to worship Guan the Holy Great Deity (a famous general from the Three Kingdoms era), or China’s traditional god of war, and on his wrist he wears a beaded bracelet from a temple dedicated to Genghis Khan (no stranger to combat either).

Another favourite item of personal wear is a hat depicting the flag of the Republic of China (RoC). This is trickier in its symbolism. The People’s Republic of China (PRC) doesn’t recognise the existence of the RoC as it deems Taiwan to be a renegade province. So wearing clothing with its flag might be considered provocative. But the Hong Kong Economic Times thinks that this is another careful piece of political spin in which Gou is embracing the emblem of the island – okay for Beijing so long as he only wears it in Taiwan – while also indicating that unlike Tsai that he supports the “1992 consensus” and accepts that there is only “one China”.

If elected, Gou would have to prove himself an expert at balancing acts, Hong Kong Economic Times says, especially in juggling Taiwan’s geopolitical relationships with China and the US.

But the newspaper believes that this is an area Gou has already perfected in his business career and that his skills are a key reason behind Foxconn’s success.

Why is Gou such a good middleman?

Foxconn is undisputedly the most successful electronics contract manufacturer (ECM) in a sector that has resulted from the converging of two major trends: demand from American tech giants to outsource much of their production and China’s emergence as a manufacturing powerhouse.

The ECMs originating from Taiwan have prospered by bringing the two sides together, acting as reliable middlemen and facilitating dealings between the mainland Chinese authorities – in most cases local governments – and US corporations.

Gou was born in Taiwan in 1950, a year after his parents, natives of Shanxi province, fled to the island at the end of the civil war (his father became a police officer).

He never had the chance to attend university (“you cannot read a book to learn to swim” he likes to say) and he worked for two years as a shipping clerk before founding what would become Foxconn in 1974.

His initial capital was said to have come from his mother, who won the money in a lottery. He started by making plastic knobs for black-and-white TV sets. The early years were difficult ones but media outlets say that he benefited from marriage to his first wife Serena Lin, who was the daughter of Lim Por-yen, a textile and real estate tycoon from Hong Kong (Lim’s firm Crocodile Garments is better known internationally for a lengthy trademark battle with Lacoste).

Support from Lim reportedly helped Gou stave off some early setbacks and in the 1980s he expanded into the personal computer industry, winning contracts from customers in the US. In 1988 he opened factories in Shenzhen, taking advantage of local government efforts to lure Taiwanese investors. According to the earlier mentioned 2007 interview in the Wall Street Journal, Gou’s big break came in 1995 when Michael Dell was visiting. Gou offered to arrange meetings with local officials if he could drive the 30 year-old American back to the airport. On the journey Gou made an unscheduled stop to show off his Shenzhen factory. “Gou knew that Michael Dell was a ‘star of tomorrow’, so he wanted to meet him,” a senior Dell executive told the newspaper.

With an attractive contract signed with Dell, Gou negotiated with Shenzhen officials to secure a bigger plot of land in the city’s Longhua district. According to the report, the plant there would become “the Forbidden City of Terry Gou” with a workforce of 270,000 people and revenues of $14 billion by 2007. The year 2007 turned out to be another pivotal one for Gou. He spotted another “rising star”, in this case Steve Jobs, and secured arguably Foxconn’s most crucial contract: making iPhones.

Why did Gou shun publicity in the early days?

“I hate that I have become famous,” he told the Wall Street Journal in 2007, explaining that the publicity brought unwanted attention to Foxconn’s business and could even alienate its customers.

Confidentiality is a particular selling point for ECMs like Foxconn. Their clients, in many cases American brands, count on the contract manufacturers to shield their new products and production cycles from their own competitors. They also want to make sure that outsourcing their production lines to China won’t result in theft of their product’s IP. (Foxconn has waged a long-running lawsuit against the Shenzhen battery and carmaker BYD as Gou believes his company to be the victim of commercial espionage.)

The most successful contract manufacturers from Taiwan have all operated in a similarly low-key style. Yue Yuen has been the world’s biggest shoemaker for two decades yet people are much more familiar with the Nike-branded products it turns out. The same applies to Stella Holdings, a contract manufacturer for fashion brands such as Prada, or to TPV, one of the world’s biggest makers of computer screens in the 1990s.

