[Viewpoint] Galaxy S moves to China

Samsung Electronics Co. recently announced that it will start making its top-end smartphone Galaxy S line at its mobile phone production base in Tianjin. As corporate news, this should hardly raise eyebrows as Apple Inc. has long manufactured its iPhone and iPad in China.

Samsung has been sticking to its home base to produce highly competitive smartphones since their launch in March 2010 for efficiency and strict quality control of key technological components like the Super AMOLED touchscreens and memory chips. The amount produced from Tianjin factory lines will be small - for now.

Lee Kyung-ju, vice president of the company’s telecommunications division, said the Tianjin base will be used for sales in mainland China, which will be less than five percent of total Galaxy S production.

But reading between the lines, the terse corporate announcement could have greater implications.

The Chinese are quickly catching up with the Koreans in technological advancement with labor cost still only half the level as our own. The workers in Tianijin already have five to seven years of experience.

They started to turn out high-end full-touch phones last year and are now deemed competent enough for Korean executives to divert smartphone production into their hands, using their own resources. Tianjin is a popular place for international technology companies and component producers, offering easy and cheap access to parts necessary to make smartphones.

Swift changes in the Chinese labor market could be another reason for Samsung’s enhancement of its Tianjin base. Foxconn, the Taiwanese electronics component maker and contract manufacturer of Apple’s iPhone, attracted an unwanted spotlight over a spate of suicides by its workers at a Shenzhen production base.

Foxconn doubled the workers’ wages to stop workers killing themselves and get over the allegations of harsh labor conditions. The repercussions of that case reached the foreign manufacturing belt in Tianjin. Lee of Samsung declined to disclose details on pay hike there, but said the Tianjin base can no longer be expected to manufacture lower-end products.

Samsung is realigning its global manufacturing to reflect the new role of the Tianjin base, shifting the lower-end products to Vietnam and other countryside bases in China with cheaper labor.

China’s industrial modernization is reshaping the industrial map in Asia. China has already successfully lured South Korea to produce its next-generation liquid crystal displays, and other international technology companies are flocking there.

Foreign companies primarily seeking low labor cost from their China investments are no longer welcome.

They must look toward Vietnam or India if cheap labor is what they are seeking. Wages in China have been rising by double digits in recent years and authorities plan to encourage wages to double from their current levels by 2015 to help spur domestic consumption.

China is inevitably facing the Lewisian Turning Point, an economic phenomenon named after economist Arthur Lewis, who noted that a developing economy powered by cheap labor will slow down when industrial wages begin to rise quickly and surplus labor is depleted.

But Chinese authorities are confident of guarding their industrial base, assured by its immense domestic market, rich resources, and logistics infrastructure. These are no match to other countries that offer cheap labor but not much else.

The Korean economy itself turned a new corner in the third quarter last year with solid economic growth generating quality jobs. The economy has gained vitality unseen in the last decade. The country’s 30 largest business groups pledged a record 113 trillion won ($101 billion) in capital investment this year.

If they carry out research and development, as well as investment projects as planned, they would have to hire around 118,000 new employees, doubling last year’s number. This year’s performance can shape the country’s economic future for the next decade.

One of our globally best-selling electronics, the Galaxy S, has moved to China. More can follow suit.

The government, local governments, and legislative authorities must come up with strategies to prevent local companies’ pledges of record capital investment going elsewhere and make them spend it at home. The best welfare policy is to keep secure, high-quality jobs rolling along.

*The writer is an editorial writer of the JoongAng Ilbo.

By Lee Cheol-ho