Samsung to Outsource Manufacture of Low-End Appliances

Samsung will outsource the manufacture of low-cost home appliances to other companies amid dwindling profits from the business.

Industry insiders said Samsung is looking for factories to outsource the production of low-end refrigerators, air purifiers and other home appliances. Samsung will handle research and development, product design and marketing, but the actual products sold under its brand will be manufactured elsewhere.

Samsung will outsource the manufacture of low-cost home appliances to other companies amid dwindling profits from the business.

The move signals a sea change for Korean conglomerates, which have long insisted on making even less profitable appliances in their own factories, first in Korea and then, as labor costs rose, in China and Vietnam.

Samsung is mainly eyeing Chinese manufacturers, according to an industry insider, starting with refrigerators and small washing machines.

A Samsung staffer said, “We will keep producing high-value-added products such as semiconductors, TVs and smartphones.”

Last year, Samsung suffered losses from two low-priced refrigerator models due to high manufacturing overheads. Profit-loss simulations showed that outsourcing their manufacture would save costs and produce W250 billion in additional profits. (US$1=W1,189).

The company also lost money from modifying production lines and purchasing vast amounts of parts for its bewildering range of products amid intensifying competition from low-priced Chinese rivals.

“We will pursue a two-track approach by continuing to manufacture premium home appliances at our factory in Gwangju while outsourcing low-priced products,” the staffer said.

Samsung has been looking to cut costs for decades. It set up factories in Malaysia in 1991 and expanded to Suzhou, China, Ho Chi Minh City, Vietnam, Poland and Mexico to make affordable products for sale there.

Outsourcing production entirely is the logical next step. Home appliances are not Samsung’s mainstay and only account for some nine percent of its sales in an oversaturated market.

Song Jae-yong at Seoul National University said, “There are concerns that Korea could lose production knowhow if the manufacture of an entire line of products is outsourced, but transferring production of low-value-added products can cut costs, boost efficiency and help corporate management.”

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