Foxconn has been more secretive than most in trying to protect its clients’ identities.

Its Longhua mega-factory in Shenzhen was so locked-down that most locals didn’t even know the identity of its owner and very few business reporters were even aware of its early existence, the Global Times once reported.

In an interview with CCTV in 2010, Gou told the state-run broadcaster that one of his business secrets was convincing its clients that Foxconn would never invest in brands of its own either. Foxconn, he said, would be content with its lower-profile role as a contract manufacturer, allowing the likes of Apple to focus on product design and branding.

Out of the shadows…

Gou’s personal life got more colourful as he got richer. After his first wife died in 2005, he began to appear regularly on the tabloid back pages. Actress Lin Chi-ling, a face known to all Taiwanese, was among his rumoured dates. Gou eventually remarried a dance instructor 24 years his junior, who had been hired to train him for a spectacular performance of the tango (with Lin) at one of Foxconn’s Chinese New Year dinners.

The company made newspaper headlines in a more unpleasant way after a series of workers at Foxconn’s factories jumped to their deaths in 2010 (see WiC63). Faced with unprecedented scrutiny of the suicides, which were said to have been prompted by oppressive working conditions, Gou had little choice but to defend his company’s reputation.

His approach wasn’t always surefooted, however. In 2012, during a visit to Taipei’s zoo, Gou seemed to compare himself to a zookeeper. “As human beings are also animals, to manage one million animals gives me a headache,” he explained.

Gou’s increasing media profile might have been inevitable, however. Foxconn was working for some of the world’s best-known brands and it was now employing more than a million people. It was simply impossible to stay out of the limelight in the same way as before.

The future of Foxconn: a change of direction?

Foxconn says that Gou will “withdraw from daily operation” as a result of his presidential bid but that he will also “continue to provide strategic direction and guidance”.

But another of the inferences from Gou’s decision to run for office is could Foxconn’s best days be behind it?

Certainly, rising labour costs and changes in the global supply chain have been putting pressure on its business model. Gou has already moved some of Foxconn’s factories into lower-cost parts of China and started to invest in more automation for production lines.

But business conditions are notably tougher than a decade ago and Taiwan’s contract manufacturers have also been getting caught in the crossfire of Beijing’s trade and tech war with Washington. Foxconn finds itself at a crossroads in broader tech trends too – most obviously the possibility that iPhone sales might have peaked.

Other analysts say that Foxconn has been too reliant on massive contracts with a few key partners and that Gou hasn’t invested enough in more specialised production capacity that delivers higher margins, such as the production of automobile electronics and medical equipment. Instead it has stuck to what it knows best in more commoditised product lines like smartphones, which is now starting to put a strain on profits. Gou’s Hon Hai reported a 6.9% drop in net profit for 2018, the third such decline in a row. And while earnings for the December quarter came in stronger than expected, many investors think the uptick will be shortlived, the Financial Times reported this week.

Is Gou going to be Taiwan’s Trump?

Many would argue that Gou’s business achievements exceed those of the current US president. But whether he can match Trump in marshalling the forces of social media will become more evident in the months ahead. Nonetheless, the media is already comparing the two men. Like Trump, Gou is a billionaire businessman with no experience in government. They also seem to have something in common in their feisty attitudes to the press. Gou is known for suing newspapers (including reports on a sex scandal in the 1990s that threatened to derail his career) and last year he ripped up a newspaper dramatically at a press conference, alleging that it was publishing “fake news”.

Like Trump, Gou’s style can be similarly abrasive. Attending a conference this month on the 40th anniversary of the Taiwan Relations Act – the US law that obliges Washington to defend Taiwan against mainland China – he walked out after accusing a female panellist, a DPP lawmaker, for not looking at him while he was speaking.

And the view from China?

In mainland China there hasn’t been a formal comment on Gou’s candidacy but the Global Times, an adjunct of the People’s Daily, seemed pleased, claiming that “if Gou becomes Taiwan regional leader, cross-straits tensions would be eased”.

On the other hand, the newspaper said it didn’t really matter who won the vote because “the mainland is committed to reunification”.

“If Taiwan authorities are moderate, the mainland can execute the task in an unhurried manner. If Taiwan authorities are radical, the task will be more urgent. But the task will eventually be carried out in any case,” it warned.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.