Foxconn Reveals Plan for Blockchain Supply Chain Domination
One of the world's largest tech employers is now in the blockchain business.
Foxconn – best known for manufacturing Apple's iPhone – last week demonstrated a blockchain prototype that resulted in $6.5m in loans being originated to members of its massive supply chain. The company has since laid out plans for a global network of nodes that could help non-bank lenders make direct loans in supply chains globally.
Called Chained Finance and operated as a separate entity, the spin-off project is designed to connect non-bank lenders with suppliers who don't typically deal directly with financiers, according to Jack Lee, CEO of Foxconn financial subsidiary FnConn.
In conversation with CoinDesk, Lee further elaborated on the savings that he believes could eventually result from cutting out commercial banks and other third-party money-suppliers.
If successful, he said, the savings could trickle down to the entire supply chain, resulting in fewer work stoppages due to lack of funding, and, in the most extreme scenarios, even prevent the closure of entire factories.
"We think all the supply chain, not just supply chain finance, can be handled by blockchain, [which] will make the whole business transaction easier to validate and enhance the efficiency of the whole ecosystem."
Tacking funding delays
Though Chained Finance is sponsored by Foxconn as its first "core supplier" and Dianrong as the first P2P lender, Lee expects the independent company will onboard clients in China and around the world.
He described the early implementation of Chained Finance – revealed at the LendIt conference – as part of an educational process designed to help teach small business suppliers about the technology.
For example, in the traditional supply chain lending space, a so-called 'first level' supplier will contact a lender such as Dianrong to ask for a loan, frequently just to pay a second- or third-level supplier.
With suppliers going as deep as 13 layers in some of the more advanced global supply chains, these loan funds can take days or weeks to reach the actual manufacturer in need.
In the meantime, the waiting recipient may not be able to pay its employees and be forced to close, according to Dianrong co-founder Soul Htite, who helped develop Chained Finance.
For this reason, Htite explained in the LendIt press event, he thinks of the blockchain solution as more than just a way to better handle loans.
"Many of them have tried to explain to me they are victims of this inefficiency and every year some of them shut down, and they will start again. So what we're really trying to do here is not a loan, but a full cash-flow solution."
Connecting the chain
Stepping back, it's important to note that Hon Hai Precision Industry Company (the Taiwan-based firm that trades as Foxconn) is one of the largest employers in the world, with some tallies putting its headcount in excess of 1 million people.
But with an estimated 30,000 suppliers providing parts for products manufactured for Apple, Samsung and others, the company still has a long way to go before Chain Finance's early loans represent a significant percentage of its parent company's revenue.
As part of that growth, Htite said the company is currently looking to onboard 'core' suppliers — like Foxconn – for free.
The plan is that, prior to taking over a blockchain node or being given credentialed access to the platform, a core supplier would hand over its data to Chained Finance, which would then onboard its suppliers, and so on.
Instead of charging these suppliers to join, Chained Finance, will charge P2P lenders a fee for gaining access to the new system.
"We connect the first one, with the second one, with the third one, with the fourth one," said Htite, adding:
"We enable them to access a bigger lending space in an addressable market than they did before."
Building the platform
On stage at the conference, Lee and Htite explained that blockchain-based supply chain products will initially be aimed at the tech and auto industries.
Htite later expanded on the statement, adding that technology is the number-one priority, followed by the auto industry, with suppliers to the garments industry also being targeted.
What the three industries have in common, Htite said, is a relatively shallow pool of suppliers, which he contends is necessary to accommodate the blockchain platform’s early stage of development.
Conceding the limitations of the platform, Htite said that after the demo he was approached by a representative of the oil industry, which he said has as many as 13 supplier layers.
"As interesting as it is," he said. "I don’t think we have the capacity to change the whole world. We want to be realistic and just focus on these [three industries]."
When pressed about the technical specifications of the test, Dianrong CEO Kevin Guo explained that the number of nodes required was "small" and managed entirely by Chained Finance.
Further, Htite mentioned support for bitcoin, ethereum and Hyperledger, though he didn’t specify which of Hyperledger's several open-source codebases were used. He did, however, indicate that his company's decision to join the Hyperledger consortium was related to the supply chain financing product.
China, then the world
Currently, the Chained Finance team consists of 40 employees.
"The majority of them will be developing material to explain the value and the need to onboard more and more suppliers," Htite said.
As the operation grows, it's not just the employee count that is expected to increase.
In addition to supply chain finance, Lee said he expects to expand into supply chain logistics and procurement, which would position the operation in even more direct competition with Maersk's project.
Current expansion efforts are being taken forward slowly, as the Foxconn spin-off tests the volume capacity of various blockchains that can interoperate with the Chained Finance platform.
Yet, in as little as two years, Lee said, the project could expand to India, with Africa following shortly thereafter.
Asked about rumors reported by Bloomberg that Foxconn might open a $7bn factory in the US, Lee wasn't able to respond, but he did say he expects to be able to offer US suppliers blockchain-based trade financing in as little as five years.
Should that happen, the movement of so much international lending activity to a trusted blockchain could eventually even increase trust between US banks and banks in China, he said.
And if Foxconn actually opens a plant of that size in the US, Lee said it would strengthen Chained Finance's position.
"If Foxconn has more factories in the US ... this same concept can still apply, or even more easily apply."
Disclosure: Foxconn is an investor in Digital Currency Group, CoinDesk's parent company.
Image via Michael del Castillo for CoinDesk
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