Founded in 1974, Hon Hai Group, like many small and medium-sized enterprises in Taiwan, focused on export-oriented manufacturing and took orders for plastic parts in the first ten years. It was small in scale, weak in strength, and not well-known. In 1983, Hon Hai introduced equipment from Japan to develop computer connectors and made it its main business. Two years later, Hon Hai founded "Foxconn". By 1991, Foxconn not only successfully went public, but its connector business had jumped to first place in Taiwan and sixth in Asia. However, compared with the big brothers in Taiwan's electronics industry such as Volkswagen Computer and Delta Electronics, Hon Hai is still a junior.

Foxconn's real glory came from mainland China. In 1988, taking advantage of the historic opportunity of ending the isolation between the two sides of the Taiwan Strait and resuming private exchanges and cooperation, Terry Gou founded a small business called "Foxconn Ocean Precision Computer Plug-in Factory" at the foot of Bengshan in Xixiang, Shenzhen, taking the first step in its development in the mainland. In the following 20 years, Foxconn made rapid progress and quickly grew into the world's largest electronic product manufacturer. In 2012, its total import and export volume was US$244.6 billion, accounting for 4.6% of mainland China; 15 of its subsidiaries were selected as China's top 200 exporters. It has jumped to 43rd place in the Fortune Global 500; and it has been ranked first in the list of Taiwan's 1,000 manufacturing companies selected by CommonWealth Magazine for eight consecutive years.

What has made Foxconn successful in mainland China?

It is undeniable that Foxconn has precision mold technology and many invention patents, but more importantly, it has reduced the manufacturing cost of its products by taking advantage of the mainland's comparative advantages in cost and policy in the early stage of reform and opening up. In the late 1980s, benefiting from the economic boom, Taiwan's land prices rose steadily, and cheap land became less and less; in contrast, mainland China had a large amount of cheap land at that time. In 1993, Guo Taiming took a fancy to Shenzhen Longhua, where there was still a field of weeds that were taller than people. Standing on a high place, he waved his arms and said to the local officials: "I want all the land I can see." At that time, the monthly basic salary of Taiwanese workers exceeded 2,500 yuan, which was five times that of mainland workers. Even so, in Taiwan, you can't hire people even if you have money, but outside the factories in mainland China, migrant workers can be seen everywhere. They are not only young and capable, but also can be called at any time. In order to actively attract investment, many local governments not only prepared land for manufacturers, but also relaxed the preferential policy of "two exemptions and three reductions by half" to "five exemptions and five reductions by half", that is, tax exemption for the first five years and only half tax for the next five years. If you continue to invest after ten years, you can continue to enjoy the "half-tax" preferential treatment. This is probably hard to imagine in Taiwan. The low-cost comparative advantage is an important reason why China's economy has maintained 30 years of rapid growth, and it is also a key factor in China's foreign trade to maintain a long-term high-speed growth and surplus pattern. Foxconn is undoubtedly a beneficiary. In this way, Foxconn has received wave after wave of orders from various high-tech companies, from laptops to iPhones, from digital cameras to LED lighting. Just like a diligent chef, relying on low prices and delicious dishes, attracting customers to order endlessly, and constantly cooking. Customers have a good appetite, and they can eat as much as he cooks.

However, if one day, customers can't eat anymore, what should he do? For quite a long time, Terry Gou didn't have to worry. However, when the time came to 2008, this change came suddenly, catching Foxconn off guard.

On June 1, 2009, General Motors of the United States officially filed for bankruptcy. This is another major event caused by the global financial crisis after the collapse of Lehman. If the collapse of financial companies such as Lehman is not closely related to Foxconn, then the bankruptcy of General Motors has sounded the alarm for it. After all, both are labor-intensive companies that rely on technology to make a living.

At the same time, the economic environment in mainland China is undergoing profound changes. On the one hand, the cold and fever in Western countries has led to a sharp drop in demand and a sharp decline in export orders. The appreciation of the RMB has exacerbated the sluggishness of exports. Affected by this, many small and medium-sized enterprises in the Pearl River Delta that rely on foreign trade have either laid off employees and cut wages or closed down. On the other hand, the rising prices caused by excess liquidity have led to rising land and labor prices. This cost-push inflation has doubled the pressure on export-oriented enterprises that rely on low costs to make money and made it difficult for them to survive.

The day when customers can't eat may come. In the second half of 2008, Foxconn turned from profit to loss, with a loss of 20.86 million US dollars after tax. Such an ugly financial report is of course the result of a decrease in orders and insufficient production caused by sluggish external demand. This objectively raised the average cost.

With the dilemma imminent, where should Foxconn go?

