By Kim Yoo-chul
Staff Reporter
Samsung Electronics has been facing mounting criticism over its relations with local subcontractors who temporarily halted production at the company’s domestic handset plant by refusing to supply essential parts unless they were paid more.
Samsung admitted Sunday that its handset plant in Gumi, some 260 kilometers southeast of Seoul, stopped 20 percent of its operations for 11 hours from 11 p.m. Friday to 10 a.m. Saturday as Samsung’s small- and medium-sized partners halted production, accusing the world’s No. 2 handset maker of passing on the burden of its cost cuts to them.
This is the first time that its handset plant has been forced to stop due to disputes with parts suppliers since 1988 when the Gumi plant was built. There are reportedly some 630 suppliers in Gumi.
Samsung said the plant has been normalized after it agreed with the participants to review prices in upcoming talks. However, worries are high that Samsung’s premium handset image might get hurt in the long term without decisive measures to ease such disputes.
Samsung hopes to narrow the market gap with the industry leader Nokia by sticking with a two-tier strategy ― premium phones such as the Soul and Haptic from its domestic plant and mid-tier phones from those overseas. The company plans to increase the annual production of handsets in Gumi to 80 million this year from 75 million in 2007.
According to data from Strategy Analytics, a market research firm, Nokia led the market with 40.9 percent in the first quarter, while Samsung and Motorola followed with 16.4 percent and 9.7 percent, respectively. LG Electronics ranked No. 4 with 8.6 percent, while Sony-Ericsson plunged to No. 5 with 7.9 percent.
``We should strengthen price competitiveness at our Gumi plant as it has steadily been losing its pricing edge,’’ a Samsung spokesperson said. Samsung operates handset facilities in China, India and Brazil and the company will churn out mid-tier phones in Vietnam from next year to meet this year’s production target of 200 million.
``We doubled loss rates applied to suppliers and will continue to increase product prices for subcontractors,’’ the official added.
Earlier this year, the Fair Trade Commission fined Samsung a record 11.58 billion won for breaching fair trading rules concerning its subcontractors in five cases, including payment delays and unreasonable product price cuts.
``Despite the strong performance of Samsung’s handset unit, the conglomerate is still asking its subcontractors to provide electronics parts at lower pries,’’ an official from a parts supplier in Gumi told The Korea Times.
In the first quarter, Samsung’s handset division reaped 920 billion won in operating profits on sales of 5.55 trillion won.