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Hon Hai suffers setback in establishing retail chains

Hon Hai suffers setback in establishing retail chains

Staff Reporter

2014-06-19

Pan International Electronics, a subsidiary of Taiwan-based Hon Hai Precision Industry (also known as Foxconn), has already dumped its 48% stake in consumer electronics retail chain Cybermart, according to Shanghai’s China Business News, citing Taiwanese media reports.

It means that Hon Hai, the world’s largest electronics contract manufacturer, now only operates in the e-commerce sector in China, the paper said.

Hon Hai last year unveiled plans to establish the largest retail sales network for electronics on the mainland in an ambitious attempt to transform itself from a contract producer to a retailer, wholesaler and technology service provider. However, with setbacks in opening retailing channels, the road to establishing its own marketing channels seemed to have been tougher than the group anticipated.

For Hon Hai CEO Terry Gou, e-commerce was the only channel left to help expand his empire on the mainland. At a shareholder conference last year, Gou stated that the trade-in-services agreement between China and Taiwan, which was signed in June 2013, covered e-commerce. Against the backdrop, Hon Hai would spare no effort to make inroads into the growing e-commerce industry in mainland China, he said.

However, as the controversial pact remains stalled in Taiwan’s Legislature, the company reported slow progress in the development of its e-commerce platform. Sources from Hon Hai’s e-commerce sector told China Business News that Money Link, which Gou set up in 2013 to capture a share of the Chinese e-commerce market, was run by an number of individuals who were inexperienced in handling e-business operations.

There is a problem of experience, the sources told the paper, noting that some products which Hon Hai had manufactured under contract had sold well overseas but not in China.

The Taiwan-headquartered company had sold its brand name products in the mainland market through its retail chains, but the approach failed because it was only good at playing the role of a contract maker. “It was not easy for it to turn to the field of research and development,” household electronics expert Liu Buchen said.

“Foxconn (Hon Hai) is now walking on two legs — one big and the other small,” Liu said, explaining that the big leg represented contract production and the small one signaled brands. If the enterprise wanted to have a reasonable industrial structure, it had to fashion two legs of the same size, Liu added.

 

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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