Samsung Vietnam Phone Leap Has Farmhand Living a Dream

Nguyen Thanh Hai spent long days picking water spinach in northeast Vietnam for $3 a day. That was before the 28-year-old joined a Samsung Electronics Co. smartphone assembly line in March.
As one of the 16,000 newly hired workers at Samsung’s factory in Vietnam, Hai makes as much as $470 a month and stays in a company dormitory that she says is like living in a hotel. The former farmhand has even begun saving $200 a month to help build an indoor bathroom at her parents’ rural home.
“So far I have fed my piggy bank some $1,000,” said the slightly built college graduate, before beginning an overnight shift checking the quality of products assembled at the Samsung plant in Thai Nguyen province, about 60 kilometres (37 miles) north of Hanoi. “I am living a dream.”
Samsung, the world’s largest smartphone maker, and affiliates invested $3.38 billion on an industrial complex that has helped transform the tea-growing region into a manufacturing hub and boosted local incomes. Vietnam is capitalizing on shifting production patterns in Asia as companies such as Wintek Corp., a supplier of displays to Apple Inc., move away from China’s rising costs and shrinking labour force.
“Will the iPhone 9 be made in China?” Scott Rozelle, a Stanford University development economist, said in a phone interview. “Although there are such sophisticated supply chains in China, labour will be even scarcer than now in five, six years. Vietnam has a natural advantage.”

Exports Surge

Samsung’s investment in the mountainous Thai Nguyen province has helped boost its economy, with first-half exports surging 33-fold and the pace of provincial GDP growth doubling to 15 percent in the first six months, according to Duong Ngoc Long, chairman of the local People’s Committee. The Suwon, South Korea-based company and its affiliates plan to hire about 40,000 workers by the end of the year after two other group factories open, said Long, the province’s top-ranked official.
“Samsung has created a leap for the province’s economy,” Long said in an interview. The region’s exports will probably climb to $10 billion this year, compared with the original 2014 target of $1 billion, he said.
The South Korean electronics maker faces competition for workers.

Microsoft, LG

Microsoft Corp.’s mobile-phone business acquired from Nokia is expanding manufacturing in Vietnam, as it scales back work in China. LG Electronics Inc. will open a television and appliances factory in the northern port city of Haiphong this year as part of a $1.5 billion investment plan.
“Labour intensive processes have been moved to the Vietnam plant in response to rising labour costs in China,” Taichung, Taiwan-based Wintek said in its annual report. The supplier of liquid-crystal displays to Apple in 2011 disclosed investments of $15.6 million in three factories in Vietnam.
Vietnam is increasingly attractive to Samsung and other electronics companies as China becomes more expensive and its labour pool shrinks by two million workers a year, Stanford University’s Rozelle said. The Southeast Asian country’s proximity to China, Taiwan and South Korea, its young workforce and lower labour costs make it well-suited for electronics manufacturing, Rozelle said.
The base monthly salary for a factory worker in Beijing was $466, compared with $145 in Hanoi, according to a survey of pay by the Japan External Trade Organization released last year.
Samsung expects Vietnam “to play the central role of global mobile-phone production,” spokesman HyukJoong Kwon said in an e-mail, without elaborating on a time frame.
The company chose to invest in Vietnam because it is politically stable, has a good labour environment and supports the industry, Kwon said. The government “is very proactive.”

Intense Competition

The emphasis on Vietnam as a manufacturing base also comes as Samsung has ceded ground in China and India to local smartphone brands. The South Korean company is battling to defend profit margins. Second-quarter profit missed analyst estimates amid increased competition from Apple and Chinese producers including Xiaomi Corp. and Lenovo Group Ltd.
Samsung and affiliates have invested a total of $6.8 billion in Vietnam, Dau Tu newspaper, a publication of the Ministry of Planning and Investment, reported on its website in July. About 60 of the company’s suppliers are also setting up operations in Thai Nguyen, provincial official Long said.
Jang Ic Sang, general manager at Samju Vina, which makes a protective film for Samsung devices, said the company expects to source 80 percent of its materials in Vietnam by the end of 2015. Construction at more than two dozen other suppliers is occurring outside his office in the Diem Thuy Industrial Zone.

Tax Breaks

Samsung and its units will pay no tax for the first four years and half the full rate the following nine years, Long said.
Once the tax breaks end, Vietnam runs the risk of losing Samsung to another country, Vu Tu Thanh, chief Vietnam representative of the U.S.-ASEAN Business Council, said in an interview in Hanoi. “They could shop for another Vietnam.”
Samsung is unlikely to leave Vietnam after investing so much in the country, Long said.
“LG views Vietnam as one of the key markets in Asia with a huge potential for growth,” spokesman Ken Hong said in an e-mail. The Southeast Asian nation is an increasingly attractive investment destination because of its “growing domestic consumer market, infrastructure and competitive labour force.”
Vietnam’s shipments of phones and components jumped 14 percent in the first eight months of 2014, contributing almost a sixth of the country’s total exports of $97 billion, according to Vietnam’s General Statistics Office. Mobile-phone production surged 40 percent in the period from a year earlier.

Hanoi Hub

Microsoft’s devices group will reduce engineering work done in Beijing, Executive Vice President Stephen Elop, wrote in a July 17 e-mail to employees. The company will “focus phone production mainly in Hanoi.”
The phone unit is able to tap into a growing components supply chain in Vietnam, Alvin Lee, spokesman for Microsoft’s devices group, said in a phone interview. Vietnam has “a young, well-educated workforce that is willing to learn.”
Vietnam is betting manufacturers like Samsung and Microsoft will help the country to one day replicate Taiwan’s and South Korea’s technology-driven economies, Rozelle said. For that to happen, provincial governments need to develop exports zones, streamline processes and make them transparent.
“Moving a kid off a farm into a factory is the best thing in the world for a developing country,” he said. “It’s the first step toward industrialization.”
Samsung Vietnam Phone Has Farmhand Living the Dream
To contact the reporters on this story: John Boudreau in Hanoi at jboudreau3@bloomberg.net; Mai Ngoc Chau in Ho Chi Minh City at cmai9@bloomberg.net
To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net; K. Oanh Ha at oha3@bloomberg.net Suresh Seshadri, Dave McCombs