Costs prompt phone leader's switch on plants
With China's higher wages, Samsung sees Vietnam as a more attractive location for production, as Hanoi woos big manufacturers
Samsung Electronics built the world’s largest smartphone business by tapping China’s cheap and abundant workforce. Not for much longer: it’s 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 southern neighbour will be making more than 40 per cent of the phones that generate the majority of Samsung’s operating profit.
The South Korea-based company’s second handset factory in Vietnam is due to begin operations in February, according to a November 22 statement on the local government’s website.
The trend of [firms] shifting to Vietnam from China will likely accelerate for at least two to three years
Samsung surged past Apple to the top of the mobile-phone industry by offering cutting-edge devices for more than US$900 to basic models costing less than US$150. With demand sagging in the most-profitable top end and Chinese rivals driving prices lower, Samsung is joining technology companies such as Nokia and Intel to be drawn to Vietnamese wages that are about a third of those in China.
“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 labour 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.”
It seems to be working.
The government has approved US$13.8 billion of new foreign projects for the year to November 20, a 73 per cent increase on a year earlier, according to the General Statistics Office in Hanoi. South Korea led with US$3.66 billion.