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Why is Samsung the biggest company in Vietnam?

In 2017, the revenue of Samsung’s subsidiaries in Vietnam reached 58 billion USD, and became the largest company in Vietnam, surpassing PVN.

The Samsung Electronics factory in Thai Nguyen employs more than 60,000 people. These three cafeterias serve about 13 tons of rice per day. This factory makes more cell phones than any other facility in the world. This and other Samsung Electronics factories in Vietnam produce nearly a third of the company’s global output. The company has invested a total of about 17 billion USD in Vietnam.

But Samsung is important to Vietnam just as Vietnam is important to this electronics giant. Last year, the sales of Samsung’s subsidiaries in Vietnam reached 58 billion USD, and became the largest company in Vietnam, surpassing the National Petroleum Corporation of Vietnam. Samsung employs more than 100,000 people. It has helped Vietnam become the second largest exporter of smartphones in the world, after China. Samsung alone accounted for nearly a quarter of Vietnam’s total exports ($ 214 billion) last year.

Photo: The Economist.

All of this has created a huge benefit for the Vietnamese economy. Despite negative reports on working conditions at Samsung factories, Thai Nguyen and Bac Ninh have become two of the richest cities in Vietnam. Restaurants, shops and hotels mushroomed around Samsung’s industrial parks. The number of domestic companies that have become important suppliers to Samsung has increased sevenfold in the past three years.

And Samsung is just the largest Korean investor in Vietnam. Of the 108 billion-volts foreign direct investment (FDI) that Vietnam has attracted since joining the World Trade Organization (WTO) in 2007, a third is from Korea. LG Electronics, a giant South Korean company, produces television screens in a $ 1.5 billion factory in Hai Phong port. Lotte, a Korean conglomerate, owns a chain of supermarkets.

Vietnam has attracted FDI inflows of 8% of GDP in 2017 – double that of comparable economies in the region. Foreign-invested enterprises account for nearly 20% of the national output. They have grown twice as fast as state-owned enterprises in the past decade. The economy grew 7.4% in the first quarter of 2018 compared to the same period last year, one of the fastest rates in Asia.

For Samsung, Vietnam is an attractive alternative to investment in China. The workforce is young, cheap and plentiful. That used to be one of the strengths of China, but the country’s workers are now seven years older, and the labor cost is twice as high as in Vietnam.

The cheap labor cuts costs in Samsung’s factories, giving the smartphone maker an edge over Apple in cheaper phones. Other countries in the region tend to export raw materials or components to China, where they are assembled into other products. Vietnam exports mainly finished goods.

Vietnam is also a destination to help Korean companies avoid the consequences of political disagreement between Korea and China. Last year, the Chinese government ordered a boycott of South Korean companies and products to punish the Kimchi government for deploying US missile defense systems. The boycott, though over, has caused concern among Korean investors.

On the contrary, Vietnam is liberalizing its economy to call for foreign investment. In 2015, the government opened 50 industries to attract capital from abroad and cut regulations of hundreds more. The Vietnamese state sold a majority stake in Sabeco to Thai Bev last year.

Vietnam’s enthusiasm for free trade agreements has made the country particularly attractive to foreign investors. It is a founding member of the Trans-Pacific Partnership Agreement, a multilateral trade agreement involving Australia, Canada and Japan. Vietnam will also soon sign a trade agreement with the European Union. The free trade agreement that Vietnam signed with Korea in 2015 made the country the fourth largest trading partner of Korea.

Mr. Moon Jae-in, President of South Korea, visited Vietnam last month, along with representatives from Samsung and other companies. This was his second trip to the country in less than a year in office. The President’s advisers have expressed the opinion that Korea should not content itself with being a “shrimp among whales” like China and Japan, but instead become a regional power. by connecting with smaller allies. They believe that this will make Korea a “dolphin”, deciding its own fate. And investing in Vietnam is a wise decision.

“Koreans should not be self-satisfied with is ‘shrimp among whales’ like China and Japan, which instead becomes ‘a dolphin’, a regional power by connecting with smaller allies. “

The Economist
* Source: Investment bridge


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