Samsung Electronics, which employs around 110,000 people in Vietnam, finally pulled the plug on the new Note 7 phone on Tuesday, less than two months after its launch, dealing a huge blow to the business as a result of unresolved safety concerns.

But Samsung Vietnam said it has no plan to lay off employees in 2016 as a result of the parent company's crisis and predicted the value of its exports would grow further from last year's $32.7 billion.

"The Note 7 incident may not bring about any significant impact on our exports in 2016; in fact this year's exports turnover is expected to increase," Samsung Vietnam said in a statement.

Samsung is a major investor in Vietnam, a low-cost manufacturing center for products that include its signature SMART televisions.

Electronics has become a vital part of Vietnam's economy and a factory base for other brands like Microsoft, Intel, Canon Inc, LG and Sony Corp.

Le Dang Doanh, a renowned economist and former government advisor, said the Note 7 crisis would serve as a warning to the government to diversify its economy and to become less reliant on foreign investment, which accounts for around 70 percent of Vietnam's exports.

"This incident will affect negatively on Vietnam's labor, exports and state budget," he said.

"There is a lesson here that we should not rely too much on a single market and exports should not depend on a single product."

Crucial sector

Phones exports are significant to Vietnam's exports, with the value of 2015 shipments up by 27.8 percent at $30.17 billion, or 19 percent of the country's total exports, customs data show.

Its phone shipments in the first nine months of this year increased by an estimated 8.6 percent on the same period last year to $24.96 billion.

Samsung Electronics slashed its quarterly profit estimate by a third on Wednesday after taking a $2.3 billion hit from ditching the Note 7, which is made in Vietnam, South Korea and China.

But losses could spread to Vietnam where Samsung Electronics has several phone factories in the north with combined investments of about $7.5 billion.

Any fall in phone output would put further pressure on what is one of Asia's most resilient economies, as weakness in the mining and agriculture sectors hindered growth in the third quarter. Many economists and the government have predicted that Vietnam will miss its 6.7 percent growth target this year.

Analysts say a permanent end to Note 7 sales could cost Samsung up to $17 billion and tarnish the brand for other phones in the minds of consumers and carriers, while Samsung Electronics' market value has lost by around $20 billion.

The value of exports from Samsung's factories in Thai Nguyen and Bac Ninh could rise to $34.7 billion this year, or about a fifth of Vietnam's total exports, said Nguyen Mai, president of Vietnam's Association of Foreign Invested Enterprises.

Recalling the Note 7 could reduce Vietnam's exports by an estimated 0.5 percent to 1 percent this year, which will pose more challenges for the Southeast Asian nation to achieve its 10 percent exports growth target, Mai said.

But the recall may not hurt Vietnam's economic growth in the long-term, he added.

"Samsung is a large firm having reputable technology. They can rebuild the trust of customers, so this will not affect much on the future of Samsung," he said.

"Samsung is still making many other products in Vietnam."

By Mai Nguyen & My Pham - Reuters - October 13, 2016


Why Samsung workers in Vietnam are confident in riding out Note 7 storm

Employees appear more optimistic than investors.

As Samsung Electronics struggles to salvage its reputation after the safety problems that have beset its flagship Galaxy Note 7 smartphone, the South Korean company can at least bank on an army of Vietnamese workers for support.

Tens of thousands of them are involved in assembling more than a third of Samsung’s smartphones—the Galaxy Note 7 included—in the Pho Yen area of Thai Nguyen province, which is about 65 km north of the Vietnamese capital Hanoi. Samsung’s arrival three years ago transformed it from a sleepy farming district into a sprawling industrial town.

While the company expects to take a profit hit of around $5 billion from the scrapping of the fire-prone phone, 13 workers interviewed by Reuters outside the factory almost all said they are confident their employer will pull through. They also say Samsung pays well, offers good benefits, and takes care of their needs.

“Recalling (Note 7) doesn’t mean we are unemployed or such; Samsung also makes many other phones and new models, not just the Note 7,” said Nguyen Thi Hang, one of some 110,000 Vietnamese who work for Samsung Electronics across Vietnam, making it one of the nation’s biggest employers.

The Samsung SSNLF 5.56% factory workers get around $180 in monthly base salary, which can grow to around $300 when overtime, annual incentives and other benefits are included. That is well above average incomes in such rural areas.

Young workers are also drawn to the Thai Nguyen jobs by generous benefits, including subsidized or free meals, and accommodation that cost less than $3 a month. There are also organized sports, karaoke and discounts on various products and services, such as Samsung phones and hair salons.

Nguyen Van Doai, 27, a worker at the plant, said some overtime options had been reduced due to the Note 7 withdrawal, but there was no indication of job cuts.

“Samsung hasn’t reached a level where they have to cut jobs because they are still hiring many people and constructing more buildings,” Doai said.

Samsung Vietnam said on Wednesday there would be no job cuts this year as a result of the end of its production of the Galaxy Note 7, and its exports for 2016 would still grow as it ramps up production of other models.

Samsung Village

Samsung has invested $14.5 billion in Vietnam, according to Vietnam’s Association of Foreign Invested Enterprises, equivalent to 10% of the country’s total foreign investment over the past three decades. The attractions for Samsung include relative political stability, tax breaks, and lower labor costs than in China.

For those who don’t live on the site, the company provides transport. Every day, thousands of Vietnamese are ferried to and from their homes in Hanoi and other cities and towns in the region in a procession of buses to the sprawling factories in Thai Nguyen and Bac Ninh provinces. In a corner of the capital on Thursday, workers queued at daybreak to board 14 of around a hundred factory-bound buses, some still emblazoned with advertisements for the Note 7.

But there are some workers and people running local businesses who are not convinced Samsung’s Vietnam operations will emerge unscathed.

Dentist Phung Minh Ngoc, who moved to Thai Nguyen from Hanoi a year ago to set up a clinic named “Rang Xinh Samsung” (Pretty Tooth Samsung), fears the Note 7 fallout could hurt his business.

“Their sales will certainly fall and so jobs for workers will lessen and workers’ salaries may also decrease,” he said.

One female worker at the Pho Yen factory, who declined to be named, said she was worried because her contract was up for renewal next month.

“I just brought my baby here with me. If I couldn’t work for Samsung any longer, I would have to go back to farming,” she said.

Reuters - october 14, 0216