October 24, 2016
Samsung Electronics makes nearly a third of its smartphones in Vietnam, and the company has estimated that its order to stop work on the fire-prone Galaxy Note 7 model will cause losses of more than 2 trillion won ($1.78 billion) this quarter followed by half that in the first months of next year. You would expect Vietnam to take a significant hit as Samsung, a beacon for the country’s value-added exports, retrenches.
Vietnam will get burned but not that badly or for that long, according to people watching the Southeast Asian country’s GDP growth of more than 6% per year on the back of exports.
Samsung makes other devices there, Vietnam wasn’t part of the Note 7’s problematic design and any laid-off workers could easily find jobs somewhere else, the analysts say.
Since 2010, Vietnam has rivaled China as an export manufacturing hub anchored by cheap labor, friendly investment rules and tariff-cutting trade pacts with major export markets.
Samsung has pledged $12 billion in factory investments in Vietnam and the Korean electronics giant accounts for a fifth of Vietnam’s smartphone shipments. But not all of those were Note 7s. Samsung is expected to bolster sales of “other flagship models,” including the Galaxy S7 and Galaxy S7 Edge, Hanoi-based SSI Research says in a note this month. That shift means any “negative impact will be likely balanced,” the equity research firm says.
SSI Research estimates a decrease $924 million or 0.6% in overall exports from Vietnam due to the Note 7’s stoppage through March next year.
Vietnamese just assembles Samsung’s smartphones rather than designing them, analysts add, so there’s no risk to the country’s reputation from the overheating of Note 7s. The phone fires are apparently a design flaw.
“The value added by Vietnam is modest,” says Adam McCarty, chief economist with Mekong Economics in Hanoi. “It is also just one product in one firm. That Samsung is having trouble with one product is not going to tarnish the reputation of Vietnam as a most attractive country for export-oriented FDI manufacturing.”
If the company lays off workers because of the Note 7 stoppage, those jobless are expected easily to find new positions in other firms. Samsung employs about 400,000 people in Vietnam.
“If there is a headcount reduction, those trained by Samsung will be able to transfer their knowhow to other employers,” says Louie Nguyen, editor and founder of the news website VietnamAdvisors. ”That technology transfer will have a long term impact on Vietnam’s manufacturing job ecosystem.”