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Business Trends

Samsung suppliers in Vietnam branch out to new frontiers

Companies cultivated as phone parts suppliers turn tech toward local industry

A worker makes printed circuit boards at a Meiko Electronics factory in Hanoi. The Samsung supplier aims to put its tech to work in automobile parts as well.

TOKYO/HANOI -- A decade after Samsung Electronics announced that it will produce smartphones in Vietnam, its army of local suppliers have begun to branch out to new businesses, strengthened by the experiences they have acquired through working with the South Korean conglomerate.

Today, 29 companies supply to Samsung's biggest phone production hub, up from just four in 2014. By 2020, the figure is expected to expand to 50. They are branching out into new industries like automobiles, capitalizing on technological prowess that Samsung cultivated to build a local supply chain. 

One key supplier, the Vietnamese arm of Japan-based Meiko Electronics, has decided to spend over $100 million -- one of the company's largest-ever such investments -- to add new facilities at its Hanoi factory. Meiko specializes in printed circuit boards, to which smartphone parts are mounted.

At its new facility, the company aims to use production technology similar to that of semiconductors to produce circuit boards with wires just 30 micrometers wide, with mass production slated to start in April.

Such boards are a key technology in the push to make smartphones ever slimmer and more compact, as well as to deliver stable communications. Meiko has decided the new facility will also produce circuit boards for communications modules in automobiles -- geared to work with so-called 5G, the next generation of mobile networks -- to supply to the European, American and Japanese markets.

The investment builds on the skills and experience built up since production started in 2011. "Vietnamese workers stay at their jobs more than in other countries like China, and technological skills are improving," said Shuji Ida, factory director of Meiko Electronics Vietnam.

A Vietnamese Samsung Electronics factory. The company has trained businesses in the country with its technology to cultivate them as parts suppliers. A Vietnamese Samsung Electronics factory. The company has trained businesses in the country with its technology to cultivate them as parts suppliers.

Samsung employs around 160,000 people in Vietnam, where it makes the majority of its global smartphone output -- over 200 million per year -- including its latest flagship device, the Galaxy S9. In 2013, phone handsets became Vietnam's biggest export.

At first, the few parts the country sourced locally were mainly from overseas-linked companies like Meiko. But after Prime Minister Nguyen Xuan Phuc asked the company to transfer more technology to Vietnamese players and procure more parts from them, Samsung began helping train local makers. The South Korean company dispatched its own technicians to promising players, training them over the course of three months in the use of technology that met its quality standards.

That training helped give rise to Samsung's 29 local suppliers -- which include display maker Tien Thanh in the province of Bac Ninh, east of Hanoi, and plastic mold company Nhat Minh in Binh Duong, close to Ho Chi Minh City.

Vietnamese technicians with experience designing products for overseas-based parts makers are also switching to local companies, broadening hiring possibilities. Local manufacturers are "focusing their efforts on product development" using such workers, said Nguyen Khac Kiem, rector of Hanoi Vocational College of Technology.

Local smartphone brands are beginning to emerge, armed with related technologies and skilled staff. Real estate conglomerate Vingroup recently launched a smartphone production company, VinSmart, with $131 million in capital. A factory is planned at an industrial park in the northern coastal city of Haiphong, with low-cost smartphones set to hit shelves as soon as next June.

Electronics manufacturer Asanzo, whose strong suit is televisions, aims to invest 200 billion dong ($8.67 million) to expand smartphone production this year. The company, which got into the smartphone business in 2017, has launched new products each quarter, and aims to raise its output to the 600,000-unit range or higher. It is considering making a stripped-down phone that sells for just 1 million dong, or about $43, says Chairman Pham Van Tam.

Optimism has been building over Vietnam's ability to present an alternative base to foreign companies following a "China plus one" strategy of spreading out production among Asian countries. So far, though, most of its factories have focused on labor-intensive work. Whether it can successfully make the technological leaps required to set up a supply chain for the smartphone industry will be key to this strategy.

Exports of Samsung smartphones helped power Vietnam to a series of trade surpluses starting in 2012. The government has set a goal of becoming an industrialized nation by 2020, and intends to continue improving local industry while seeking further cooperation from foreign companies.

Foreign players are enticed by Vietnam's population of around 94 million, whose average age is 30. General Motors last month announced a tie-up with Vingroup that will see the American automaker share its sales network and the right to produce cars under its license.

Samsung is Vietnam's top foreign investor, having poured $50.5 billion into the country since 1988 -- roughly 30% of the total investment by outside players. Fellow South Korean conglomerate LG Group is adding electronics factories in Vietnam, as well as expanding on the retail, real estate and finance fronts as well as manufacturing.

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