DEC. 16, 2013 • Vietnam is becoming the smartphone manufacturing preference for Samsung Electronics Co. The South Korean company currently has 13 manufacturing facilities in China but is leading a wave of Korean firms that are shifting their production to Vietnam. According to the Vietnamese government, South Korean firms had cleared 3,400 investment projects in Vietnam as of August, the fourth highest total. Last March, Samsung started construction on a plant at the Yen Binh Industrial Park in Thai Nguyen province in the north of the country. The $2 billion investment is Samsung’s third production facility in Vietnam. The electronics firm has already built plants in Bac Ninh province and Ho Chi Minh City. Samsung’s current investment in Vietnam is $5.7 billion. The Bac Ninh and Thai Nguen facilities are intended to be full industrial complexes that produce device components for the smartphones assembled there. By as early as 2015 upwards of 40% of all Samsung smartphones will be produced in Vietnam. Expectations are that Samsung may have plans to produce 80% of its smartphones in the country, according to Bloomberg News.
Impact: The Vietnamese have gotten rather aggressive as of late in going after multinational corporations eyeing escalating productions costs in China. As demands for higher wages increase, factory workers in China now earn about two-thirds more than comparative labor in Vietnam. The solution many Chinese manufacturers have settled on is moving production facilities further west into undeveloped districts where wages can be held down. Despite huge transportation infrastructure investment in the country, moving device manufacturing further away from seaports is not attractive to many multinational electronics companies. This has created opportunities for Vietnam, which has a well-educated population, close proximity to existing shipping networks, and improving transportation networks of its own. Firms such as Samsung that set up corporate units there have also received tax-free status for four years. We can see how Samsung would like to keep profit levels where they are by moving production to Vietnam, yet we think a strong motivation is keeping pricing on its Android smartphones as low as possible. That is important not only in its competition with Apple Inc., but also competitively against the growing number of well-featured smartphones being produced by Chinese device makers. Samsung has been manufacturing in China since 1992. If it can likewise get 20 or so years out of Vietnam before labor costs rise substantially, that is a good deal.