Samsung plans to outsource as much as a fifth of its smartphone production in a bid to keep up with Chinese rivals in the mid-range segment of the market.
The Korean giant is the world’s largest mobile phone manufacturer, with shipments rising by 10 per cent during the most recent quarter to 78 million units.
IHS Markit attributed the gains not only to the strong performance of the flagship Samsung Galaxy Note 10 but also the popularity of mid-range handsets.
A refreshed Galaxy A range had helped matters, but so had the decision to outsource production. With Xiaomi and Huawei competing aggressively on price, Samsung had struggled to compete with such thin margins.
The company had a fifth of the Chinese market in 2013, but consumers in the country are extremely price-conscious and there is little brand loyalty. This means that competitively priced, feature-packed phones from rivals have eroded Samsung’s share to one per cent.
By using Chinese contractors that also make devices for other vendors, Samsung benefits from economies of scale and a more agile model that brings down costs. However this also loosens control over quality standards and also allows competitors to benefit from lower costs if they use the same contractor.
Reuters says Samsung now plans for third parties to make as many as 60 million of the 300 million devices it ships annually. Most of these devices would be aimed at the South American and South East Asian markets and it is claimed Samsung will be involved in the design, development and quality oversight of production.
Coincidentally, Samsung has closed all of its mobile phone factories in China due to slowing smartphone sales and rising manufacturing costs that have seen numerous vendors exit the country.