Samsung launched its first ODM smartphone, the Galaxy A6s, in China last year. The ODM classification means that this device was not manufactured by Samsung in its own factories. It outsourced the production to a contractor. The company made this decision as it switched up its strategy to better compete in the lucrative Chinese market.
Reports so far have suggested that Samsung will release more ODM devices in China. However, it appears that in a bid to become more competitive in key markets, Samsung will now start shipping third-party made Galaxy phones in markets outside China as well.
Samsung's ODM Galaxy phones will be sold outside China in 2020
Samsung had significantly ramped down its own production in China over the years as its market share fell below 1 percent. The company shut its last factory in the country just last month. It became evident that Samsung was going to meet local demand through a mix of ODM-produced and imported units from its factories outside the country.
Echoing earlier reports, sources told Reuters that out of the 300 million devices that it expects to ship next year, Samsung will outsource a fifth of that production to ODMs in China, around 60 million units. It has been making arrangements to shift production of some Galaxy A models to third-party manufacturers like Wingtech.
The company and other ODM manufacturers make devices for the likes of Huawei and Xiaomi. They thus have massive economies of scale which allow them to produce new budget devices quickly. There is some concern that this shift in strategy will lead to Samsung losing control on quality for these devices. Moreover, substantial orders from Samsung may enable these manufacturers to lower their costs even further which would end up helping Samsung's rivals.
Since margins are very slim in the low-end segment, Samsung is left with no choice but to use the same strategy as its Chinese rivals to counter them in the market. Shifting production of some mass-market models will enable it to further cut costs and offer then for lower prices. One source claimed that Wingtech is able to secure some components for up to 30 percent less than what Samsung would pay for them in Vietnam where a bulk of its devices are made.
Wingtech is said to get a voice in both the design and production of its lower and mid-range Galaxy A handsets. The units will then be sold in China and markets across Southeast Asia and South America. However, in a bid to allay concerns about quality control, Samsung told the scribe that it will maintain oversight of the design and development of its ODM smartphones. Sources also claim that in order to reduce the possibility of any quality issues, Samsung has been pairing Korean component suppliers with Chinese contractors. The company itself says that its ODM devices will have the same quality checks and standards as any of its other devices.
This changes nothing for premium mid-range and flagship devices. Samsung will maintain sole control over the entire process from conception to mass production. It will manufacture those devices at its factories in Vietnam and India. This shift in strategy is merely meant to counter the rising tide of competition from Chinese smartphone manufacturers. Samsung is trying to beat them at their own game. Let's see how that works out.
