Samsung is gone, Samsung is coming again

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By Zhang Yu
Source: Yuanchuan Business Review (ID: ycsypl)
In August this year, Samsung announced the closure of its last computer factory in China. For a while, opinions on Samsung’s suspected “complete withdrawal from the Chinese market” were divergent. The time seems to be back to a year ago, when Samsung, with a 1% share of the mobile phone market, announced the closure of its last mobile phone factory in China.
Is Samsung really withdrawing from China? Have Chinese factories really lost their attraction to foreign investment? In fact, it was the “worthless” Samsung who left and the “more valuable” Samsung left.
In 1992, when China and South Korea established diplomatic relations, Samsung directly invested 52 million US dollars in Huizhou and established Huizhou Samsung Electronics Co., Ltd. However, at that time, China’s mobile phone market was dominated by Ericsson, Motorola, Siemens and other old mobile phone giants [1].
Under heavy attack, in 1993, the chairman of SamSung group, Li Jianxi, called out a slogan: “everything will change except for his wife and children.” Next, Samsung carried out radical reform, innovation and territory expansion all over the world, and its investment in mobile phone research and development was also increasing. By 2002, Samsung officially opened the Chinese mobile phone market.
In 2006, Samsung Huizhou factory introduced the mobile phone production line. At its peak, it produced 6 million mobile phones per month, accounting for about 17% of the global shipment. In order to seize a higher market share, Samsung has successively built factories in Suzhou, Dongguan, Tianjin and other places. Seven years later, that is, in 2013, through high-quality products, large-scale advertising and marketing bombing, Samsung promoted its mobile phone sales to rise, and ascended to the top of China’s largest mobile phone brand with a market share of 18.7%.
But Samsung’s peak period was very short, only a year later, it showed signs of recession.
In 2014, China’s smart phone market began to show signs of entering a mature period. Huawei rose, Xiaomi Fengshen, and Samsung’s market share fell to 12.1%. After that, domestic mobile phone manufacturers such as oppo and vivo successively seized the market, and Samsung gradually dropped out of the top 5 [1] in the Chinese market. Puguang Suzhou factory and Dongguan factory, which are OEM for Samsung, have closed down and stopped production.
And the key straw that overcame Samsung mobile phone was the explosion of Samsung note 7 in 2016. After the incident, Samsung’s attitude toward China’s market caused a stir in China. Finally, the AQSIQ interviewed SamSung China. Subsequently, Samsung apologized and offered compensation to domestic consumers, but the brand image’s heavy setback could not be reversed.
Subsequently, the sad incident and Samsung’s political intervention added material to its downhill road. By 2018, Samsung’s mobile phone market share in China was only 0.8%, becoming “other” in the statistical data classification. It took 11 years for Samsung to enter the Chinese market and become the number one in terms of sales volume. However, it has been only five years since the first sales volume to the present few people pay attention to it.
Source: canalys
Today, although Samsung is still the world’s top two smartphone shipments, it has experienced an avalanche of collapse in the Chinese mobile phone market. While being beaten by domestic mobile phone manufacturers, Samsung has also been looking for a “spare tire”.
Samsung’s capacity adjustment has two characteristics:
On the one hand, after the closure of the Huizhou mobile phone factory, Samsung decided to rely on the OEM production of 20% of the 300 million smartphones produced each year, that is, 60 million smartphones, to Chinese ODM enterprises with mature technology and industrial supply chain [2], and no longer hand them over to branch factories around the world.
On the other hand, Samsung chose to invest in Vietnam.
In 2008, it invested 670 million US dollars to establish the first production base in Vietnam, which was officially put into operation the following year. Three years later, President Li Jianxi visited Vietnam in person and held a meeting with his successor, Li Jae Rong, and other leaders to discuss the future layout. Then there was a second factory, which was led by Li zaireng himself, known as the “Li Jae Rong project”. In 2019, Li Zairong also held direct talks with Vietnamese Prime Minister Nguyen Chun Fuk to open up political and business relations and plan Samsung’s future investment plan [3].
