SEOUL (Reuters) - Samsung Electronics will cease operations at one of its mobile phone manufacturing plants in China, the company said, as its sales in the world’s biggest smartphone market slumps amid rising competition from lower-cost local rivals.
The South Korean company has seen its share of the Chinese market shrink to 1 percent in the first quarter of this year, losing out to home-grown brands like Huawei [HWT.UL], according to market research firm Counterpoint, which pegs Samsung’s share of the pie at about 15 percent at mid-2013.
“As part of ongoing efforts to enhance efficiency in our production facilities, Samsung Electronics has arrived at the difficult decision to cease operations of Tianjin Samsung Electronics Telecommunication,” Samsung said in a statement, referring to the plant in northern Chinese city of Tianjin.
The factory, which currently employs about 2,600 people, is scheduled to be shut down by the end of this year.
Samsung, the world’s biggest smartphone maker, said it would offer compensation packages to the employees and also provide opportunities to transfer to other Samsung facilities.
The company, which has been focusing on low-cost countries like Vietnam and India for production, added it would continue to operate another Chinese phone factory in Huizhou, in the southern province of Guangdong.
“Samsung doesn’t need to stay in China because of rising labour cost and its almost non-existent Chinese market share. They can be better off in India and Vietnam,” said Greg Roh, a senior analyst at Hyundai Motor Securities.
Samsung’s Tianjin plant produces 36 million mobile phones a year and the Huizhou plant makes 72 million units, while two of Samsung’s factories in Vietnam combined make 240 million units a year, according to the South Korean newspaper Electronic Times.
Samsung declined to disclose the capacity of each factory.
“China remains an important market for Samsung and we are actively participating in China’s economic policies by fostering growth in the components industry,” Samsung said.
Reporting by Ju-min Park; additional reporting by Heekyong Yang; Editing by Himani Sarkar