Why Foxconn is Delaying its Indonesian Investment

Foxconn’s (LSE:HHPD; HKEX:2038; TPE:2354) plan for building a massive manufacturing plant in Indonesia is being delayed for around three to six months according to Indonesia’s industry minister, M.S. Hidayat, cited by the Jakarta Post this week. There were two main reasons given by both the minister and a Foxconn spokesperson regarding this postponement: the ongoing discussion on tax regulations, and the task of finding suitable local partners.

Regarding the tax situation, WSJ reports that Foxconn demanded that the Indonesian government draft a regulation that would effectively block super-cheap mobile phones from entering the country. The Indonesian minister mentioned that Foxconn also requested several tax incentives such as a special treatment for import tax.

Another reason for this delay is the challenge in finding suitable local partners to help with distribution and marketing. Foxconn’s possible local partners include the major manufacturer of consumer electronic goods, Hartono Istana Teknologi; state-owned cellular network firm, Industri Telekomunikasi Indonesia; or Indonesia’s largest telecommunication provider, Telekomunikasi Indonesia. But the government minister said on Monday that they might look for new candidates for Foxconn’s local partners to help solve the issue.

There was also a third reason stated by the ministry, which is the issue of the land for the factory. But so far no further details are available about that. A report from the Taiwan News Agency, (cited by the AFP), said that Foxconn also has concerns regarding insufficient measures against counterfeit gadgets in the country.

The Foxconn spokesperson reassured the public that they are committed to building a plant in Indonesia, and that this is just a postponement. The Foxconn representative added that there is no time-frame or spending target set for the project just yet. The Indonesian ministry stated that the initial investment made for this project may be as high as US$3 billion.

[Sources: Jakarta Post, WSJ, Republika, AFP, and Reuters, via e27]

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