Samsung to outsource more smartphone production to China
SUWON, SOUTH KOREA — Samsung Electronics is set to significantly increase its outsourcing of smartphone design and production to Chinese original device manufacturers (ODMs) and joint device manufacturers (JDMs) in 2024.
According to a report by The Elec, this move will see the production of outsourced smartphones rise from 44 million units in 2023 to 67 million units this year.
This increase means that outsourced phones will account for 25% of Samsung’s projected production target of 270 million units for the year.
Cost reduction strategy for budget phones
The primary motivation behind this strategy is cost reduction. By outsourcing production, Samsung aims to offer more competitively priced budget phones.
This approach has been in place since at least 2019, focusing mainly on the company’s affordable smartphone range rather than its high-end devices.
The outsourcing model allows Samsung to maintain lower price points, which is crucial in a market where Chinese competitors are known for aggressive pricing.
Trade-off between cost and quality
While this strategy can lead to cheaper phones, it also comes with potential downsides. There are concerns that the focus on cost reduction could impact the quality and design of Samsung’s budget devices.
For instance, the Samsung Galaxy A03s, a reportedly outsourced device, received mixed reviews from the online publication Android Authority. It was praised for its impressive battery life and several quality-of-life enhancements but criticized for its budget construction and sluggish performance.
Samsung’s market position in budget phone segment
Despite these concerns, Samsung’s outsourcing strategy appears to be resonating with consumers. The company was the only Android manufacturer to feature in the top 10 best-selling smartphones in 2022 and 2023.
This indicates that the market is responding well to the availability of more affordable Samsung devices, even if they are produced by third-party manufacturers.
Diversifying production beyond China
In addition to increasing its reliance on Chinese ODMs, Samsung will also outsource 28 million units to factories in Vietnam. This diversification of production locations is part of Samsung’s broader strategy to maintain cost competitiveness while managing geopolitical risks and supply chain disruptions.
Samsung’s decision to ramp up outsourcing to Chinese manufacturers is a calculated move to stay competitive in the budget smartphone market.
China is also set to benefit from the deal. During the first four months of 2024, the country’s service outsourcing industry witnessed a remarkable surge to 781.43 billion yuan (US$110 billion), up 14.4% from last year.
