5 ways Foxconn could help Madison

Economic development experts say the Capital City should benefit from the Taiwanese company’s $10 billion Wisconsin investment.

From the pages of In Business magazine.

Forget for a moment that Foxconn Technology Group plans to build a massive LCD screen electronics plant more than 100 miles away from Madison in the Racine County village of Mount Pleasant, just east of Interstate-94.

Let’s not dwell on the fact the deal to bring them here was brokered by two public officials — President Donald Trump and Gov. Scott Walker — who aren’t very popular in Dane County.

Perhaps we should avoid a prolonged discussion about the nearly $3 billion in taxpayer incentives it took to lure the Taiwanese manufacturing giant to southeastern Wisconsin, an arrangement that has plenty of skeptics who worry that Wisconsin taxpayers will get left holding the bag.

Skepticism aside, local economic development officials believe Foxconn’s $10 billion investment will have beneficial ripple effects for Greater Madison — perhaps in ways that we cannot now envision.

By now, anyone who has been following the news has been told that Foxconn, a maker of liquid crystal display screens used in smartphones and potentially in technology such as self-driving cars, plans to employ up to 13,000 workers and, according to Gov. Walker, its investment also could create another 22,000 indirect or induced jobs.

Time will tell, of course, but we spoke to the following executives to get their take: Tom Still, president of the Wisconsin Technology Council, a science and technology advisor to the governor and the Wisconsin Legislature; Kurt Bauer, president and CEO of Wisconsin Manufacturers and Commerce; Zach Brandon, president of the Greater Madison Chamber of Commerce; and Jack E. Daniels III, president of Madison College.

They identified the following five ways that Wisconn Valley, as Walker calls the Foxconn development, could help Madison.

#1: A l-o-o-o-o-ng supply chain

The most significant benefit to Madison, and the state as a whole, is the size and scope of Foxconn’s supply chain. The high-tech manufacturer will likely use hundreds of suppliers across Wisconsin, and at least one-third of its expected annual spending, estimated at $1.4 billion, will come in Wisconsin.

“It’s a win for southeastern Wisconsin and therefore has an effect on the overall ecosystem of Wisconsin,” Brandon says. “That word [ecosystem] is important because the whole state is in a symbiotic relationship. As Madison does well, so does the rest of the state; if the rest of the state does well, so does Madison.”

Any supply chain is almost certain to include Dane County, Still agrees. “This is a leading technology county,” he states. “It’s one of the top two or three manufacturing counties [in Wisconsin]. It’s one of the top agricultural counties. It’s a center, a hub of transportation and logistics. So the supply chain aspect of Foxconn, especially as it ramps up, cannot help but touch Dane County.

“And oh, by the way, construction, engineering, and design. There is a cluster in Dane County that is of national significance, really, in terms of expertise.”

Bauer notes the multiplier effect of any manufacturing facility is great, and it’s even greater with Foxconn given its size — a 20 million-square-foot campus — and the products it’s going to produce. “These LCDs require quite a bit of technology and quite a bit of raw materials,” Bauer states. “There is a research and development side, there is a supply chain side, and there is vendor-contractor. Anything from materials to food service is going to be needed in a plant that large.”

By the first week of October, the WEDC’s Mark Maley reported there were 260 companies statewide that had signed up to be part of the Foxconn supply chain.

Multiple companies have approached Bauer, including some in Madison, that offer an array of products, and they want to network with Foxconn to determine whether they are a good fit to do business together. WMC plans to organize a business vendor fair to give would-be suppliers a chance to meet with Foxconn representatives, exchange business cards, talk about their company, and show what they are capable of doing.

“Foxconn is going to need a lot of help because this will be the only LCD manufacturing facility outside of Asia, and so they are going to have to start from the ground up,” Bauer says. “They are not going to want to bring things in from Asia to supply this plant. They might initially have to, but by and large you’re looking at a supply chain that’s going to be located within 50 miles or so of this facility.”

