Image: Samsung

Recently, Reuters published a report indicating Samsung intends to relocate some of its supply chain to China. The news agency reveals the South Korean electronics giant wants to lower production costs on its budget handsets. The firm reportedly wants to manufacture around 60 million of the 300 million devices it plans to ship in 2020.

Why Samsung is Outsourcing Some Production to China

In the United States, Samsung’s best known for producing high-end smartphones like the Galaxy S10 and Fold. However, the firm has become the world’s largest handset manufacturer on the strength of its midrange devices. Indeed, the conglomerate has seen robust sales of its Galaxy A line of affordable mobile phones since introducing them in the mid-2010s.

Unfortunately, Samsung’s handset profit margins are tight. Notably, the corporation shuttered its last remaining Chinese production facility in October as a cost-saving measure. However, there are several Sino-based original design manufacturers (ODM) capable of fabricating the firm’s midrange devices at affordable rates.

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Research firm Counterpoint told Reuters ODMs to produce $100-$250 smartphones for 10 to 15 percent less than the major wireless brands. Notably, Wingtech, an ODM that does production work for Huawei, can source smartphone components for 30 percent less than Samsung’s Vietnamese manufacturing partners.

Impressed with its economic production model, Samsung contracted Wingtech to manufacture three percent of its smartphones in 2017. This year, the firm reportedly outsourced the production of eight percent or 24 million handsets to the Sino ODM.

Growing Its Global Market Share

Besides lowering its cost per unit, Samsung is also attempting to expand its market share by targeting South America and Southeast Asia.

Like many smartphone manufacturers, Samsung attempted to establish a significant presence in China, the world’s second-largest wireless market. However, the region’s consumers preferred to buy Apple when shopping for high-end handsets. Conversely, local buyers took to purchasing Huawei and Xiaomi handsets when looking for midrange devices.

Indeed, Samsung’s market share in the People’s Republic fell from 15 percent in 2013 to one percent in 2019.

Accordingly, the conglomerate has shifted priorities. The firm reportedly intends to sell its Wingtech made smartphones in lower-income regions like South America and Southeast Asia. The firm believes its ability to offer Google Web Services-enabled devices will help it outperform its Sino rivals.

Furthermore, Samsung has made significant inroads in India, the world’s largest smartphone market. On Tuesday, Business Standard reported Samsung India generated $10 billion in revenue in the fiscal year ending 2019. As such, the firm increased its device sales by 20 percent year-over-year.

Earlier this year, Samsung forecast an economic resurgence in the New Year. By cutting costs and strategically pursuing market opportunities, the firm is on course to realizing that prediction.

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