LG Innotec is constructing production facilities for camera modules in Haiphong, Vietnam because personnel expense in Vietnam is about two times cheaper than the one in China. Its strategy is to solidify its position as the world’s top business based on competitive edge in production cost. Because LG Electronics and LG Display are also located in Haiphong, synergy between affiliates is also expected.
LG Innotec (CEO Park Jong-seok) held a board meeting on the 27th and approved an investment of $20 million that is need to establish a Vietnamese production corporate called ‘LG Innotec Vietnam Haiphong’. With this decision, LG Innotec is going to push for establishment of Vietnamese corporate, construction of new factories, and construction of manufacturing facilities on full-scale. LG Innotec is planning to invest about $230 million until 2018 for its Vietnamese corporate.
LG Innotec is going to produce camera modules for Smartphones at these facilities. These are major parts of Smartphones that designs components such as lenses and sensors very fine and small so that pictures and videos can be recorded from mobile devices such as Smartphones. LG Innotec currently controls 16% of global markets for camera modules and it has been the top business in the world for 5 years in a row.
LG Innotec is planning to strengthen its position in competitions against other businesses by operating these facilities. Vietnam’s lowest monthly wage based on this year is $155. This is 20% and 40% cheaper compared to South Korea and China and this is why Vietnam is receiving spotlight from global businesses for their production bases. Samsung Electronics also has its production base for household appliances and production base for mobile devices in Ho Chi Minh and Hanoi respectively.
LG Innotec’s facilities are going to go into operation at the end of next year at the earliest. It is expected that a year will be spent to complete construction of buildings, to bring in equipment, to hire employees, and to stabilize yield. It is first going to produce low and medium-priced parts to strengthen its competitive in production cost first. It is predicted that LG Innotec is not going to produce high-value products such as dual-cameras and high-pixel camera modules any time soon.
New products with high performance that are applied in new-application Smartphones are going to be produced in South Korea continuously. LG Innotec is going to maintain its facilities in South Korea and China while operating facilities in Vietnam. When this happens, LG Innotec’s position globally will solidify even more as supplies from facilities in Vietnam will be added to supplies from facilities in South Korea and China.
Another reason why LG Innotec is investing into Vietnam is because it wants to distance itself from Chinese and Japanese businesses. While growth rate of premium camera modules is slowing down, demands for low and medium-priced parts are increasing very fast because Smartphone markets are becoming reorganized based on low and medium-priced models. Under this circumstance, camera module manufacturers in China and Japan are rapidly chasing after LG Innotec. LG Innotec made a public notice that purpose of Vietnamese corporate is to improve its competitive in production cost for camera module businesses.
These new facilities will be constructed at industrial complex that is located in Haiphong, which is a harbor city that is located on the north of Vietnam. Because LG Group’s affiliates are already established in this complex, it will be advantageous for LG Innotec to use its affiliates’ infrastructures and to work with them. LG Electronics completed constructing ‘Haiphong Campus’ here in Haiphong last year and is operating it on full-scale. Haiphong is a large production base that covers both household appliances and mobile devices. LG Display is also going to produce display modules starting from second half of next year.
It is expected that LG Group’s electronic businesses will definitely get positive effects from establishing production facilities in Vietnam as it established an ecosystem for front-end and back-end industries that covers from finished products, parts, and to modules. Major affiliates for LG Group’s electronic businesses are all assembled in Haiphong.
“Beside from working with other affiliates, we can also create synergy from sharing infrastructures and administrative capabilities with them.” said a representative for LG Innotec.
Staff Reporter Song, Junyeong | songjy@etnews.com