Samsung is planning to outsource its smartphone production to China next year. Samsung electronics shut its in-house Chinese smartphone factory in October. However, they are shifting the production of some Galaxy models to contractors in China. Some contractors in Chine like Wingtech make smartphones for many brands like Xiomi and Huawei. These contractors make economic phones by keeping costs down. However, Samsung’s strategy critic says it risks losing control of quality and undermining its manufacturing expertise by outsourcing. Moreover, Samsung cannot afford another quality crisis. They delayed launching Samsung folding phones this year to solve screen defects. There were many reports on expensive Samsung phones catching fire.
A source with good knowledge of Samsung Chinese operations said, “This is an inevitable strategy rather than a good strategy.” Samsung has been outsourcing limited smartphones from its plants to extend the existing portfolio. They want to ensure the efficient management of Samsung smartphones in the market. However, Samsung did not disclose the volume of outsourced smartphones. Even Wingtech did not respond to any question regarding this. The so-called original design manufacturers (ODM) can procure all the components for smartphones from 10% to 15% less than major brands. Wingtech can get some parts for Samsung phones for 30% less amount than Samsung pays in Vietnam. Wingtech started making Samsung devices in 2017, and this year, they might make 24 million units, according to IHS Markit.
Samsung will outsource its lower and mid-range Galaxy A series to Wingtech. Wingtech will have a hand in both design and production. Outsourcing smartphones could be the risk for Samsung considering the profit from low-range devices. Contractors cut down the cost to make a budget phone by compromising some quality. They even skip some manufacturing steps that could increase quality issues. Samsung has been pairing with some South Korean suppliers to ensure the quality of outsourced devices. Smartphone companies are competing over costs, and Samsung does not want to stay behind.