Despite Samsung’s Impressive Profit Report, Production of Domestic Suppliers Shrinking

According to Samsung, its mobile phone business occupied 21% share of the global mobile phone market. Its mobile phone sales rose quarterly-on-quarterly 16% in Q3. This increase is impressive in that Samsung made it while the worldwide mobile phone market has shrunken by 3 to 7% due to the global economic crisis.

Despite its outstanding profit report, a serious concern over Samsung’s stance in the overall Korean manufacturing landscape is growing.

Samsung has moved its production offshore including locations in China, India, Vietnam and Brazil mainly due to cost-competiveness.

Although Samsung claims that its core manufacturing technology and manufacturing facilities for high-end mobile phones would remain in Gumi plant of Korea, history has taught us that increased offshoring and outsourcing do more harm than good for a country’s competitiveness, as I’ve recently pointed out.

Given the fact that Samsung has received much favors and subsidies from the Korean government in the course of its growth, it is ironic to see how it is becoming more of MNCs in advanced countries that have exploited labor and resources around the globe.

While Samsung’s domestic production of mobile phone has been shrinking since 2005, its overseas production is increasing. In 2005, the domestic production in Samsung’s Gumi plant makes up 75% of Samsung’s total mobile phone production. However, it fell 29.3% in the first half of the year.

This means that many of Korean suppliers to Samsung are losing their production capacity and sales profit due to Samsung’s offshoring.

Korea has to be mindful about how the U.S. outsourcing production to China has hampered the well-being of America not just production-wise, but financially and politically. We have seen a profound impact of America’s outsourcing to China.

Perhaps to a lesser degree, but one has to be concerned about Korea’s eroding manufacturing base as Samsung is becoming more of a platform corporation in Korea while offshoring its manufacturing operations.

This trend may add fuel to the fire of Korea’s jobless recovery. Moreover, the U.S. case has demonstrated that demise of manufacturing sector can lead to the destruction of the middle class.