Internet & Tech

Factory stoppage

Samsung supplier shuts down in Suzhou

Samsung w

On its corporate website BKE&T, a screen manufacturer and a supplier for Samsung, describes its employees as fearless and full of passion. Both attributes have been very clearly on display over the past month after the company’s Chinese workers decided they would not take their plant’s closure in Suzhou lightly.

Their South Korean employers, meanwhile, demonstrated the company’s maxim of ‘speedy management’ having suddenly disappeared a few weeks earlier.

As Caixin Weekly and China Times have both reported, the company’s HR department posted a leave notification on June 24, informing the plant’s 600 workers that production was being temporarily halted as the company had no orders. It said production would resume at the earliest on July 6 after the general manager returned from Korea with new orders in hand for its TFT-LCD screens.

However, the employees decided to take the unexplained departure of BKE&T’s legal representative and CFO as a more accurate indicator of what was to come. So they began demanding compensation outside a second Samsung plant in the Wujiang Industrial Park. Suppliers, who had been owed money since December, also joined them.

Caixin Weekly and China Times agree that in retrospect the warning signs had been there for a while. BKE&T has been barring its middle-ranking Chinese executives from attending management meetings since the middle of last year. The warehouse, which stocked the raw materials to produce the company’s TVs and smartphone display panels, had suddenly been cleared on June 19.

The situation was only resolved after a group of employees indulged in a spot of boss-napping, holding four South Korean managers against their will. A local labour bureau then intervened and negotiated a termination plan, which will see employees receive one month’s salary for every year they have been employed.

Both news outlets have also been reflecting on the bigger picture in respect to the closure. Was it due to poor local management, or a sign of wider difficulties within the Samsung Group? Like so much of corporate Korea, BKE&T has a complicated lineage. Its parent, Bokwang Group, houses a number of Samsung spin-offs and is run by Hong Seok-gyu, brother-in-law of Samsung chairman Lee Kun-hee.

According to a filing with the Korean Stock Exchange, BKE&T submitted a restructuring plan with the Korean courts on June 17 after running up losses because of a sudden “market drop for the products of its main customer Nokia”.

Both Nokia and Samsung have seen their margins and revenues threatened by cheaper Chinese rivals such as Xiaomi, ZTE and Huawei. In the premium section of the market, Samsung has also been losing out to Apple since it started selling large screen iPhones.

BKE&T’s Chinese employees tell Caixin Weekly that Samsung set all the plant’s prices, selected its suppliers and purchased all of its output. At its height the plant had been operating 24 production lines and employed 1,000 staff. Earlier this year, this had been whittled down to just four production lines.

Another employee informs China Times the plant had been recording a gross margin of 8%, although almost two thirds of this was being repatriated back to Korea in the form of a technical support fee. He also complained that the plant had to pay depreciation fees even though most of the equipment, which had been shipped in from Korea, was already very old.

A Samsung representative tells Caixin Weekly the closure of one foundry does not signify wider troubles at the group even though its Chinese mobile phone shipments were only 9.3 million units during the first quarter, 54.8% down on the same period last year. During the second quarter, Samsung Electronics also posted its seventh straight profit decline, with revenues coming in 8% below analysts’ estimates. Since the middle of March the stock has slid 18.5%.

Recent events do not play well for Samsung’s stated grand plans for China where it ranks as one of the country’s largest foreign investors. As recently as January, its Greater China president Zhang Yuanyi was telling Guangzhou Daily the group planned total investments in the country of $30 billion by 2030, up from $16.8 billion in 2013.


© ChinTell Ltd. All rights reserved.

Exclusively sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.