The South Korean electronics giant chose Bac Ninh province in Northern Vietnam as its first factory to roll out smartphones 7 year ago. The total $15 billion investment deal was a part of Samsung’s tactical move to gradually relieve its reliance on Chinese-based operations which have swiftly become expensive.
Bac Ninh residents who once lived on paddy fields before Samsung moved in, had their lives changed as the province has become one of the most economically active locations in the country. When entering Vietnam, Samsung was followed by more than 856 foreign satellite companies which altogether combine a $11.9 billion foreign investment, accounting for 60% of the province’s economy.
From business perspective, Samsung has spurred the region’s overall economy by attracting foreign investors and raising the province’s per capita GDP to three times the national average. From societal perspective, the electronics manufacturer has helped to raise the living standards of the local population, improved the regional infrastructure and education, as well as provided workers with very good working environment.
On a larger scale, Samsung has propelled Vietnam economy as a whole and is currently the largest exporter, with overseas shipments for electronics reaching staggering $33 billion in 2015. However, Samsung’s 20% occupation of national shipments is also a backlash against Vietnam exports, especially when bad times occur. Beside the fact that Samsung’s Note 7 is flawed and thus re-imported to Vietnam for replacements, the recall of 2.5 million smartphones made $1.1 billion evaporated from exports in September, a huge loss for Vietnam’s economy. This downturn in exports is understandable because the country puts a significant portion of its best on one firm and industry. However, this strategy is typical for developing countries which initially focus on exporting commodities, and later on, turns into manufacturing hubs for industrial and commodities products when getting attention from wealth, foreign investors.
While facing exports plunging, Vietnam is having a difficult time to meet its 2016 economic growth target of 6.7%. On the positive side, Vietnam’s exports of phones and parts have soared to $30 billion in 2015, compared to only $2 billion in 2010. This indicates that the nation has grown leaps and bounds since Samsung (and other major electronics manufacturers) set foot in Vietnam. Until now, the company has been successfully operating four factories in Vietnam, while providing more than 130,000 jobs and also investing in a $300 million mobile R&D center in Hanoi.
BDG insights
Pledging to an effort to grow more sustainable, Vietnam has progressively reformed its R&D competency so that the country is no longer deemed as a chosen destination exclusive for sourcing. After all, it is time that Vietnam had to diverse from its conventional economic strategy that heavily relies on FDI, dominant export of single big firms such as Samsung or low value-added industries such as textile, coffee, etc. The government perhaps needs to make an effort to overhaul SME businesses who are capable and passionate of running new business models and manufacturing advanced components to support not only the prevailing foreign complex manufacturers in Vietnam but also the country’s long-term development.
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