Internet & Tech

Apple’s new China partner

How a former ‘factory girl’ is putting pressure on Foxconn’s Terry Gou

FOXCONN-CHAIRMAN/

After attending a much-feted internet conference in Wuzhen in December 2017, Apple’s CEO Tim Cook met two up-and-coming businesspeople.

One was Meituan Dianping’s founder Wang Xing, with whom Cook shared a few pan-fried buns and soup dumplings at Dahuchun, one of Shanghai’s favourite restaurants. Meituan went public in Hong Kong less than a year later and has displaced Baidu as the third most valuable Chinese internet firm (see WiC498).

Cook’s encounter with Wang captured a lot of the media attention. There was only a brief reference to his visit on the same day to a factory in Kunshan where Apple’s AirPods are made. Wang Laichun – the chairwoman of Luxshare – didn’t even warrant a mention.

The rise of this ‘other Wang’ over the past three years has been equally spectacular, however. The share price of Luxshare’s Shenzhen-listed unit has jumped more than 400% in the same period. As of this week, it was worth Rmb370 billion ($52 billion), as much as Taiwan-listed Hon Hai Precision, better known as Foxconn, which has long been Apple’s most important contract manufacturer.

Also going by the English name Grace, Wang is now one of the richest women in China, if not the world. Staying out of the spotlight in the past was probably part of her long-term plan. She was formerly a factory worker at Foxconn and she has never hidden the fact that she set out to copy her former employer’s business philosophies – including shunning the limelight in striving to become a reliable but low-profile supplier to the world’s most famous tech brand (see our Ask Mei column in WiC489 for our first mention of the Luxshare founder). Yet times are changing as her firm emerges as a major competitor to Foxconn. Wang is going to find it harder to stay out of the headlines.

Last week Luxshare announced the acquisition of two factories in China from its Taiwanese counterpart Wistron for Rmb3.3 billion. Taiwan’s Economic Times was one of a number of newspapers from the island to report that Foxconn’s boss Terry Gou was “shocked” by the deal, prompting a new instruction to his senior executives to draw up plans to fend off Luxshare’s challenge.

Luxshare has been encouraged “to challenge Foxconn” by Apple, Nikkei Asian Review reported in May. Luxshare has been in talks for more than a year to make a major investment in Catcher Technology, an iPhone and MacBook metal casing supplier from Taiwan, according to the Japanese news outlet. Apple wants Luxshare to finalise the deal as a way of cementing a “competitive [mainland] Chinese assembler” to counterbalance its Taiwanese suppliers, including Foxconn.

If completed, the investment in Catcher would give Luxshare more know-how in iPhone assembly and bring it a step closer towards becoming a more integrated manufacturer with operations across more of Apple’s supply chain – a position established only by Foxconn in the past.

Negotiations with Catcher broke down in June because its asking price was too high, Nikkei reported, but Luxshare managed to get some of what it wanted by turning to another Taiwanese firm in Wistron.

The deal has broken the Taiwanese manufacturers’ stranglehold on the assembly of iPhones – a state of affairs since the smartphone brand was launched in 2007, the Economic Times suggests. Tim Cook is playing the role of the “grandmaster” in managing Apple’s partnerships in the supply chain, the Taiwanese newspaper said. The emergence of a major mainland Chinese supplier (and a potential price war with Foxconn) will be “a situation that Apple is happy to see”.

According to Huxiu, a news portal, there were eight mainland Chinese-owned manufacturers in Apple’s supply chain back in 2012. The number had increased to 30 last year (plus 10 from Hong Kong), although 46 Taiwanese firms are still the most concentrated grouping.

Luxshare’s purchase of the Wistron assembly lines has also earned discussion in the Chinese media as well, with Huxiu noting that Foxconn’s Gou has become a more unpopular figure, especially after remarking that he was “the one who has been feeding the mainlanders” during his unsuccesful campaign for the Taiwanese presidency last year.

The comment often does the rounds on Chinese social media when the billionaire, or his company, is mentioned. So perhaps it is poetic justice that the Taiwanese tycoon is realising that one of his former ‘factory girls’ might soon be eating more of his lunch – commercially speaking, at least – as Luxshare emerges as a bigger competitor.


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