As the world’s largest contract electronics manufacturer by revenue, Foxconn is a highly sought-after prize for countries seeking investment. About 900,000 people are employed by the Taiwan-based powerhouse during peak manufacturing periods in its vast network of production facilities. 

The company also epitomises the growing role of free zones, such as special economic zones (SEZs) and free trade zones (FTZs). Data from fDi Markets shows that Foxconn has been among the largest free zone investors globally since 2019. The company tells fDi that roughly 60% of its 205 global manufacturing campuses are located in free zones. 

Kathy Yang, Foxconn’s chief trade compliance and logistics officer, spoke to fDi about the benefits of free zones and why they are still valuable tools for countries seeking to attract investment and promote economic development.

Q: Do free zones help Foxconn to make an investment decision?

A: Many countries want to attract more foreign companies to do some investment. Foxconn is obviously a very big target, and we receive a lot of invitations from countries [to invest]. But there are a lot of complicated issues we need to consider before we make a decision, such as tax, the business environment, subsidies, resources, labour costs and supply chain costs. 

We always consider market size, cost and efficiency [when considering investment]. If specific countries can provide us with flexible or friendly tools [like free zones] that will be very helpful to make our decision. It has become very standard practice for countries to use FTZs and SEZs if they want to attract big companies to invest. Leveraging free zones allows us to stay ahead in a competitive market, optimising our global supply chain while driving cost efficiency and compliance excellence.

Q: Are free zones more important for Foxconn given the state of the global economy?

A: Definitely. Countries realise that physical manufacturing or production is very important. The new concept of the regional manufacturing centre is booming in many countries, including India, Malaysia, the Philippines and Indonesia. FTZs and SEZs can provide a lot of benefits to foreign companies. 

More than half our campuses are located in free zones because it is the nature of the business. A lot of emerging countries want to support their own GDP and introduce more high-tech industries. It is a key reason why countries, from Indonesia to India, are building such FTZs and SEZs. If you want to compete, having these free zones is essential. 

Free zones will be very important in the future to a lot of companies when they want to move into other countries.

Q: What are the main benefits of free zones?

A: The first is tax exemption, deferrals and incentive programmes. Second, free zones are very good for cost-effectiveness. FTZs can provide good facilities and policies for some processes, such as used machinery. Some countries do not allow imports of machines that are older than five years. But FTZs can offer exemptions, so that is helpful for companies to refresh their assets. 

Third, FTZs always provide a more flexible and friendly environment, like with custom brokerage processes. In free zones, companies also don’t need to pay duty or tax for raw materials. You can engage in production activities until finished goods are complete and then sell to the market before having to pay. These kinds of tax deferrals are very important for companies’ cash flow. 

Q: What would you say to critics of free zones?

A: Some people will criticise them, but free zones do not cover whole countries. They are usually [demarcated] small areas. If they don’t work, countries can turn down this policy, because it is not a nationwide change. Free zones are a very good tool to attract investment, create more jobs and support economic growth. For cities that are not in coastal areas, free zones can bring more foreign companies because of their specific benefits. 

This interview was edited for brevity and clarity.

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This article first appeared in the October/November 2024 print edition of fDi Intelligence