Samsung Electronics will close its sole Chinese TV factory in November and shift part of its operations to Vietnam while recategorising its factory in Ho Chi Minh City as an export processing enterprise.
|Vietnam might be the largest manufacture facility of Samsung |
Moving the factory to Vietnam, Mexico, and elsewhere is part of a greater trend of businesses shifting supply chains away from China.
According to Nikkei Asian Review, Samsung has been losing market share in China due to the rising quality of local competition as well as boycotts triggered by Seoul's decision in 2016 to deploy a US-developed missile shield over Beijing's objections. Labour costs also have been rising in China.
The move is said to make Samsung's global production more efficient. Previously, Samsung shut down its smartphone factories in Tianjin also and the southern Chinese city of Huizhou before the end of 2019, and the company said in June that it would cease production at a computer factory in Suzhou. Samsung still operates an appliance factory in Suzhou and two chip factories in Xi'an.
On the other hand, in Vietnam, Ho Chi Minh City People’s Committee has just proposed the prime minister to switch the label of TV screen producer Samsung Electronics HCMC CE Complex (SEHC) from a manufacturing to an export processing enterprise (EPE) in order to fulfil the city’s commitment to create a favourable investment environment for the South Korean conglomerate.
This will turn Vietnam into Samsung's export base to the global market and in turn benefit the local suppliers of the South Korean giant, the proposal said. Vietnam allows EPEs to enjoy zero import and export duties and other tax incentives, but a company needs to have 90 per cent of its revenue coming from exports to be able to achieve this status.
SEHC forecasts its revenue from exports to reach $4.4 billion this year, out of the total $4.9 billion, a ratio of 90 per cent.
In a discussion, economist Nguyen Hoang Dung, former R&D director of the Ho Chi Minh City Institute of Economy and Management said that Vietnam could become Samsung's largest production base outside of South Korea. The categorisation of SEHC to EPE will benefit the Vietnamese economy and enhance its reputation over the world, drawing a new wave of foreign investment to the country.
However, economist Dung also emphasised some issues that all foreign investors should pay attention to when doing business in Vietnam. “Technology transfer should be exercised in line with the regulations of the Law on Investment. Foreign-invested enterprises should pay more attention to training and transferring technology to local engineers and help supporting enterprises join deeper into the global value chains,” he said.
Additionally, training, promoting local employees into senior or intermediate management positions commensurate with their efforts and contributions, as well as corporate social responsibility and issues regarding environmental protection are important factors foreign-invested firms cannot ignore if they want to enjoy outstanding incentives and do business in the long-term in Vietnam.