Sunday, May 11, 2008

Samsung : Disagreement with subcontractors resulted into Gumi plant shutdown

World’s largest electronics company, Samsung Electronic Co., Ltd (SEO:005935), had been forced to shut down its plant due to disagreement over material price with its contractors. This incident also provoked lots of negative criticism and marred the company’s image. The company admitted that its mobile phone handset producing plant at Gumi in Seoul had to stop 20% of its operations for eleven hours, starting from 11 p.m. Friday to 10 a.m. Saturday, as the small and medium-sized subcontractors accused the company of passing on the cost-cut burden upon them. Korea Times reports:

Samsung said the plant has been normalized after it agreed with the participants to review prices in upcoming talks. However, worries are high that Samsung’s premium handset image might get hurt in the long term without decisive measures to ease such disputes.

Samsung hopes to narrow the market gap with the industry leader Nokia by sticking with a two-tier strategy _ premium phones such as the Soul and Haptic from its domestic plant and mid-tier phones from those overseas. The company plans to increase the annual production of handsets in Gumi to 80 million this year from 75 million in 2007.

This is the first incident of production halt in Gumi plant since its inception in 1988. There are 630 suppliers in Gumi. According to the report of Strategy Analytics, a market research firm, Samsung and Motorola is currently at the second position controlling 16.4% of the global mobile phone market. A Samsung spokesperson said that the company should strengthen its price competitiveness at Gumi plant as the product is losing its pricing edge. Currently, Samsung has manufacturing facilities in India, China, and Brazil. It will set up another facility in Vietnam to meet its current production target of 200 million.

Related article:
Korea Times