LG Electronics’ decision to move its local smartphone production line to Vietnam is expected to pressure other group units such as LG Display and LG Innotek to follow suit to cut costs, industry sources said Thursday.
The company said it will phase out work at its Pyeongtaek factory in Gyeonggi Province by the end of the year and shift production to Hai Phong where the firm has operated a factory since 2014.
The tech giant made the decision in an effort to cut costs for its money-losing smartphone business amid comparatively high labor costs in Korea and an increase in prices of components.
“The decision comes to promote improvement in profitability and raise our global competiveness amid stagnation in the global smartphone market,” an official from LG Electronics said.
Sources said LG Electronics’ decision is expected to exert influence on other LG affiliates, given that both LG Display and LG Innotek are also facing pressure to boost their profitability.
During the January to March period, LG Display and LG Innotek posted operating losses of 132 billion won ($114 million) and 11.4 billion won, respectively.
“Labor costs in Vietnam are lower than those in Korea,” a source said. “LG Electronics as well as its affiliates will be able to see a reduction in costs there.”
LG Display and LG Innotek already operate factories in Hai Phong.
LG Display manufactures organic light-emitting-diode (OLED) display modules there. If OLED displays for LG smartphones are produced there, the travel distance of the products will be shorter in addition to lower labor costs, sources noted.
Regarding the issue, an LG Display official said, “We don’t have any plan yet to move our production lines in Korea to Vietnam.”
An official from LG Innotek also said, “We have no plans regarding relocation.”
LG Electronics’ Pyeongtaek factory is specialized in producing premium smartphones, while the factory in Hai Phong has focused on manufacturing low and middle priced products.
“Once the production line in Pyeongtaek is added, the Hai Phong factory will have production systems of the full lineup of LG smartphones with annual production capacity of 11 million devices,” said the LG Electronics official.
The company said about 750 employees working in the Pyeongtaek factory will be reassigned to another manufacturing household appliances in Changwon, South Gyeongsang Province. The firm said the measure is designed to respond better to growing demand for air purifiers and clothes dryers.
Some of the employees are expected to apply for a voluntary resignation program.
LG Electronics’ smartphone business has recorded operating losses for 15 consecutive quarters up to the fourth quarter of 2018, and is highly likely to post a loss again in the first half of the year.―Korea Times