The Curious Case of Foxconn: Site Selection in the Age of Trump

August 10, 2017

Foxconn

On Wednesday, July 26, Foxconn announced its decision to build a $10 billion manufacturing plant in Wisconsin with the promise to create at least 3,000 jobs. In return, the Taiwanese company will receive $3 billion in incentives from the State of Wisconsin. From the moment the announcement was made in the East Room of the White House, it has caused a bit of a stir in the economic development community. Given that the major players in the decision weren’t able to speak with us, we queried a range of smart people – some on-the-record and some off-the-record – to bring you this special episode of “The Project.”

Andy Levine (DCI): Wednesday, July 26 was a strange day for the economic development profession. Terry Gou, Chairman of Foxconn, a Taiwanese company that is a world leader in consumer electronics gathered with President Donald Trump, Vice President Mike Pence, Speaker of the House Paul Ryan, and Wisconsin Governor Scott Walker to make a big announcement from the East Room of the White House. They took no questions from the media.

Patience Fairbrother (DCI): Foxconn announced its decision to build a $10 billion manufacturing facility, yes that’s billion with a B, for the production of LCD panels in southern Wisconsin. The company promised to create a minimum of 3000 jobs but hinted the number could grow as high as 13,000.

Andy: Over the past week we’ve queried a bunch of smart people, some on the record, some off the record, many of the key players the company for example, as well as the Wisconsin Economic Development Corporation, were not able to speak with us as the details of the project are still being finalized.

Patience: But, we felt the news merited a special episode of the project and that’s what we’re pleased to share with you today.

Andy: So, welcome to Episode 25 of “The Project, Inside Corporate Location Decisions.” I’m Andy Levine of Development Counsellors International.

Patience: And, I’m Patience Fairbrother also with DCI and Andy’s co-host of “The Project.” So, as we dug into the recent Foxconn project three key takeaways emerged that we wanted to share with you now. Take away number one, this is a huge win for Wisconsin. The numbers are staggering. Here’s what Michael Bennett, a well-respected site selection consultant and founding partner at the Avenue Advisory Group had to say:

Michael Bennett (Avenue Advisory Group): If Foxconn lives up to their projections it’s a significant win. There’s really no other way to describe a $10 billion investment, 3000 jobs I think is the number that was put out, and at relatively strong average wage, at about $50,000 a year, I believe. So, you know, that’s a win no matter how you look at it.

Andy: But, on the other side of the coin the $3 billion incentive package raised eyebrows across the economic development community. And that’s take away number two. We spoke to a half dozen consultants both on and off the record and most felt the deal was fair to both the state and the company. Again, here’s Mike Bennett’s perspective:

Mike: Three billion of anything is a lot. But again, as with everything when you dig deeper and look at the economic upside of jobs and investment you can see why Wisconsin or quite frankly any state would come to the table so aggressively. You know, I guess one of the things I try and do is remove all the zeros and think about it in simple terms and you know this is simplifying it perhaps too much but Wisconsin is getting $10 and their giving back $3.

Andy: But, the project and the incentive package certainly had its critics. We spoke with Art Rolnick, a former Director of Research at the Federal Reserve Bank of Minneapolis and currently a Senior Advisor with the University of Minnesota’s Humphrey School for Public Affairs.

Art Rolnick (University of Minnesota’s Humphrey School for Public Affairs): Foxconn was making the right decision for that company. They were coming to the U.S. They were gonna locate somewhere in the U.S. So, very smart on their part to get these states into a bidding war. I think it’s up to seven states that are bidding for these jobs. Wisconsin won on some sense but from a national perspective, $3 billion in public subsidies went to a private company, $3 billion that could’ve been used to lower taxes for all businesses which would’ve been a much better investment for Wisconsin.

Patience: Another concern deals with the possibility that the company may be receiving environmental regulation waivers in addition to incentives from the state of Wisconsin. Again, here’s Mike Bennett.

Mike: The biggest issue I would have is the waivers that were reportedly given to Foxconn related to environmental regulations and the details are a little bit fuzzy. I’m hoping that a lot of that will come out as they continue to debate the final package. But, as I understand it, you know essentially Foxconn would not have to abide by certain environmental checks and balances that already in place. No, I don’t have a problem with an expedited review period or assigning dedicated staff to take them through that process, but to waive them completely really makes me really concerned for what other companies might want and creates a very dangerous precedent in that respect.

Andy: A final point on takeaway number two, Art Rolnick pointed out along with a number of other critics of the deal that Foxconn has defaulted on past promises in terms of job creation and investment. In 2013, Foxconn’s chairman announced the company would invest $30 million and hire 500 workers for a high-tech factory in Central Pennsylvania, that project never move forward.

Patience: Which, brings us to the third and final takeaway from this deal politics played an outsized role in the company’s decision. We spoke with Jeanette Goldsmith, President of the site selection firm Goldsmith Advisory.

Jeanette Goldsmith (Goldsmith Advisory): One thing we know, Foxconn was gonna do an investment in the United States prior to the election. The location of the choice, and I don’t wanna take anything away from the great people of Wisconsin because I’m sure that they worked hard and have spent countless hours on this project, but we cannot ignore the political realities of the fact that it’s Paul Ryan’s home state. And, what percentage of a role that played, if it was 2% or 20% I’m not gonna speculate but we all have to believe that it was an important element in the decision-making process.

Andy: So, as our final thought, we’re going to share a quote from a source that Patience and I spoke with late last week but wanted to stay anonymous. This was a senior economic developer from a state that was a finalist for Foxconn but in the end, didn’t prevail. Here’s what he had to say. “It was strange. Most companies make location decisions from a financial basis. This had a heavy dose of political motivations to it. I mean, when is the last time you ever heard a company location announcement made from the White House? I doubt we’ll ever see it again.” So, from our perspective, this was a strange part of the Foxconn announcement. In the end, five states were listed as finalists for the $10 billion plant, Wisconsin, Ohio, Michigan, Pennsylvania, and North Carolina. All, were battleground states that Donald Trump narrowly won.

Patience: So, we’ll leave you with this final thought. Was Foxconn search and ultimate decision determined for economic reasons or was it an effort to help Trump’s 2020 campaign win a critical state?

Andy: There are really only a handful of people who know the answer to that question and since none of them are talking publicly we’ll just have to keep guessing.

Patience: So, that is a wrap on this special episode of “The Project, Inside Corporate Location Decisions.”

Andy: We wanna thank Mike Bennett, Jeanette Goldsmith, and Art Rolnick for taking the time to speak with us about Foxconn as well as a number of other people who spoke to us off the record.

Patience: The project is sponsored by DCI. We are the leader in marketing places and have served over 450 cities, states, regions, and countries. You can learn more about us at aboutdci.com.

Andy: We hope you’ll keep listening. There are many more projects to come although we’d be surprised if any are quite as large as Foxconn.

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