Li Zai Rong and Ruan Fuchun
In the 10 years from 2008 to 2018, Samsung spent $17.3 billion to build eight factories and one R & D center in Vietnam, becoming Vietnam’s largest investor. In terms of smart phones alone, Vietnam’s factories produce about 150 million units a year, accounting for about half of the world’s total production. On the whole, in 2018, the export volume of Samsung in Vietnam reached US $60 billion, which is one third of Vietnam’s national export.
In March this year, Samsung announced that it would build Samsung’s largest R & D center in Southeast Asia in Vietnam, which is expected to be completed in 2022. Samsung’s largest mobile phone factory was already built in India’s Noida in 2018.
It can be said that the rise of Vietnam’s manufacturing industry today is due to Samsung’s contribution. And Vietnam’s demographic dividend and investment policy are also the most important places for Samsung.
According to the results of Vietnam’s population and housing census in 2019, as of April 1, 2019, the total population of Vietnam has reached 96208984, ranking 15th in the world, and the proportion of working age population is nearly 60%.
According to the official data of Vietnam in 2019, the minimum wage standard in Vietnam’s first-class areas is 4.28 million Dong (about 1261 yuan), 3.71 million Dong (about 1114 yuan) in the second category, 3.25 million Dong (about 981 yuan) in the third category, and 2.92 million Vietnamese Dong (about 875 yuan) in the fourth category areas.
In terms of policies, when Samsung built the factory in 2013, it was granted preferential investment policies for 3.2 billion US dollars comprehensive projects provided by Taiyuan province of Vietnam at that time, including 4-year enterprise income tax reduction and 12-year tax reduction by half [1]. In addition, 50% of the land rental fee for 100 ha is subsidized by the government. At the beginning of 2019, Vietnamese Prime Minister Nguyen Chun Fuk and general manager of Samsung Vietnam electronics, Shen Yuanhuan, announced that Vietnam maintained a high degree of attention to Samsung and would create convenient conditions for Samsung’s investment and operation activities.

The main reason for the company’s failure in global distribution is that Samsung’s manufacturing industry in China has been closed down. In addition, compared with Vietnam, India and other emerging markets, China’s labor costs are rising, and the uncertainty of the external trade environment is increasing. It is difficult for Chinese factories to receive orders from the external market. “Internal worries and external difficulties” prompted Samsung to make the decision to close the factory.
What did Samsung leave behind in China when it got into a hot fight with Vietnam?
When closing the Huizhou mobile phone factory, Samsung issued a statement: “Samsung’s industrial layout in China has been transformed into a high-end manufacturing industry in line with the direction of the Chinese government. In the past six years, Samsung has continued to invest in China’s high-end industries with an amount of more than $20 billion, which is far higher than the amount of industrial adjustment. In the future, Samsung will continue to invest in high-end industries in China.”
In fact, the closure of Samsung’s manufacturing plants does not mean a complete exit from the Chinese market, but a structural optimization. This optimization has several notable features.
Expansion of high-end investment – even though later in the mobile phone and PC markets, Samsung’s investment in China has been increasing over the years, especially the proportion of its investment in high-end industries in China has increased from 13% in 2012 to 55% in 2018. While closing its low-end manufacturing plants in succession, it has deployed semiconductor production plants in Suzhou, Xi’an and Tianjin, the world’s leading MLCC plant for vehicles and power battery production line and other high-end manufacturing projects.
Especially in 2012 Since, Samsung Electronics has invested more than 25 billion US dollars in Xi’an to establish a global leading semiconductor memory chip base, which not only set the largest overseas investment record in the history of Samsung Electronics at that time, but also formed a complete industrial chain from R & D, design to manufacturing, packaging, testing and system application, which led to the rise of semiconductor industrial clusters in Western China [4].
Even with the sharp decline of Samsung mobile phone sales in China, the sales revenue of Samsung Electronics in China continues to rise, and the contribution of China to the global sales revenue of Samsung Electronics remains at a stable level of 16% – 18%, which is mainly attributed to the rapid growth of its semiconductor business in China [4].
R & D investment has become stronger – in 2018, compared with 2006, Samsung Electronics’s manufacturing subsidiaries in China have been shrinking, but the R & D subsidiaries have doubled from 4 to 8. China has become the key market of Samsung Electronics with the most R & D subsidiaries besides South Korea.
