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Why did Samsung Electronics go to Vietnam?

Posted July. 15, 2014 06:28,   


Some 24,000 Vietnamese workers work at the factory of Samsung Electronics in Bac Ninh Province, northwest of Hanoi, Vietnam. While having lunch in the cafeteria, they held a spoon in one hand and chopsticks in the other hand. As they were eating with both hands, they seemed to eat quickly. As the Vietnamese people are dexterous, they are on a steep learning curve in making mobile phones.

In 2008, Samsung Electronics reviewed two options. One option was expanding the mobile factory in Gumi, North Gyeongsang Province, and the other was building a new factory abroad. In the end, the company decided to go with Vietnam. Labor costs in Vietnam are cheap. It costs 353 U.S. dollars per month (including overtime pay) for a female worker with a high school diploma in Vietnam, which is one 10th of Korea’s 3,715 dollars.

In 2012, the company hired 19,665 employees in Vietnam in 2012 while recruiting only 175 people in Gumi. It tries to hire high school graduates from provinces of Gyeongsang, Jeolla and Chungcheong within 200 kilometers from the factory, but many do not want to work in a factory. Jobseekers want a job in Seoul and prefer working in the service industry. This is why it is hard to blame companies for going abroad. Korean workers learn fast at first but Vietnamese workers can be up to speed in three months. They want to work overtime because the air-conditioned factory is cooler than their home.

The Vietnamese government offered Samsung Electronics 112 hectare of land for free. In terms of corporate tax, the company does not pay a single dollar for four years. It pays only five percent for 12 years and 10 percent for the following 34 years, which is a big contrast to Korea’s 22 percent. Vietnam exempts import tariffs and value added taxes but also charges only half of the electricity, water and communication bills. As the government controls companies, a labor strike continues just for four hours. The Vietnamese government thanks Korea`s tech giant that gave some 20,000 people a decent job. Samsung Electronics plans to invest one trillion won (982 million dollars) to build a home appliance factory in Ho Chi Minh. It is the size of 100 soccer fields combined. The world has become too small to appeal to patriotism without trying to improve the business environment.

Editorial writer Choi Yeong-hae (yhchoi65@donga.com)