The mobile phone supply chain shifts geography as trade politics change

All the political noise around Donald Trump’s tariff war on China can obscure the real changes that are taking place in supply chains and trade patterns around the world. Underneath the friction between the US, China and possibly some European economies, major changes are taking place in where product is sourced.

One quite powerful example of this shift has been the changes in the mobile phone supply chain. Over the past couple of months, the two large Korean electronics producers, Samsung and LG Electronics, have both recently temporarily or permanently ended final product assembly out of South Korea.

The government news agency in Vietnam is reporting that LG Electronics has suspended assembly of mobile phones at its plants in South Korea and moved them to its facilities in Hanoi and Haiphong. These Vietnamese plants will now account for most of mobile phone production by LG electronics.

Samsung is also moving production to Vietnam. Late last year it announced that it would close its Chinese assembly plants and shift production to its two existing facilities outside Hanoi, and is considering opening a third to cope with the additional work. The company has already created a dedicated air freight infrastructure for its operations in the north of the country with an ‘inhouse’ cargo terminal and bonded warehouse at Noi Bai Airport in Hanoi.

The mobile phone sector is under acute pressure as a flood of Chinese ‘State Owned Enterprises’ pour competent product onto the market. This has forced electronics companies to reassess their supply chains. Not only are wage costs in South Korea higher but labour is less abundant than it once was, in contrast to Vietnam. The consequences are obvious.

The South Korean electronics firms are not the first to follow the path to South East Asia. Their Japanese competitors, notably Sony, have been developing an assembly presence across the region for the best part of ten years. This shift was partly influenced by political tensions between the two nations, however cost played a role as well.

However today there is clearly a new dimension in supply chain design in the electronics sector; a sense that assembly plants in China may be vulnerable to trade friction.

This has been vividly demonstrated over the past twelve months in the clothing and footwear sector where production in South East Asia has seen a burst of growth as both producers and purchasers sought to switch sourcing out of China in response to the imposition of tariffs by the US. The fear is that these conditions may afflict electronics as well.

There may be two underlying forces at play within these supply chains. Rising costs in the economies of North Asia are continuing to drive assembly operations into newer locations such as South East Asia and beyond. However, the politics around China’s position in the global trading system is also affecting the structures of supply chains. The likelihood is that the dominance of the China trade in air and sea freight has already begun to fade.

Source: Transport Intelligence, May 16, 2019

Author: Thomas Cullen


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