Therefore, even if Samsung continues to close its manufacturing subsidiaries and factories in China in recent years, in a certain way, it also follows the general trend of China’s manufacturing transformation. For itself, transferring the low-end manufacturing industry to low-cost areas and retaining high-end manufacturing industry in China is also a big “evolution” of its industrial chain structure. It is the transformation and upgrading of Samsung from labor-intensive to capital intensive and technology intensive industries in China.
To sum up, the low-end Samsung assembly plant has gone, and the high-end Samsung R & D center has come.
Not only Samsung, but also many multinational companies have set up high-end manufacturing industries in China in recent years. From the establishment of Tesla’s large-scale factory in Shanghai to the settlement of ExxonMobil’s wholly-owned petrochemical project in Guangdong, from the cooperation of Toyota and FAW in Tianjin to the layout of production lines in Hubei Province by Schneider Electric, France, it is precisely the transformation and upgrading of China’s economy that we can see from these multinational companies with the most sensitive sense of smell.
As the world factory, China occupies an important position in the world manufacturing supply chain system. The shift of giants also means that part of the attraction of domestic manufacturing industry has shifted from production to R & D, and from cheap labor to engineer bonus. This leads to another phenomenon of industrial change: how does technological progress affect manufacturing employment?
In recent years, on the one hand, there are more and more ridicule on the Internet that “young people prefer to send out food than to enter the factory. Couriers earn more than 10000 a month, and machine tool workers average 3000 a month.”. On the other hand, concerns about “robots replacing humans” are growing.
Is technological progress really eating up employment? Are young people really reluctant to enter the factory?
To solve this problem, the school of Applied Economics of Renmin University of China analyzed the data of 2383 listed companies in China’s manufacturing industry from 2007 to 2018, and drew several distinct conclusions
Labor intensive manufacturing industry acts as the pioneer of excluding labor force. From 2015 to 2017, the growth rates of employment in tobacco products industry were – 2.75% and – 3.58%, respectively; the growth rates of employment in textile industry were – 3.88% and – 3.12%; those in leather, fur, feather and their products and footwear industry were – 4.25% and – 4.65% respectively [6].
In the same period, the growth rate of the capital intensive manufacturing industry was significantly smaller than that of the labor-intensive manufacturing industry, or even positive. For example, the growth rate of employment in the instrument manufacturing industry was – 1.46% and 1.49% respectively [6].
In contrast, the growth rate of technology intensive employment shows an upward trend. For example, the employment growth rate of pharmaceutical manufacturing industry is 3.52% and 1.82%, and that of automobile manufacturing industry is 3.06% and 4.27% respectively [6].
In other words, people prefer to go to high-value factories rather than sweatshops.
The same situation has appeared in the history of the United States. The research results of foreign scholars show that the development experience of manufacturing industry in the United States from 1972 to 1986 shows that the technological progress of manufacturing industry will destroy 11.3% of employment every year, but create 9.2% employment at the same time. Moreover, employment destruction and employment creation exist in different sectors, which leads to the flow and redistribution of labor in different sectors [6].
Therefore, the trend of employment change in manufacturing industry is not the shrinking of the whole industry, but the differentiation of internal employment structure. On April 22, 2020, Ren Zhengfei said in an interview that at present, a large number of medium and low-end manufacturing industries in China are transferring to Thailand, Vietnam and other countries, and the United States is suppressing China’s high-tech industry. China’s manufacturing industry is in the middle layer, which must be very difficult and can’t have too many illusions.
But then again, it must be a good thing that all the low-end industries have gone?

The industrial upgrading of Japan, South Korea and Germany basically follows the path of gradual transfer from low-end to high-end. However, in the final analysis, Japan, South Korea and Taiwan are at most the size of one or several provinces in China. If we allow low-end industries to flow to Southeast Asia one by one, who can stand up to take on such a large number of labor force in China?
In a word, it is certainly a good thing to attract foreign enterprises to follow Samsung’s example and increase high-end investment in China and gradually upgrade domestic low-end manufacturing to high-end ones. However, with the slogan of “changing cages for birds”, we should be vigilant to allow the outflow of low-end industries.
How to further reduce the comprehensive cost of the manufacturing industry, so that manufacturing workers have a standardized working environment, reasonable income, decent life, is the problem we need to solve.
(statement: This article only represents the author’s point of view, not Sina’s position.)