Samsung dukes it out with Japanese rivals

Samsung dukes it out with Japanese rivals

Samsung Electronics LCD chief Chang Won-kie, fourth from left, participates in the groundbreaking event for the construction of its biggest-ever advanced flat-screen facility that mainly produces advanced AM OLED panels in Tangjeong, South Chungcheong Province. / Korea Times In-house manufacturing system offers long-run competitive edge By Kim Yoo-chul For Japanese makers of memory chips and flat-panel displays, offshore production has been a silver lining as an alternative way to offer price competitiveness on global markets against their rival Samsung Electronics. In particular, the strengthening yen prodded Japanese giants Sony, Toshiba and Elpida to further count on the strategy instead of their time-honored methods of manufacturing products in their own country. However, market observers point out that the easy solution might wreck havoc on Japanese players over the long haul even though they may present short-term benefits. ``It’s very interesting that Samsung Electronics and top-tier Japanese manufacturers have shown different moves in management strategies,’’ said a top-ranking industry executive who labeled the Japanese trend as an outsourcing frenzy. ``In my view, the outsourcing frenzy provides short-term advantages at the expense of long-term profits. At the end of the day, it would be better to keep core production capacities inside their own country.’’ Samsung way Unlike its Japanese peers, Samsung Electronics has channeled more of its cash reserves to strengthen manufacturing lines inside Asia’s fourth-largest economy as amply demonstrated in the new investment plan. The Suwon, Gyeonggi Province-based outfit, the world’s foremost maker of memory chips and flat screens, said of late that it planned to build an advanced chip facility in the provincial city of Pyeongtaek. In addition, Korea’s largest company pumps out high-quality semiconductors at its Suwon factories, mobile phones in Kumi, North Gyeongsang Province and flat-panel displays in Tangjeong, South Chungcheong Province. Some of its low-end products such as budget TVs, white goods and cellular phones are rolled out in overseas factories, but most of its value-added products come from Korean facilities. Samsung officials reiterated that the electronics titan does not have any immediate plans to raise the outsourcing proportion in its premium production lines in the belief that they are already ideally positioned. ``Manufacturing itself is the best competiveness that Samsung has. More innovative and out-of-the-box ideas will spring up in the manufacturing procedure,’’ Samsung’s Vice Chairman Choi Gee-sung said recently, insinuating that it will continue its strategy. According to a company insider, many engineers and researchers appear to think its manufacturing prowess cannot be maintained when major production facilities are relocated to overseas. ``We may be able to cut down costs when we move to other countries, thus working together with component suppliers there. The logistics expenses will also go down,’’ said the insider who asked not to be named. ``Yet, technological competency comes first for us. In order to keep raising our edge in top-end products alongside our long-time partners in the supply chain, many of our employees seemingly prefer to put the production facilities inside the country. Such a strategy has worked well as shown by the line-up of our customers, who love to pick up Samsung products despite the relatively high price tag.’’ Currently, Samsung supplies its memory chips and flat-screens to major technology powerhouses as Apple, Dell and Hewlett-Packard (HP) in the United States, Sony of Japan and top Taiwanese PC makers. Japanese way Sony is believed to have increased the proportion of its overseas production to as high as 59 percent late last year. Hong Ji-eun, a spokeswoman of Sony’s Korean unit, declined to confirm this, but hinted the estimate might be true by saying that the Tokyo-headquartered TV producer has been forging ahead with its efforts for cost cuts. A plasma TV major Panasonic has also joined the drive by announcing that Indian manufacturers will produce some of its television sets starting this year under original equipment manufacturer (OEM) system ― Panasonic designs and the Indian players assemble them. Representatives of Panasonic’s Korean office weren’t available for comment. More notably, Toshiba recently decided to outsource an undisclosed percentage of its leading edge non-memory semiconductors, dubbed LSI chips, to its long-term rival Samsung Electronics. Under the unprecedented agreement, Samsung will produce LSI chips for Toshiba that combine a microprocessor and other specialized circuitry to work as the brains of many consumer electronics devices. Simply put, Toshiba will design the high-end chips while Samsung Electronics will take charge of their production ― this agreement would have been unimaginable in the past considering the two’s rivalry over the past few decades. Samsung and Toshiba are bitter rivals in the NAND flash and logic markets. NAND flashes are the chips that store data even when they are switched off. Accordingly, they are widely used in smartphones, tablet PCs and other latest gadgets. ``That’s shocking because Japanese chip majors had been reluctant to produce their own chips overseas for fear of tech leaks. This time around, they just outsourced the whole production. They might bid a farewell to their conventional strategies,’’ said an industry source who is familiar with the issue. Toshiba, which also builds televisions, has seen the proportion of its outsourcing rise substantially of late with some putting the number at as high as 60 percent. Toshiba officials declined to verify the exact number, though. The rush for more outsourcing by Japanese companies to procure key materials with more inexpensive prices has so far been quite satisfactory as the market shares and diminished costs show. DisplaySearch, a market consultancy, says Sony may surpass Samsung Electronics this year as the primary seller of flat-screen televisions in India ― the world’s fastest-growing market for the items. Offering cheaper models and expanding its distribution network are cited as the main factors for the Bravia TV maker to rank top from third a year earlier, however, the critical hidden truth is the word ``outsourcing,’’ said officials. Who will win out? It remains to be seen which way will eventually win out as the competition between the Samsung way and Japanese methods are expected to test the waters during the next decade on the global scene. ``Who will be the winner among manufacturing Samsung or outsourcing Japanese firms? Time will tell,’’ professor Kim Jeong-ki at Hanyang University said. Yet, many Seoul analysts opted the Samsung way under the belief that manufacturing prowess tends to eventually win out, defeating the short-term gains of the outsourcing-oriented approach.

yckim@koreatimes.co.kr