Transformation and upgrading is the prescription prescribed by the mainland authorities for enterprises under the global financial crisis. Guo Taiming should have considered this a long time ago. As a contract manufacturer, Foxconn survives in the gap between upstream component designers and downstream product sellers. The contract manufacturing fee it earns accounts for a small proportion of the final selling price of the entire product, and the profit is meager. In order to change this situation, he frequently took action.

--Investment areas "Go west and north". In Guo Taiming's view, the economic development stage of inland areas lags behind that of coastal areas, and there are still comparative advantages in labor and land costs, as well as investment policies. Therefore, since 2010, Foxconn has accelerated its investment in inland areas. Factories in Chongqing, Chengdu, Ordos, Zhengzhou, Langfang and other places have either been put into use or started to inject capital. At the same time, Foxconn plans to reduce the number of employees in the Shenzhen factory. The relocation of investment areas can certainly allow employees to change from "working outside" to "working at home", but low wages and boring environment continue.

In recent years, the minimum wage standard in inland areas has been continuously raised. The only preferential policies that inland areas can offer are some preferential policies introduced by local governments, such as complete supporting facilities, tax refunds, help in recruiting workers, land price reduction, etc. Its cost advantage over coastal areas probably comes from this. In the future, when the economic level of inland areas catches up with that of coastal areas, and when local governments are unable to maintain preferential policies, where will Foxconn move to? From the end of last year to April this year, the continuous shutdown, shuttle bus accidents, and employee falls in Zhengzhou factories are warning Foxconn with facts: relocating investment regions may not be a permanent solution.

-- "Ten Thousand Horses Galloping" at the sales terminal. In July 2010, Foxconn registered and established Zhejiang Jiaxing Wanma Pentium Trading Co., Ltd., carefully selecting more than 50 old employees with more than 5 years of service. After training, each person only needs to pay 100,000 yuan for sample goods to open a store and enjoy free decoration and 300,000 yuan interest-free loan provided by Foxconn. Guo Taiming's dream is to open 10,000 Wanma Pentium digital stores in cities below the third tier within five years. However, sales and OEM are two different things after all. Whether it is after-sales service or logistics system, Foxconn cannot support such a huge stall.

As of November 2011, the number of Wanma Pentium stores in China reached more than 280. In October and November of that year, more than 20 stores closed due to heavy losses. Some other stores have too few customers due to their remote locations; some have limited supply channels due to their high-end product positioning, and the prices are not cheap; some stores are too small, with small but complete sales varieties, and cannot form scale and brand effects. In short, sales profits cannot fill the rigid costs such as employee wages, water, electricity and property. Although the market in cities below the third tier is vast, with the entry of electrical appliance malls such as Suning and Gome, and the growing development of e-commerce, Wanma Pentium's living space is becoming increasingly narrow.

--Investing in Sharp is hungry for brand. Sharp, which was once famous in the 20th century, was in urgent need of funds to fill its losses due to outdated products and declining demand for LCD panels. Although it was in trouble, Sharp's panel technology was still the world's leading and its brand influence was still as strong as before. Terry Gou hoped to cooperate with Sharp by acquiring shares so that both sides could get what they needed. When Samsung and Apple were popular in mobile Internet terminals, Terry Gou was seeking to enhance Foxconn's core competitiveness and get a share in the field of research and development and design. He chose Sharp for this reason. However, due to Sharp's concerns about the possibility of being acquired and Foxconn's business model, the negotiations between the two sides were difficult.

Just when Foxconn was in a critical period of difficult transformation, an unexpected thing happened-Apple and Foxconn had been "as close as brothers" for a long time. Foxconn was the exclusive foundry for Apple's early iPad and iPhone, providing Apple with cheap and high-quality products; Apple's brand and technological advantages made Foxconn famous. However, in recent months, Foxconn's Apple orders have dropped sharply.

Where did the lost orders go? It is reported that Pegatron, a Taiwan-based foundry company, although not as big as Hon Hai, has won a large number of orders for hot-selling products such as iPhone 4S and iPad Mini with a more aggressive low-price strategy.

Apple's practice of diverting orders is not disloyal. Diversifying orders will help expand production capacity and earn more profits. On March 15, 2013, Apple returned 5 million mobile phones to Foxconn for "rework" on the grounds that the appearance did not meet the standards or the functions were malfunctioning.

The "rework" of so many mobile phones means a significant increase in labor costs. Based on the calculation of 200 yuan per unit, Hon Hai must pay 1 billion yuan for the incident, which is equivalent to half of the profit of the digital product group responsible for iPhone foundry in 2012. At the same time, Hon Hai must improve the quality monitoring standards of its mobile phone production line, and for this, it must either increase employee salaries or be prepared to deal with shutdowns and disputes.

The crisis of trust in the upstream R&D end, the fierce competition from peers, and the ineffectiveness of the downstream sales end are all the transformation pains that Foxconn must go through. How Foxconn can get out of the current situation will once again test Terry Gou's wisdom.

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