Opinion
Foxconn faces tough competition from rivals
By Lin Ruiming (China Daily)
Updated: 2009-11-30 08:02
China is expected to leapfrog into the world's No 2 slot in the consumer spending market by 2030, up from its current No 6 position.
The Chinese government is easing regulations on the inflow of foreign capital into the Chinese retail market, opening its door wider for foreign companies to make bigger forays into the distribution business in China.
Foxconn is also exploring ways to shift its business model from an "OEM-centric" model towards an "OEM + distribution" model to create, more opportunities in the Chinese market. With its entry into the Chinese distribution market, Foxconn could make both production and distribution available in China, which would contribute to saving logistics costs and an increase in OEM orders.
It remains to be seen if Foxconn's launch into the Chinese distribution market will yield successful results or not, considering the fierce competition in the Chinese 3C distribution market.
Amid stiffer competition in the 3C product distribution market, the number of franchise retail stores run by major players totals more than 10,000 in China today.
To realize its plan of establishing 10,000 stores within the next three years, Foxconn will have to set up 278 shops per month on average, much higher than the previous record of 52 (among 3C retailers) set by Suning.
Another factor that makes the future of Foxconn uncertain is that Internet retail distribution companies, which are growing faster than their offline-based rivals, are also expected to expand their business coverage to include offline operations.
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Plus, there is a gap between Foxconn's investment plan and market situations. It would be difficult for Foxconn to establish and operate 10,000 3C stores with the planned 10 billion Taiwanese dollar investment.
Considering that 10 billion Taiwanese dollars is worth about 2.1 billion yuan, the average per-store investment stands at a mere 210,000 yuan.
This is much lower than those of Gome and Suning, for which the average per shop installation cost was more than 2 million yuan.
To realize its "10,000-store" plan, Foxconn also needs to straighten out numerous legal and procedural hurdles, as well as strict screening by the Chinese Ministry of Commerce and local municipal governments.
Even if Foxconn succeeds in realizing its plan, its lack of expertise and experience in the retail distribution business would make it difficult for Foxconn to achieve rapid growth.
The author is a researcher with Samsung Economic Research Institute (China). The views expressed here are his own.
