Amid stiff competition from Chinese smartphone makers like Xiaomi and Oppo, Samsung plans to outsource the production of some of its popular smartphones to a third-party original device manufacturer (ODM) in China. According to Reuters, the South Korean major will outsource its mid-range Galaxy A-series to Wingtech who will have an active say in both design and production of the devices.
Sources told Reuters that out of 300 million smartphones Samsung plans to ship next year, the company will outsource a fifth of the production to ODMs in China, around 60 million devices. Wingtech and other ODMs make smartphones for Huawei, Xiaomi and other Chinese smartphone makers.
Samsung will be selling these Galaxy smartphones made by a third-party ODM in Southeast Asia and Brazil. The company says its ODMs devices will have the same quality as the phones manufactured by Samsung. However, some fear that the change in strategy could lead to quality control of these devices.
Rivals with low priced smartphones, predominantly from mainland China, are putting pressure on Samsung. The company’s market share in India saw a steep decline in the last quarter. According to research firm IDC, Samsung had a market share of 18.9 per cent in the third quarter of 2019. Xiaomi still leads the Indian smartphone market with a market share of 27.1 per cent. For Samsung, India is a critical market and if it performs below expectations, it might have a negative impact on the company’s smartphone business in the long run. Samsung operates the world’s largest smartphone factory in India, which it opened last year.
Other than India, Samsung is also losing market share in China, the world’s largest smartphone market. Samsung’s market share shark to 1 per cent in China in the first quarter of 2019. The company recently announced that it would shut its last remaining factory in China.
The strategy behind outsourcing some of the production to ODMs to save cost. Given margins are slim in the budget and low-end smartphone segment, Samsung has left with no choice but to start outsourcing the production to third-party ODMs like Wingtech. One source claimed that Wintech is able to secure some components for up to 30 per cent less than what Samsung would pay in Vietnam, where the company operates three factories.
For now, though, Samsung has no plans to outsource its high-end devices to third-party ODMs in China. It will continue to manufacture devices like the Galaxy S10 and Galaxy Note 10 in Vietnam and India.