Foxconn’s $12bn Brazil Expansion Stalled In Negotiation Stage

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Earlier this year it was reported that Foxconn had decided it was going to try to diversity its global holdings by establishing an iPad factory in Brazil. Their reasoning seemed fine: the economy is expanding, there’s a tech-savvy populace, and the government, they figured, would be game for few little sweetheart deals to get the ball rolling. As it turns out, not so much.

“The project for a Brazilian iPad is in doubt,” said one Brazilian official, speaking on terms of anonymity to Reuters. Foxconn is “making crazy demands” and the Brazilian government appears to be unyielding on tax and funding.

Brazil may be overplaying its hand here. Foxconn employs around a million employees last I checked, and manufactures some of the most popular electronics in the world. Brazil has grown relatively rich on its natural resources, but joining first-world industry in such a big way was always going to be hugely expensive. Shying away from the cost (instead of floating it with potential growth as collateral, like everyone else) shows they just aren’t willing to do business the way the big kids do it.

Not only does an iPad-producing factory require an enormous initial investment, but it requires a workforce and infrastructure that Brazil appears to lack currently. Training and education are reportedly inadequate, and Brazil clearly isn’t at the stage of industrialization that China is, in which entire cities are built around factories. $12 billion was just the cover charge — once you factor in a decade’s worth of tax breaks, kickbacks, road and power improvements, housing subsidies, and so on, the real cost starts to emerge.

The best bet, it seems, is to start spreading the costs around in the private industry. The government and construction industry is already stretched thin preparing for the 2014 World Cup and 2016 Olympics, so it might be that laying the foundation and establishing joint ventures with existing tech companies (for shared resources, campuses, and improvements) is the only way this deal will go through. Either that or they bag it and start again with slightly less ambitious plans — or perhaps Foxconn will simply find a partner who doesn’t mind playing the game.