Dividends and Asian manufacturers look to expand in Mexico

For many years, the global supply system has been focused on China doing the manufacturing and loading the products in containers that can be shipped by ocean, then rail and finally truck to the distribution place and finally go to retailers and eventually the consumer. The supply system has made more efficient and billions of dollars in infrastructure are seen in ports around the world. The supply system allowed companies to save money or spend less, do their design and engineering in Europe and the US and manufacture in China. President Trump did not like it and wanted more manufacturing in the US and set out to change the supply system Has it worked? Did companies rush to set up operations in the US?

In an article by Sumeet Chatterjee, Yimou Lee, and Anthony Esposito of Reuters, the supply system is changing but not the way the President Trump talks about the changes. One of the most popular devices is the iPhone by Apple. Apple does not do manufacturing, they contract it out to other companies such as Foxconn Technology Group and Pegatron Corp of Taiwan.

The companies could have move operations to the US, but they chose to go Mexico to increase their operations. The Trump administration is exploring financial incentives to encourage firms to move production facilities from Asia to the US, Latin America and the Caribbean. The USMCA which the President talks about during the election promotes more locally sourced inputs for tariff-free exports to the US.

In 2017, the President said Foxconn would build a $10 billion plant employing 13,000 in Wisconsin making LCD panels. In 2019, the company downgraded the size of the plant. In April it said it would make ventilators in a partnership with Medtronic.

In Mexico, Pegatron are expecting to announce billion dollar expansions to their plants to build chips and other components. Foxconn is expected to make TVs, servers and parts for the iPhone.

Foxconn is also building a billion dollar plant for iPhones in India.

Foxconn Chairman Liu Youngway told an investor conference on August 12, the world was splits into two and his firm is working on two sets of supply chain to service the two markets. The world factory no longer exists and 30% of its products are made outside of China. That number could rise.

Linking to dividend paying stocks, all over the world if any company is very dependent on one market for the bulk of its revenues there is always a risk. Whether the risk is natural disasters (hurricanes, etc) the economy, government stability, and the list goes on. Diversification of revenues is a good thing unless the company has a monopoly or monopoly like structure such as a utility where it can pass along extra costs every year. During the election campaign, there will be many statements about a perfect world, the world is not perfect but try to separate reality for fiction.

There are more questions than answers, till the next time – to raising questions.

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