New Zealand Asia Institute

Briefing Note | November 2023

Samsung’s Reconstruction of its Global Production

Networks: From China to Vietnam, from Vietnam to
Diversification
This Briefing Note analyses Samsung’s reallocation strategy from
2008 to 2022, a period in which Samsung constantly re-examined
its supply chain and production strategy and actively expanded or From China to Vietnam
reallocated its production and R&D facilities.
Starting from its first Vietnamese plant in Bac Ninh in 2008,
Samsung has taken steps to reduce its dependence on China
and diversify its supply chain and production networks. The
first move to Vietnam was tentative, but the economic outcomes
Background encouraged Samsung to increase its investment in Vietnam.
Utilising its experience gained from China, Samsung successfully
Multinational enterprises (MNEs) such as Samsung consider a
built its second overseas smartphone manufacturing plant in 2008
variety of factors in deciding where to allocate production and
and found it was able to operate its Vietnamese business at a lower
other activities. These factors have typically included labour and
cost than its China operations. Since then, Samsung has gradually
land costs, infrastructure and local market potential, as well as
moved its production lines of smartphones, televisions, displays
policy factors such as taxation and host government attitude
and chips to Vietnam. It has been Vietnam’s largest foreign investor
to MNEs. Geopolitical tension and economic uncertainty have
since 2014.
become increasingly salient for many MNEs.
Samsung largely shifted its manufacturing from China to
In particular, U.S.-China political tension and the current
Vietnam by 2019. From 2017 to 2020, Samsung closed four of its
slowdown in China’s economic growth have prompted MNEs to
Chinese factories in Shenzhen, Tianjin, Huizhou and Suzhou in
carefully consider their investment plans in China and look for
quick succession, basically stopping its electronic manufacturing
other possible destinations. Since Vietnam acceded to the World
activities in China. As of August 2020, Samsung had six factories in
Trade Organization (WTO) in 2007 and participated in the ASEAN
Vietnam, two of which are the world’s largest Samsung smartphone
Economic Community (AEC) in 2015, it has gradually completed
production factories and one of which is Southeast Asia’s largest
several economic reforms and provided more investment
household electronics production plant, making it the largest
opportunities for foreign investors.
employer in Vietnam’s electronics industry.

The Comprehensive Strategic Partnership (CSP) between

Vietnam and South Korea since the end of 2022 has opened new
opportunities for both countries, strengthening Vietnam’s position
as Samsung’s global production base and opening ways for it to be
the group’s centre of global R&D centres. By the middle of 2023,
Samsung’s cumulative investment in Vietnam has reached USD 20
billion.

