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.”
UNPRECEDENTED PACE: Micron Technology has announced plans to expand manufacturing capabilities with the acquisition of a new chip plant in Miaoli Micron Technology Inc unveiled a newly acquired chip plant in Miaoli County yesterday, as the company expands capacity to meet growing demand for advanced DRAM chips, including high-bandwidth memory chips amid the artificial intelligence boom. The plant in Miaoli County’s Tongluo Township (銅鑼), which Micron acquired from Powerchip Semiconductor Manufacturing Corp (力積電) for US$1.8 billion, is expected to make a sizeable capacity contribution to the company from fiscal 2028, the company said in a statement. It would be an extended production site of Micron’s large-scale manufacturing hub in Taichung, the company said. As the global semiconductor industry is racing to reach US$1 trillion
Singapore-based ride-hailing and delivery giant Grab Holdings Ltd has applied for regulatory approval to acquire the Taiwan operations of Germany-based Delivery Hero SE's Foodpanda in a deal valued at about US$600 million. Grab submitted the filing to the Fair Trade Commission on Friday last week, with the transaction subject to regulatory review and approval, the company said in a statement yesterday. Its independent governance structure would help foster a healthy and competitive market in Taiwan if the deal is approved, Grab said. Grab, which is listed on the NASDAQ, said in the filing that US-based Uber Technologies Inc holds about 13 percent of
ABOVE LEGAL REQUIREMENT: The Ministry of Economic Affairs is prepared if LNG supply is disrupted, with more than the legal requirement of 11 days of inventory Taiwan has largely secured liquefied natural gas (LNG) supplies through May and arranged about half of June’s supply, Minister of Economic Affairs Kung Ming-hsin (龔明鑫) said yesterday. Since the Middle East conflict began on Feb. 28, Taiwan’s LNG inventories have remained more than 12 days, exceeding the legal requirement of 11 days, indicating no major supply concerns for domestic gas and electricity, Kung said at a meeting of the legislature’s Economics Committee in Taipei. The ministry aims to increase the figure to 14 days by the end of next year, he said. While one or two LNG or crude oil shipments for May
Taiwan’s food delivery market could undergo a major shift if Singapore-based Grab Holdings Ltd completes its planned acquisition of Delivery Hero SE’s Foodpanda business in Taiwan, industry experts said. Grab on Monday last week announced it would acquire Foodpanda’s Taiwan operations for US$600 million. The deal is expected to be finalized in the second half of this year, with Grab aiming to complete user migration to its platform by the first half of next year. A duopoly between Uber Eats and Foodpanda dominates Taiwan’s delivery market, a structure that has remained intact since the Fair Trade Commission (FTC) blocked Uber Technologies Inc’s
RSS