Over half of 856 foreign companies that had invested a combined $11.9 billion in Vietnam’s Bac Ninh province by June were related to Samsung.
Hanoi: A few years ago, Nguyen Thi Dung was feeding chickens and planting rice to make ends meet in one of the poorest areas in Vietnam. This year, she expects to earn more than a typical stockbroker in the country. The difference? Samsung.
The South Korean electronics giant moved into the rice paddies of Bac Ninh province in Northern Vietnam and began rolling out smartphones seven years ago. The latest exports include the company’s new Galaxy Note 7 phones and their batteries, which have embroiled the global brand in a massive product recall. Those gadgets have transformed Dung’s sleepy village into the country’s second-biggest exporting centre after Ho Chi Minh City.
“Our lives have improved dramatically since Samsung came,” says the 57-year-old former farmer, who now rents rooms and sells groceries to assembly line workers, and expects to earn the equivalent of $68,000 this year. “I want to buy a car and have my children drive me around.”
Samsung Electronics Co. and its affiliates have built a factory town with 45,000 young workers and hundreds of foreign component suppliers—a miniature version of the family-run chaebol conglomerates that dominate business back in Korea. The investment has been a windfall for businesses in Bac Ninh—almost 2,000 new hotels and restaurants opened between 2011 and 2015, according to the provincial statistics office—helping raise the province’s per capita gross domestic product (GDP) to three times the national average.
“Samsung’s investment has created a breakthrough that spurred the economic growth of not only Bac Ninh but the nation,” said Nguyen Phuong Bac, head of a Bac Ninh socioeconomic institute. “It has quickened the country’s industrialization.”
The Korean company represents the first stage in Vietnam’s plan to inherit a slice of the manufacturing mantle of China, which is losing makers of apparel, electronics and consumer goods because of soaring wages and costs. China’s ability to attract factory investment in the 1980s and 1990s from abroad helped it build home-grown suppliers and eventually its own global companies. Samsung Electronics opened its first plant in China in 1992.
Shares of Samsung Electronics rose 3.6% as of 12:30pm in Seoul trading, poised for the highest close since 23 August.
Now the company has bet large on Vietnam. White buses emblazoned with the blue Samsung logo rumble past water-buffalo grazing across the street from the Samsung SDI Co. battery plant. Trucks ferry Galaxy smartphones on the Bac Ninh-Noi Bai Highway—opened simultaneously with Samsung’s operations—to Noi Bai International Airport, where the company has asked for its own cargo terminal.
This week, local news websites reported that Samsung has applied to the customs department for tax exemptions to re-import flawed Galaxy Note 7 smartphones and export replacements to Samsung’s headquarters in South Korea. The company declined to comment on the production of the phone or details of the product recall.
More than half of 856 foreign companies that had invested a combined $11.9 billion in Bac Ninh province by June were related to Samsung. Foreign investment now accounts for 60% of the province’s economy, said Nguyen Duc Cao, vice director of Bac Ninh Industrial Zones Management Board, who owns a gold-coloured Samsung S6 phone.
Samsung’s $15 billion investment in Vietnam has made it the country’s largest single exporter, shipping about $33 billion of electronics last year. The year before the South Korean company came, Vietnam’s total exports of mobile phones and other telecommunications products was $593 million.
In addition to the two Bac Ninh plants, Samsung has opened factories in nearby Thai Nguyen province and in Ho Chi Minh City—employing about 130,000 workers nationwide.
“We will continue to strengthen our business in Vietnam and our expansion plan is dependent on consumer, market trends,” the company said in an email.
Vietnam’s long-term economic development requires it become “a haven of investment,” said Scott Rozelle, a Stanford University development economist. “There are all these spillover effects—you get everybody working.”
Moving from rice paddy to production line gives farmers higher wages, social security benefits like a pension and sick leave, and job stability, said Brian McCaig, assistant professor of economics at Wilfrid Laurier University in Waterloo, Ontario, Canada. Workers send part of their earnings to their families, with remittances accounting for about 7% of rural income in 2014, said McCaig, who has researched how export agreements lift Vietnamese out of poverty.
“Samsung provides very good working conditions,” Le Thi Hoa, a 22-year-old Samsung SDI assembly line worker in Bac Ninh, said as she shopped at an open-air vegetable and fruit market near the factory. “We get good benefits here, including health insurance, and free holiday trips with the company.”
Samsung has put Vietnam in the vanguard of countries trying to inherit China’s factory jobs, competing with the likes of Bangladesh, Thailand and Indonesia. Yet none has the confluence of cheap labour, cheap capital, a vast domestic market, infrastructure, education and political will that fostered China’s industrial boom.
If Vietnam is to follow China’s model, it will need to develop home-grown suppliers that can provide more advanced components than basic products like packaging, said Bac at the socioeconomic institute.
“If we can’t join the supply chain with high-value products, our economy will depend pretty much on overseas companies and local companies will get very limited benefits,” he said.
Samsung said it has contracts with 200 Vietnamese companies.
Meanwhile, the residents of Bac Ninh are reaping what they can from their South Korean windfall. Lan’s cousin, a former motorbike taxi driver, now supplies vegetables, eggs and meat to the cafeteria at the Samsung SDI factory, which operates around the clock.
“My cousin just bought a piece of land for 1.2 billion dong ($54,000),” Lan said. “He plans to build a motel on it.”