Photo by Zequn Gui on Unsplash

Overall, China and Vietnam have taken similar actions to including Samsung, have to shift to a “China plus one” strategy to
attract FDI, such as improving local infrastructure, building reconstruct their global supply chains and move to other countries
industrial parks, and establishing special economic zones. such as Vietnam to avoid potential loss from high tariffs and ban on
However, differences in the local labour market, along with made-in-China products.
production stability regarding geopolitical factors and supply chain
management, have driven Samsung’s decisions to move out of However, in the short run, China still serves as the world’s
China and mainly to Vietnam. biggest manufacturing hub and plays a crucial role in the global
supply chain. Its market size and mature industrial chain still
Modern electronics manufacturers demand not just cheap attract MNEs. Specifically, its provision of essential raw materials
labour but also skilled labour and a stable and predictable and components is vital to many advanced manufactured
labour market. China’s labour costs have substantially increased products. Locating new production sites in Vietnam has helped
as a result of manufacturing growth. A manufacturing worker Samsung get the necessary materials and components from
in China can earn nearly three times as much as a Vietnamese Chinese suppliers while the pandemic suddenly disrupted its
worker, based on the average monthly wage bill in Hanoi compared supply chain. Its concerns about the resilience of the supply chain
to Beijing and Shanghai. Furthermore, the demand for higher- have deepened since the acceleration of the tech war, including
level skilled process-assembly workers has increased since the America’s Chips and Science Act and China’s ban on the export of
introduction of automation and advanced digital technology Gallium and Germanium, two critical raw materials for producing
in the production process. Even though Samsung has suffered semiconductors. These disruptions in supply chains, together with
from skill shortages in Vietnam, its position as Vietnam’s largest geopolitical tensions and global inflationary pressures, have made
single source of FDI and its near monopsonic positions within Samsung reconsider diversifying the supply chain.
its Vietnamese industrial park locations have provided it with
more influence and higher bargaining power than in China,
minimising the challenges of labour retention such as job hopping
and poaching. Given less competition with other MNEs to maintain From Vietnam to Globalization
the business-government relationship in Vietnam and China’s
processes of administrative decentralisation, Samsung is able to Skills shortages and supply chain disruptions have exposed
influence the local labour market and establish its training system, risks and uncertainties of shifting production facilities and
supplying itself with a stable and loyal labour force. resources to Vietnam. Rising FDI and increasing demand have
challenged the bureaucratic and physical infrastructure in Vietnam,
Having one of the highest smartphone penetration rates in such as the electricity grid and the transportation system.
Southeast Asia and the fast-growing middle class, Vietnam
shows strong domestic market potential for MNEs. Samsung To avoid supply chain disruptions caused by the shortage
had dominated the Chinese smartphone market before 2010, with of components, Samsung has created a Samsung mode of
nearly 30% market share. However, its market share dropped industrial park. Many dependent component suppliers to
to around 1% by 2018 due to the fierce competition with China’s Samsung have moved along with Samsung’s investment in different
local electronics brands and manufacturers as well as Samsung’s countries, helping Samsung quickly build its supply chain in
Galaxy Note 7 Safety Recall programme in 2016. Meanwhile, the each market. Some are requested to solely supply to Samsung if
competition in the Vietnamese market was less intense. Samsung they aim to build a long-term relationship with Samsung, which
has consistently held around one-third of the mobile phone ensures Samsung’s dominant position and advantages in its new
market. Vietnam is also close to one of the world’s largest markets, location. For example, this mode has succeeded in Yen Phong
Southeast Asia, enabling Samsung to meet the needs of regional Industrial Park (YYIP), the largest industrial park in Bac Ninh,
markets better and bringing more opportunities for it to expand its Vietnam. Establishing its high tech mobile phone handset factory
business. and research centre in YYIP, with several component suppliers
nearby, enabled significant growth and increased Samsung’s price
Apart from the attractive labour and product markets, the competitiveness in Vietnam’s market.
geopolitical context is another driving force behind Samsung’s
relocation decisions. The amity between China and South Korea The effectiveness of this industrial park mode is impacted by a
eroded after China was firmly against South Korea’s acquisition of vast supply network. Even though Samsung moved its supporting
the US-made Terminal High Altitude Area Defence (THAAD) anti- screw factory from China to Vietnam, it is difficult for the other
ballistic missile system in 2014. The separation of economic issues supporting manufacturers of this screw factory to move together.
from security issues was over, and Korean economic and cultural One reason is that Vietnam cannot produce the required raw
communications with China have entered a cooling era. During the materials, such as plastic and steel. The cost and risk of moving
same period, Vietnam’s government prioritised FDI upgrading and a complete supply chain of the screw are very high. So far, most
worked closely with the South Korean government, including the manufacturing work completed in Vietnam is assembly, and nearly
conclusion of the Vietnam-Korea Free Trade Agreement. Despite 80% of the materials depend on imports. The travel restrictions
the escalated tensions in the South China Sea, Vietnam has been and lockdown policy during COVID-19 revealed the risks of over-
able to maintain its political and economic relationship with China dependence on imported materials and the centralisation of
and other surrounding countries, providing sufficient geopolitical production in one country. The shortage of raw materials and
stability and certainty. essential components from China decreased the production
capabilities of Samsung’s manufacturing sites and suppliers in
Participation in the Comprehensive and Progressive Agreement Vietnam. Therefore, many MNEs, including Samsung, are in the
for the Trans-Pacific Partnership (CPTPP) and the Regional process of diversifying their supply chains regardless of what kind
Comprehensive Economic Partnership (RCEP), as well as of industrial park mode they are in. Amid uncertainties arising from
the conclusion of several free trade agreements (FTAs) with the US-China trade war and tech war, many manufacturers opt for
the European Union and the United Kingdom, helps Vietnam a ‘China-plus-many’ strategy.
move up the global value chain. Unlike China, Vietnam has a
relatively friendly relationship with Asian and Western countries To maximise its production capacity in Vietnam, Samsung
and is a safer location for MNEs to produce products that serve participates in the development of local small and medium
clients outside of China. Under the heating tension between enterprises. It works closely with Vietnam’s government to set
Beijing and Washington and the wide adoption of de-risking from up skills training and consultation programmes, improving labour
China strategy across major economies, many MNEs in China, productivity and the quality of the products. These actions aim to
reduce its dependence on imported materials and to secure its OLED display production lines in Tianjin while moving LED display
production and supply chains. The new research centre in Hanoi production lines to Vietnam and Mexico. These actions indicate
is built to support the production of semiconductor chip grids, Samsung’s strategy to build its global production network and to
diversifying its semiconductor production networks and mitigating improve its competitiveness in the global and regional markets:
the impacts of America’s chip ban on China. investing in the high-end advanced segment in countries with
more complete industry lines and higher production efficiency and
In addition to relocating most of its operations to Vietnam, transferring lower-end manufacturing products to lower-cost and
Samsung has also moved some of its production lines back broader markets.
to production facilities in South Korea and is moving into
other locations. In 2022, Samsung opened the world’s largest Relocation of production facilities is a complex process,
smartphone factory near New Delhi, helping it tailor its production covering concerns about production costs, geopolitical context
based on India’s requirements and preferences. Samsung is rapidly and the resilience of the global supply network. Samsung’s
expanding in India’s fast-growing smartphone market, which is relocation of its production networks and supply chain reflects
also the world’s second-largest after China. The establishment of a pressures for diversification experienced by many MNEs.
smartphone factory in India balances its production allocation and
reduces the risks of over-depending on smartphone production Author: Hannie Huang
from Vietnam. This action also increases its competitiveness to
The research for this briefing note was conducted by Hannie
compete with the leading smartphone brands in India, such as
Huang, a PhD student in Economics at the University of Auckland
Xiaomi. In response to uncertainties in semiconductor production,
Business School, supervised by Haiping Zhang. The research
Samsung plans to expand its labour-intensive production lines
draws on Chinese and English-language press, industry reports
to Vietnam and technology-intensive lines to Japan and America
and open source company information.
while announcing the upgrade of its current R&D and production
facilities in China. For further information about this research, contact Hannie Huang
at [email protected]. The New Zealand Asia Institute
Instead of abandoning the Chinese market, Samsung keeps
acknowledges financial support for this research from the Korea
pace with China’s technological development and adjusts its
Foundation.
investment in the Chinese market. China is the largest electronics
market, and it has a high demand for high-end manufacturing © New Zealand Asia Institute. This material is available to
equipment such as Multi-Layer Ceramic Capacitors (MLCC). In republish under Creative Commons Attribution-NoDerivatives 4.0
2021, Samsung’s MLCC factory in Tianjin successfully realised the International License, provided attribution is made to the New
mass production of its latest products, making it one of the world’s Zealand Asia Institute.
leading production bases in this area. It has also invested in new

Photo by Tron Le on Unsplash