Samsung Electronics Co built the world’s largest smartphone business by tapping China’s cheap and abundant workforce, but is now shifting output to Vietnam to secure even lower wages and defend profit margins as growth in sales of high-end handsets slows.
By the time a new US$2 billion plant reaches full production in 2015, China’s communist neighbor will be making more than 40 percent of the phones that generate the majority of Samsung’s operating profit.
The Suwon, South Korea-based company’s second handset factory in Vietnam is due to begin operations in February, according to a Nov. 22 statement posted on the Web site of the local government where the plant is located.
“The trend of companies shifting to Vietnam from China will likely accelerate for at least two to three years, largely because of China’s higher labor costs,” said Lee Jung-soon, who leads a business incubation team of the Korea Trade-Investment Promotion Agency in Ho Chi Minh City. “Vietnam is really aggressive in fostering industries now.”
Hanoi has approved US$13.8 billion of new foreign projects this year through Nov. 20, a 73 percent increase on a year earlier, according to the General Statistics Office in Hanoi. Of this, South Korea led with US$3.66 billion.
Intel Corp, the world’s largest chipmaker, opened a US$1 billion assembly and testing plant in Ho Chi Minh City in 2010. Nokia Oyj said its facility near Hanoi producing Asha smartphones and feature handsets became fully operational in the third quarter.
LG Electronics Inc is building a new 400,000m2 complex to make televisions and appliances as part of a US$1.5 billion investment plan.
“The country is politically stable and has a young, increasingly well-educated workforce,” LG said in an e-mailed statement. “Like [South] Korea, Vietnam understands what it takes to rebuild an economy after a devastating war.”
Samsung’s new plant is expected to make 120 million handsets a year by 2015, said two people familiar with the company’s plans, who asked not to be identified because the matter is private. That would double the current output from the country and compares with the 400 million global total Samsung shipped last year.
With about one-third of the global smartphone market, Samsung may eventually produce as many as 80 percent of its handsets in Vietnam, said Lee Seung-woo, an analyst at IBK Securities Co in Seoul who has been tracking the company for more than a decade.
“The handset business is all about assembling well-sourced components,” Lee Seung-woo said. “The most important thing is manpower.”
After setting up in China in 1992, Samsung now has 13 manufacturing sites and seven research laboratories there, according to its June sustainability report. The 45,660 employees in China make up more than 19 percent of Samsung’s global workforce, the largest source of labor outside South Korea, it said.
Record economic growth that made China the second-biggest economy has fueled wage inflation, pricing many workers out of low-end jobs. The base monthly salary for a factory worker in Beijing was US$466 last year, compared with US$145 in Hanoi, according to a survey of pay conducted by the Japan External Trade Organization.
“The rule of the game is now changing to how much market share you can win over rivals,” LIG Investment & Securities Co analyst Hong Sung-ho said from Seoul. “Many companies are now scratching their heads to figure out how to cut manufacturing costs.”
Samsung’s complex in the Yen Binh Industrial Zone of Thai Nguyen Province, north of Hanoi, will pay no tax for the first four years and half the full rate the following 12 years, the local government’s Web site shows.
While tax breaks and cheap workers are lures that other countries such as India and Indonesia could offer, Vietnam’s closer location to existing Samsung production bases in China and South Korea is an extra incentive, said Than Trong Phuc, managing director of technology-focused investment fund DFJ VinaCapital LP in Ho Chi Minh City.
“Other countries can match or even beat the incentives that Vietnam is offering, but Vietnam is very close to Samsung’s supply chain,” Phuc said. “You see [South] Korean companies everywhere you look in Vietnam, right and left.”
NOTABLE SHIFT: By 2030, 50% of all laptops would be assembled in Southeast Asia, while Taiwan would still mostly focus on research and development, a report said Global laptop and desktop computer supply chains are expected to shift significantly away from China in the next 10 years, a Market Intelligence & Consulting Institute (MIC, 產業情報研究所) report said. By 2030, only 40 percent of global laptop production would remain in China, said the report, which was released on Thursday. “The reshuffling of the global supply chain will be one of the most important trends in the next 10 years,” the institute said in the report. “In the long run, key component makers will follow laptop assemblers in moving out of China.” The Taipei-based institute predicted most key component makers
NO VIRUS BLUES: A SEMI Taiwan official said that the virus does not slow down the global semiconductor industry’s investment in manufacturing equipment The production value of the nation’s semiconductor industry is expected to grow 16.7 percent this year from last year, outpacing the global industry’s 3.3 percent growth, industry association SEMI said yesterday. That would help Taiwan safeguard its second spot in the global semiconductor market with a production value of more than NT$3 trillion (US$102.73 billion), SEMI Taiwan president Terry Tsao (曹世綸) told a media briefing in Taipei for the Semicon Taiwan trade show beginning today. The global semiconductor industry’s production value is expected to increase to US$426 billion this year, SEMI said. In terms of semiconductor equipment investment, equipment billings from Taiwanese firms
Intel Corp has received licenses from US authorities to continue supplying certain products to Huawei Technologies Co (華為), a company spokesman said yesterday. Washington has been pushing governments around to world to squeeze out Huawei, saying that the telecom giant would hand data to Beijing for espionage. From Monday last week, new curbs have barred US companies from supplying or servicing Huawei. This week, the state-backed China Securities Journal reported that Intel had received permission to supply Huawei. China’s Semiconductor Manufacturing International Corp (SMIC, 中芯國際), which uses US-origin equipment to make chips for Huawei and other companies, last week confirmed that it had sought
Merck Group Taiwan yesterday said that it plans to invest substantially on expanding its fab in Kaohsiung’s Lujhu District (路竹) to better serve its local customers, including Taiwan Semiconductor Manufacturing Co (TSMC, 台積電). The company said it plans to expand its production space by 50 percent in the next five years and its workforce by about 40 percent, Merck Group Taiwan managing director Dick Hsieh (謝志宏) told a media briefing in Taipei. Hsieh declined to disclose investment details, but said that the latest investment would exceed the total amount Merck has invested in Taiwan over the past few years. Those investments would be