Slow localization rate troubles RoK manufacturers

The Korean news service recently reported that though Samsung Electronics has been operating in Vietnam for seven years, the local component procurement stands at a low 36%.

In addition, most of the companies making up the 36% are Korean-Vietnamese joint ventures doing business in the country as opposed to businesses that are owned and operated independently by Vietnamese.

At present, 32 domestic companies are in the supply chain of Samsung Electronics, four (out of a total of 90) are primary partners and 28 are secondary subcontractors supplying parts via Korean invested companies.

The concern by Samsung, and in particular its stockholders, is that the lower levels of local firms in the supply chain has resulted in substantially higher costs than anticipated due to increased costs associated with importing.

For calendar years 2013 and 2014 Samsung imported components costing US$15 billion and US$20 billion respectively and given the thin profit margins in the industry the effect on bottom line profits is huge.

LG Electronics has the same trouble Business Insider reported as it had originally stated in its investment plan for the Haiphong Complex that it expected its local component procurement would be at least 50%.

However, only one Vietnamese company is supplying components to LG Electronics as of now.

Under the circumstances, the Vietnam government has devised a long-term plan to develop the supply chain and the Ministry of Industry and Trade of Vietnam is working hand in hand with Samsung and LG Electronics to that end.

"We always welcome Vietnam companies”, said Deputy Manager of Procurement Jang Ho Young with Samsung, however all companies must meet with our standards and be able to produce a quality product on a consistent, timely and economical basis.

Currently Samsung is looking for local manufacturers to produce 200 different kinds of components, irrespective of whether they are owned and operated by Vietnamese owners or are foreign invested.

Deputy General Director Nguyen Van Dao of Samsung Vina shared Young’s sentiments explaining that Samsung is a global manufacturer and accordingly all companies in its supply chain have to meet with international standards.

General Director Han Myoung of Samsung Vietnam Sup in turn suggested prospective Vietnamese companies that want to join the supply chain should continue to work hard to meet the grade.

With strong perseverance and determination they will succeed Myoung said, after which it will be no big deal to become part of the Samsung production chain.