Response to Trump’s Twitter
Samsung Electronics will build a home appliance manufacturing plant with an annual production capacity of 2 million units to operate early next year in South Carolina of the U.S.
According to Samsung Electronics and electronics industry sources on Feb. 6, Samsung Electronics recently confirmed its plan to build a factory that rolls out refrigerators and washing machines in South Carolina in the southeastern U.S. The plant will be its first American production line for home appliances and aims to manufacture 2 million units a year from next January. An official from the electronics industry said, “It is almost certain that the factory will be established in South Carolina but Samsung Electronics is also considering a site in Alabama as an alternative.” Currently, Samsung Electronics has only one U.S. production base which produces system semiconductors in Austin, Texas. The company manufactures home appliances for the U.S. market in Tijuana, Mexico.
In regard to recent rumors about Samsung’s plan to build its U.S. plant, the company had said it did not decide on whether to invest or not yet. It has said, “We are looking for a factory site either in Alabama or South Carolina.” However, industry watchers say that Samsung Electronics has advanced its plan as U.S. President Donald Trump directly put pressure on the company. After Reuters reported on Feb. 2 (local time) that Samsung Electronics will set up its factory in the U.S., President Trump posted his message on his Tweeter, “Thank you, Samsung. We would love to have you!” Industry experts considers Trump’s message on Tweeter an “actual pressure” on all the companies around the world as well as Samsung Electronics.
One-third of sales of Samsung Electronics’ Consumer Electronics division come from North America. Due to a severe competition with low-price products made in China, the company mostly target the premium market and strategies for the U.S. In particular, Samsung Electronics became the top seller of home appliances in the U.S. for the first time with a market share of 18.8 percent last year, beating local firm Whirlpool. It means that Trump now has more cause to ask Samsung Electronics for plant investment. According to the data from market researcher The Stevenson Company, Samsung Electronics had the highest market share of 17 percent in terms of sales in the U.S. home appliance market, including refrigerators, washing machines, drying machines, dish washers, ovens and stoves, last year, overhauling Whirlpool with a 15.9 percent market share, LG Electronics with 15.4 percent and General Electric with 14.2 percent. Samsung Electronics recently acquired U.S.-based luxury appliances maker Dacor Inc.
As South Korea’s largest company, which generates annual sales of more than 200 trillion won (US$174.22 billion), rushes to build its production line in the U.S., other companies such as Hyundai Motor and LG Electronics are expected to accelerate coming up with measures. Some say that Samsung Electronics has thoroughly reviewed its U.S. investment plan from last year considering the presidency of Donald Trump.
Accordingly, South Korean firms which have scrambled to put up their plants in Mexico by reason of price competitiveness and geographical advantage, are on alert. Not only Samsung Electronics but also LG Electronics manufacture TVs and other home appliances for the U.S. market in Reynosa and Monterrey in northern Mexico. Kia Motors produces 400,000 cars a year at the Monterrey plant that was completed last year with the investment of 1 trillion won (US$871.08 million) and export them to North America. Hyundai Motor’s affiliated component suppliers, including Hyundai Mobis and Hyundai WIA, and chemical manufacturers, like Hyosung and Kolon, as well as steel makers, such as POSCO and Hyundai Steel, are scrambling to build their production lines in Mexico targeting the automotive parts and materials market.
Firms which laboriously decided to make an investment in the U.S., like Samsung Electronics, are also worried about worsening profitability. According to market researcher Trading Economics, an hourly wage of manufacturing workers in the U.S. is US$20.73 (23,798 won), which is much higher than US$2 to 3 (2,296 won to 3,444 won) in Mexico and US$16.58 (19,034 won) in South Korea. Naturally, the home appliance industry whose operating margins stand at 5 to 7 percent will inevitably suffer from worsening profitability when they produce products in the U.S. In addition, they should spend more costs to establish industrial infrastructure for land sites, electricity and water which are burdensome.