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South Korea's handset industry is leading indicator of supply chain shift
Colley Hwang, DIGITIMES, Taipei 0

In an effort to reduce costs and meet emerging markets' demand, Samsung has chosen to place two thirds of its global production capacity at 360 million phones near Hanoi, Vietnam and one third in Noida, India. At the same time, a group of American brands led by Apple have asked their Taiwan-based OEMs to set up production facilities in India. Taiwan's three largest manufacturers Wistron, Pegatron and Foxconn all have production lines up and running in India. Before this, Taiwan-based notebook computer manufacturers had already moved their production to major ASEAN countries. It is a definite trend that manufacturers are relocating part of their production out of China into ASEAN countries and South Asia amid the changes in the US-China trade relations and the paradigm shift toward regional production.

Despite its status as the largest mobile phone brand, Samsung faces strong competition in the 5G phone market. Apple secures the largest share, 30%, of the global 5G phone market as of first-quarter 2021, followed by China's Xiaomi, Oppo and Vivo and then Samsung at No. 2 to No. 5, with market shares in the range between 16% and 12%. The fierce price cutting competition in this segment certainly puts enormous pressure on Samsung. LG has announced its decision to exit the handset sector in the face of pressure from China-based competitors. According to South Korea's ET News, only five among Samsung's 15 major component suppliers were able to maintain growth in first-quarter 2021 and the rest all encountered setbacks.

With respect to tablets, Apple shipped a total of 58.8 million units in 2020, representing 37% of the market while Samsung shipped 37 million units, securing a 19% market share. Going into first-quarter 2021, tier-two vendors had sourcing difficulties amid the component supply shortage with the top five leaders taking hold of a 95% market share. Apple's and Samsung's shipments showed particularly large growth. It is expected that the component shortage in 2021 will affect the rankings among mobile phone and tablet brands and even reshape the industry structure going forward. To local suppliers in ASEAN countries and South Asia, the goal may not be to win over partnership opportunities for widely commercialized products such as mobile phones or tablets but for differentiated and value-added products such as industrial PCs and electric vehicles (EV).

As to the TV industry, Samsung and LG have been ranked No. 1 and No. 2 for 15 years in a row after overtaking Japan's Sony in 2006. As TVs are set to be a stepping stone toward smart homes, Samsung's and LG's global production planning is worth watching.

Vietnam's electronics sector is rising up to become the most promising production hub to follow in China's footsteps as it has successfully attracted Samsung to set up factories in Vietnam and Taiwan-based manufacturers to extend their supply chains from Guangdong to northern Vietnam. However, will Vietnam become the next China? India will not go unnoticed despite its recent setback by the COVID-19 outbreak. The outlook for India is still encouraging after the pandemic is over. Penang, Malaysia already hosts a critical semiconductor packaging and testing cluster. Thailand strives to become the "Detroit of Asia." The question is whether these countries will copy Taiwan and South Korea by starting with mass production or they will synergize local suppliers, government incentives and service sectors to create higher values.

These countries will unlikely plan their industrial development strategies based on the traditional approaches that have worked for Taiwan and South Korea because the times and industry structures may be different. However, the experience of Taiwan and South Korea can still serve as the best reference model to them.

Colley Hwang, president of DIGITIMES Asia, is a tech industry analyst with more than three decades of experience under his belt. He has written several books about the trends and developments of the tech industry, including Asian Edge: On the Frontline of the ICT World published in 2019, and Disconnected ICT Supply Chain: New Power Plays Unfolding published in 2020.
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