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Brazilian iPad production may be more costly than expected

A Reuters story in the New York Times yesterday noted that iPad producer Foxconn's plans to move iPad production to Brazil may be slowed by higher than expected production costs in the South American country.

Brazil had touted the fact that they had lured Foxconn to the city of Jundiai to build Apple's tablets. This would allow the country to start developing a technological industry similar to that of Korea and Taiwan. However, Brazil has some issues -- a largely unskilled labor pool and poor infrastructure -- that keep it from moving quickly into high-tech.

The result is that the Foxconn plants in the country will start by simply being assembly points for devices that are built from parts manufactured elsewhere in the world rather than being "home-grown." Brazil is also plagued with a top-heavy bureaucracy and high taxes that tend to drive businesses away.

Foxconn is producing iPhones in the country already, and hopes to start constructing iPads by the end of the year for sale within Brazil. The Brazilian government is making concessions, such as reducing tariffs on imported components, and is also rumored to be working with Foxconn on priority customs access, tax breaks and subsidized loans from a state bank to get the company to begin producing larger, more complex devices in the country.

But labor costs in Brazil, part of the value added to the materials used to construct Apple's products, are almost double what Foxconn pays employees at its facilities in China. That could stymie further expansion of Foxconn's plans in Brazil unless other costs are lowered enough to cover the difference.

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