(Continued)

#2: Health care synergies

Still cites the company’s broad interest in health care, including a bio-health and science group it calls the M Group, which is significantly aligned with what’s happening in Dane County. That alignment includes:

• Oncology: “Currently, we have the Carbone Cancer Center, and a number of companies that are working in that space,” Still notes.
• Regenerative medicine: “This [Dane County] is a hub for that through stem cell research and other offshoots,” Still states, “especially when you think of companies like Stratatech and their artificial skin.”
• Medical imaging: “That’s core to a lot of what happens in Dane County companies large and small,” Still says. “That’s another area where they have great interest, especially because of the 8K–5G imaging technology, which stands to dramatically improve medical images in detail and in depth.”

Would Foxconn locate a related facility in Dane County? Quite possibility. Still also notes that company representatives have been on the ground here, they have met with a number of companies and researchers, and they are certainly doing their homework in terms of determining all that Dane County has to offer.

“They have talked, or alluded to all along, that they would build multiple facilities, and the governor has, as well,” Still recounts. “I don’t have first-hand knowledge that would suggest a facility will be built in Dane County, but the possibility certainly exists because of the alignment of their health care interest with what Dane County does well.”

In addition, members of the Foxconn team have degrees from UW–Madison and UW–Milwaukee. “Within the organization, they probably are in other roles,” Still notes, “but Foxconn has done business with UW–Madison and is otherwise familiar with the capabilities there.”

David Reinke, owner of Liberty Business Park in Verona, cites the possibility of a medical manufacturing and research facility here. He notes that a Foxconn investment of up to $700 million has been talked about for Dane County, perhaps at one of the three WEDC-certified sites in the county, or at other Wisconsin sites. A decision on where to locate the facility is not expected until 2018.

“It would bring a lot to the county,” Reinke states.

With a total of 225 available acres on the 253-acre Liberty Business Park site, Reinke happens to own the largest of the certified sites in the county. The other local WEDC-certified sites are DeForest Business Park and North Mendota Energy and Technology Park in Westport.

#3: Educational attractions

While the UW–Madison, UW–Milwaukee, and Marquette University engineering schools will be turning out talent for Foxconn, so will vocational and technical schools. The most immediate beneficiary will be Gateway Technical College in Kenosha, which is located just a few miles from the preferred site, but Gateway will serve as the hub while schools like Milwaukee Area Technical College and Madison College play strong supporting roles.

Daniels notes that with recent facility upgrades on its Truax campus and plans for a new south Madison facility, Madison College is in an ideal position to be part of the workforce solution. Asked if Madison College and other technical colleges outside the immediate vicinity of the future Foxconn campus feel the same sense of urgency as those technical colleges in southeastern Wisconsin, he indicated that every vocational-technical institution would play a role.

“When you think about the number of employees that Foxconn needs to hire — pre-construction, construction, and post-construction — they far exceed what any of our individual technical colleges can provide,” Daniels states. “We’re going to collaborate as much as we can with each other in trying to meet those needs.

“Gateway will be the lead because it’s right there, but any time there is assistance and the necessity for collaboration to occur, I’m sure all 16 of us will be involved in that.”

Bauer called it a great opportunity to retain UW–Madison graduates so they don’t feel the need to go out of state to begin their careers. The UW may be able to attract more engineering students because Foxconn has changed the perception of Wisconsin away from a Rustbelt and agriculture-dominated economy to more of a modern, technology-fueled economy. “I think people might be surprised by some of the ways,” Bauer states. “It will attract students to the UW engineering program and ultimately those hoping to get into Foxconn or related supplier companies.”

Bauer notes that University of Wisconsin System President Ray Cross has been very supportive, and technical school officials at Gateway, MATC in Milwaukee, and Waukesha County Technical College in Waukesha are all very excited about the prospects of this development.

“In addition to proximity to the transportation hub in Chicago, and access to Lake Michigan water and Wisconsin’s superior business climate, they wanted access to our institutions of higher learning,” he says. “For both technical and for advanced degrees, they are going to need engineering and chemical engineering. We are certainly well equipped to meet that need.”

