LG Innotek withdraws from China amid global supply chain shift

Local workers are inspecting camera module characteristics at LG Innotek’s camera module production line in Yantai, China. [Courtesy of LG Innotek]

South Korean electronics parts manufacturer LG Innotek Co. has decided to relocate its camera production line to Vietnam from China, joining others in their exit from the world’s second-largest economy amid growing U.S.-China tension and global supply chain restructuring.

According to industry sources on Sunday, LG Innotek will gradually transfer the camera production line out of its Yantai factory in China and move the entry-level camera production to Haiphong, Vietnam. It will manufacture flagship products at home.

LG Innotek began mass production at the Yantai factory in early 2005 and expanded its customer base in China, including Huawei Technologies Co., Vivo Communication Technology Co., OPPO Co., and Xiaomi Inc. Until early 2020, the Yantai factory had been the largest overseas base for LG Innotek.

However, the Yantai subsidiary’s revenue fell to around 150 billion won ($117.4 million) in the first quarter, losing the largest revenue spot to Vietnam.

Furthermore, it was the only one to record a net loss of 67 million won in the previous quarter. As Chinese component companies dominate the local market with low-cost competition, the camera modules produced in the Yantai factory are now exported entirely to countries other than China.

Against such a backdrop, LG Innotek decided to relocate the camera module production facility to Vietnam, where labor costs are about 33 percent cheaper.

LG Innotek plans to invest 1.3 trillion in expanding the Haiphong production subsidiary with the goal of commencing mass production by 2025. The motor line previously produced at the Yantai factory will remain operational.

Other major conglomerates are facing similar situations. Since starting its withdrawal from China in 2019, Samsung Electronics Co.’s local workforce has decreased to around 18,000 employees from 63,160 employees in 2013, marking a sharp decline of 70.3 percent.

Hyundai Motor Co. also plans to sell two out of its four operating factories in China. Of the five local factories it has operated or currently operates, the automaker sold one in 2021, with another one currently being closed.

The company hopes to transfer the closed factory and one of the currently operating factories to potential buyers and use the remaining two factories as production facilities for emerging market exports. Analysts see this move as Hyundai Motor’s selective focus in the Chinese market.

Kolon Industries Co. also suspended tire cord production lines in Nanjing earlier this year following pressure from the local government.

Business partners and suppliers of major conglomerates are also moving away from China.

Air filter maker CNTUS Co. relocated its China factory facilities to its factory in Vietnam.

“With the aggressive price competition fanned by local companies on top of the ongoing downturn in domestic consumption in China, China’s production advantages are diminishing,” said an unnamed official from a major conglomerate.