Samsung to Outsource Smartphone Manufacture to China

Samsung is minded to outsource the manufacture of tens of millions of smartphones to Chinese companies, according to industry sources on Monday, putting small and mid-sized suppliers here on edge.

The electronics giant plans to produce 60 million smartphones annually under original design manufacture contracts with Chinese firms, which accounts for 20 percent of its total smartphone production.

Under the new system, Samsung simply has to set a price for the phones and the Chinese contractors design them, procure the parts and manufacture them.

Samsung is desperate to survive fiercer competition with Chinese companies that roll out cheap but quality handsets costing less than US$100 due to their ample cheap labor.

Apple relies on Taiwanese contractor Foxconn for manufacture, but Samsung is going even further by farming almost every part of the process out.

The head of one small parts supplier to Samsung said, "This is like a death sentence for us." And another supplier said the number of smartphones Samsung plans to outsource was originally 70 million, and "Samsung reduced it to 60 million when we protested and appealed. Now we are visiting Chinese ODM companies to ask them to purchase our components."

Korea's top four conglomerates -- Samsung, Hyundai, SK and LG -- are realigning their businesses to stay competitive amid a paradigm shift in global manufacturing. Chinese rivals who until quite recently made only cheap, low-quality products, have emerged as potent rivals, and the Koreans risk falling behind in emerging technologies like artificial intelligence and self-driving cars.

Hyundai plans to reduce its core business of car production by half and instead devote more resources to personal drones and robotics technologies, while SK and LG are trying to sell off unprofitable business and acquire other companies to respond to the rapidly changing business environment.

Industry watchers say the Korean manufacturing industry has come to crisis point unless it adjusts to the new global paradigm.