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The Made-in-China: the new farms are more phones to fend off rivals

SEOUL (Reuters) – Samsung plans to spend a fifth of the world’s smartphone business to China in the following years, it can help to have to compete with low-cost rivals such as Huawei and Xiaomi, but it is a strategy fraught with risk, people familiar with the move said.

Samsung Electronic’s Galaxy A90, it is to be seen on the screen of a Samsung store in Seoul, south korea, south africa, South Korea, the 14th of November, 2019 at the latest. REUTERS/Kim Hong-Ji)

Samsung Electronics, which closed the last one in the house that a Chinese smart phone with a factory in October and has been quietly moving production of some of the Galaxy models to the contractors, such as Wingtech, which is little known outside of China as well.

Samsung has been coy about the volumes, however sources have said that the South Korean tech giant is planning to ship 60 million phones in China, the so-called original design manufacturers (ODMs) next year, up from about 300 million devices.

Wingtech, and other ODMs to create your mobile phone for a number of brands, including Huawei [HWT.UL], Xiaomi and Oppo which have the economies of scale to keep costs down, and the like, contractors are able to develop and produce a new budget phone soon.

Many of Samsung’s strategy is to say that the risk of the loss of control of the quality and the compliance with the production know-how and expertise, outsourcing, and can help competitors by providing the contractors with the volume that they need to lower the cost further for everyone.

Samsung can’t afford to have a different quality of the same. It wrecked his flagship, the samsung Galaxy Note 7, 2016 and after, the reports of the more expensive phones were catching fire and the delay in the introduction of the foldable phone this year, after the screen, the defects have been fixed.

But the margins are wafer-thin budget is a very interesting, and people who are familiar with Samsung’s strategy is to say that it has no other choice than to follow competitors, as well as Chinese ODMs to cut costs.

“This has been an invaluable strategy in place is a good strategy,” one source with knowledge of Samsung’s Chinese operations, he said.

Samsung said in a statement to Reuters that it is making limited lines of smartphones, out of his own plants to be an expansion of the existing portfolio, and ensure an efficient management in the market. He declined to say how many of Samsung’s phones are made by ODMs, and said the future of the volumes had yet to be determined.

Wingtech will not respond to a request for comment.

CHEAPER AND CHEAPER COMPONENTS

Research firm Counterpoint said ODMs may purchase all of the components that are required for the $100-$250 smartphones, and 10% to 15% less than the big brands with their own factories in China.

In a supply chain, the source said, Wingtech can get some of the parts by up to 30% less than that of Samsung Electronics to pay out in Vietnam, where it has three factories and churning out smart phones, Televisions, and household appliances.

Wingtech have started to make tablets and phones from Samsung in 2017, accounting for 3% of the smartphone market. That is, it is expected to hit 8 percent or 24 million units this year, according to IHS Markit.

The Samsung’s outsourcing plan for the lower mid-range Galaxy a-series range, with Wingtech, a hand in the design and production, the sources said. To the A6S, which is one of the models that are to be contracted out, the costs 1,299 yuan ($185), in China.

The Wingtech phone will be going to South east Asia, and South America, the source said. Samsung is the winner of the two, at the expense of Huawei who are suffering from the U.S. sanctions that bar and put it on all of Google’s services with a new phone.

While Samsung is eager to continue to be the global smartphone market leader, which some analysts worry is that it might not be worth the effort due to the fact that the profit made in the budget for the telephone company, are in short supply for everyone.

High-end phones have been a headache for Samsung,” said CW Chung, head of research at Nomura in the Kingdom.

We are told they are now a commodity product, and it was “crap” in the house. But he and other experts said that if Samsung gave the ODMs have more volume, which could cut contractors ‘ costs, and the increase of their knowledge and experience.

“As an ODM for companies to become more competitive, competitors will be more competitive,” Tom Kang, analyst at Counterpoint, said, adding that as soon as a company has lost its expertise in the area of low-end phones due to outsourcing, it is very difficult to get back to know how to do it.

‘GAME OF SURVIVAL’

Chung said Samsung’s strategic shift is signalled by the declining production capacity of the company, and after that there is a low-cost Asian manufacturer, and it is now the world’s largest manufacturer of high-end electrical goods.

The US arch-rival Apple, outsourcing manufacturing to taiwan’s Foxconn Technology, which have manufacturing plants in China, but Apple will still be designing its phones in the usa.

Samsung said in a comment e-mail to Reuters that it is likely to be involved in the regulation of the design and the development of the smartphones manufactured by ODMs.

A person who is familiar with Samsung as well as Chinese ODMs, said the contractors save money by cutting back on some of the steps in the production process may be quality issues. He refused to go into details.

With that in mind, Samsung’s pair of South Korean component suppliers in China, contractors are better able to keep an eye on the quality control, the person said.

“We have to understand the logic of increasing the production volume by Chinese contractors, is a key strategic decision to make, but that does not mean that we are all happy about it,” an executive from a Korean supplier said.

Samsung told Reuters it has the same quality control and standards, it does with all its devices, adding that it is committed to delivering products of the highest quality.

Historically, Samsung has designed and produced almost all of the phones in the house, in the big factories in Vietnam and, more recently, India and nepal, while the reduction in the level of production in South Korea, and China, where the cost of labour.

But, Roh Tae-moon, as well as the youngest executive to be the president of Samsung Electronics, has been a champion in her own right, from the new ODM’s strategy in its role as the world’s number two in the mobile division, two people familiar with the matter said.

Slideshow (3 Images)

“It is of vital importance to the costs to maintain competitiveness with Huawei and other Chinese handset makers,” said a Samsung insider, who declined to be named.

Other Korean companies have embraced outsourcing. LG Electronics, whose smartphones have been losing money for a number of years, it has been said that it is planning to expand its ODM-output budget models to mid-priced phones.

“Smartphones have come down to a battle over the costs. It’s a game of survival right now,” said Kim Yong-serk, a former Samsung mobile executive, who is a professor at South Korea’s Sungkyunkwan University.

Reporting Heekyong Yang and Hyunjoo Jin; Additional reporting by Ju-min Park in Seoul, south korea, and Brenda Goh in Beijing; Editing by Jonathan Weber and David Clarke

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