Hon Hai Wins Apple Franchise in China

The China Economic News (CENS) reports:

Hon Hai Precision Industry Co., Ltd. has won the Apple franchise in China and will begin to expand distribution network this year.

The company, currently Taiwan`s No.1 manufacturing conglomerate by market revenue, will initially gain market share in China for Apple products via its established outlet Cybermart Digital Square and its consumer electronics business unit, which is led by H.L. Chiang, a former Apple executive.

Industry watchers point out that Hon Hai aims to become China`s No.1 distributor of information-technology products after becoming the world`s No.1 electronics manufacturing service provider, which it hopes to achieve by combining manufacturing with retail.

The dealership project is part of the company`s 2009 agenda. In the New Year, the company will raise rather than cut pay for crucial-technology specialists, boost profit by realizing projects, and expand its China deployment deep into the hinterland from coastal provinces.

So far, three Hon Hai executives, excluding Terry Gwo himself, have announced they will take the symbolic NT$1 as pay.

Gwo pointed out that China`s population of 1.3 billion is the major force behind its domestic demand, justifying the company to tap such market amid the global financial crisis. He believes the worst of the crisis would be over by the first quarter 2009 and, thus, his company still has chance to grow.

Couple of things to note here. First, Hon Hai is once again showing their incredibly flexibility by moving into a completely different business, that of selling electronics commercially. Interesting move. Also, did you see who heads up the division? A former executive at Apple! Maybe there was a little bit of guanxi there! Actually, Hon Hai probably are the best fit for Apple since Hon Hai and Foxconn are the contract manufacturers for Apple the relationship between the businesses is probably already very deep.

Second, did you note that some of the executives are taking NT$1 per year as a token salary! Its good the executives are doing this. They probably have enough money as it is and at least they are trying to create the impression that they are not in it for the money. I wonder if the salary is NT$1 excluding bonuses? Besides, they are probably already flush with money from their shares in the company. Still, I think its a good thing and appearance (face) in Chinese culture is very important.

Third, did you note that Terry Guo(Gwo)believes things will pick up again in Q2 2009? Maybe it will, maybe it won't only time will tell. There are a lot of challenges facing the world economy right now and one would expect the head of a large company to be optimistic about the future, at least publicly. But I do think Hon Hai will get through this crisis OK. Its the smaller EMS manufacturers that need to worry.

Fourth, did you note how Hon Hai intends to penetrate the Chinese market? They want to move inland! This sounds almost colonial in a sense. When the colonials were in China they were restricted to the treaty ports such as Ningpo and Shanghai. Hudson Taylor was the first missionary to go into the Chinese hinterland. Then as now the transportation systems were not as good and so inland China faces many more challenges in their development. The Chinese government is keen to develop the cities in the interior but it is good to see a company such as Hon Hai viewing these areas as a business opportunity.

CENS: Hon Hai Precision Wins Apple Franchise in Mainland China