Interviewed in early October, Daniels was still awaiting word on the specific skills and worker training Foxconn needs, but he has a general idea. Daniels notes that Madison College is well positioned in the areas of advanced manufacturing and robotics, and in partnership with four-year institutions it could help create a pathway for future engineers. He also suspects there will be technology jobs that do not require a bachelor’s degree.

Then there is the sheer number of construction jobs required — the project would create 10,000 new construction jobs, according to the state — at a time when construction firms already are scrambling to find labor. With that, Daniels posed a question he must also answer: “How are we going to participate in having some of our students actually doing some of that work, knowing that it’s going to take quite a bit of labor and it’s going to take much more than we have here?”

(Continued)

#4: Venture capital

A fourth possibility, according to Still, is that the development will either directly or indirectly add to the venture capital landscape in Wisconsin — directly because in addition to building a supply chain, the company might decide to invest in Wisconsin in other ways.

Indirectly, he adds, by attracting investors to Wisconsin to see what’s going on. At the time of this interview, Still was paging through the latest edition of Site Selection magazine, which featured Wisconsin’s coup on the cover with the title, “Fox Catcher: How Wisconsin bagged the $10 billion deal.” That kind of publicity, he adds, can only increase the awareness of Wisconsin as a good place to do business and as a hub for technology, and will enhance our ability to catch the eyes of investors.

“In my conversations, the Foxconn people have been very good about recognizing that Wisconsin has a very broad technology base, from biotech to software, from health IT to gaming, and from advanced manufacturing to virtual reality. They are favorably impressed by the technology that’s here and how diverse it is. The word is going to get out, not only within their company but also in the larger investment community.”

Madison, he adds, already attracts the majority of venture capital deployed in the state, and so it should benefit from the word-of-mouth factor.

#5: Tax base

Bauer believes that people are discounting the infusion to the tax base, which in his words could be “absolutely incredible.” Should the campus be built to that 13,000-employee scale, the state would earn $700 million every year, which translates into more income, sales, and property tax revenue.

“When you look at the stresses we have on our budget — we just passed one — and in relatively good times right now, when we’re looking at the demographics of the state going away from working-age populations, we have fewer people contributing to the income tax. When you look at the UW System, transportation infrastructure, Medicaid, and K-12 funding, all are dependent on a strong and vibrant tax base. When you have a strong manufacturing base in southeastern Wisconsin like Foxconn, that can be a major infusion into that tax base to help support some of those budget items.

“We also have proximity to northern Illinois and I would imagine it could lead to an exodus out of there in terms of people moving because our state is better managed than theirs. I can see a building boom, a residential building boom in that area of the state that would add to the tax base.”

Bauer cites a lower cost of living compared to Illinois, lower crime, better schools, and great small and medium-sized communities — all of which will be showcased in a forthcoming marketing campaign. He has spoken with Lake County Illinois officials, and their comment to him was that “we’ll give you workers but not residents,” and Bauer’s reply was Wisconsin prefers workers and residents because it wants those taxpayers to cross the border. “Illinois is losing more population over the last three years than any other state, according to the Census Bureau,” Bauer says. “Wisconsin has been the second biggest recipient of those refugees.”

Demand side economics

At the time of this writing, a contract approved by the Wisconsin Legislature and signed into law by Walker still needed the approval of the Wisconsin Economic Development Corp. board. As the project proceeds, Brandon argues that for this development to work, the state must produce more talent, continue to change perceptions from an agriculture and manufacturing economy to an advanced manufacturing and high-tech economy, tell its story in a compelling, authentic way, and not put additional incentives into the supply chain.

“The way this should work is that the investment taxpayers are making in the recruitment of Foxconn creates the demand, and that demand should then create a supply network,” Brandon states. “If we end up in a situation where we now have to create incentives for every single piece of the supply chain, the demand on that becomes economically prohibitive.”

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