Death of Samsung’s Galaxy Note 7 Set to Hurt Vietnam Exports

  • September exports fell by $1.1 billion due to recall of phones
  • Samsung accounts for about 20 percent of nation’s shipments

What the Loss of the Note 7 Means for Samsung

The fallout from Samsung Electronics Co.’s dramatic move to end production of its Galaxy Note 7 smartphone is set to spread to Vietnam, hurting an economy already hit by drought and lower oil prices.

“Samsung’s decision to kill off Galaxy Note 7 will certainly impact Vietnam’s exports this year,” since the company’s exports represent about 20 percent of the nation’s shipments, said Nguyen Mai, chairman of Vietnam’s Association of Foreign Invested Enterprises. The recall of 2.5 million smartphones after complaints of exploding batteries contributed to a $1.1 billion decline in exports in September, according to the statistics office.

Samsung helped to turn Vietnam into an electronics manufacturing hub almost single-handedly with $15 billion in investments from the technology giant and its affiliates, including battery-maker Samsung SDI Co. The South Korean company is Vietnam’s biggest exporter, shipping about $33 billion of electronics last year.

A pedestrian walks past the Samsung Electronics Vietnam Co. Plant at Yen Phong Industrial Park in Bac Ninh Province, Vietnam, on Thursday, Sept. 1, 2016. Samsung Electronics Co. and its affiliate have built a factory town with 45,000 young workers and hundreds of foreign component suppliers -- a miniature version of the family-run chaebol conglomerates that dominate business back in Korea. The investment has been a windfall for businesses in Bac Ninh -- almost 2,000 new hotels and restaurants opened between 2011 and 2015 according to the provincial statistics office -- helping raise the province's per capita GDP to three times the national average. Photographer: Linh Luong Thai/Bloomberg
A Samsung Electronics Plant at Yen Phong Industrial Park in Bac Ninh Province, Vietnam.
Photographer: Linh Luong Thai/Bloomberg

Vietnam now faces the loss of millions of dollars in exports at a time when its struggling to meet its 2016 economic growth target of 6.7 percent. Part of the reason for the 6.8 percent decline in exports in September from the previous month was due to the Note 7 recall, said Nguyen Bich Lam, head of the country’s General Statistics Office.

“It’s another blow,” said Alan Pham, the Ho Chi Minh City-based chief economist at VinaCapital Group Ltd., the country’s largest fund manager. “This is the risk of putting all your bets on one company or industry. But that is the natural progression of a developing country: It starts by exporting commodities then turns to manufactured products, industrial products.”

Samsung’s plants in the northern provinces of Bac Ninh and Thai Nguyen do not plan to fire employees as a result of the Note 7 incident, the company said in an e-mail statement. Overall 2016 Vietnam exports are expected to increase from last year, the company said.

Shares of Samsung Electronics dropped for a third consecutive day today, losing 0.7 percent at close in Seoul trading.

Even before the Note 7 fallout, Vietnam was struggling to meet its target of 10 percent export growth this year, Trade and Industry Minister Tran Tuan Anh said in a July interview. Still, Vietnam’s economic growth is better than neighboring countries, Pham said.

Vietnam’s annual economic growth accelerated to 6.4 percent last quarter, from 5.78 percent in the previous three months, the General Statistics Office said Sept. 29, behind only the Philippines in Southeast Asia. The government is pushing for 6.7 percent growth target this year.

Earlier this month local news websites reported that Samsung had applied to the customs department for tax exemptions to re-import flawed Galaxy Note 7 smartphones and export replacements to Samsung’s headquarters in South Korea.

“Samsung has contributed greatly to Vietnam’s economy,” said Mai, who estimated the total workforce tied to Samsung in Vietnam is about 400,000 people, including 130,000 company employees.

(Updates with stock price in seventh graph.)
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