As more than 1,000 workers at Samsung Electronics’ Chennai factory continue their strike, which started in late September, the disruption in India’s manufacturing hub upsets its global supply chain strategy.
Credit: Samsung
At the same time, Samsung and Taiwan Semiconductor Manufacturing Co. (TSMC) are considering significant investments in the Middle East, where they have discussed building advanced semiconductor mega factories in the United Arab Emirates (UAE).
The Chennai factory strike began on Sept. 9 and has halted operations at a plant responsible for nearly a third of Samsung’s $12 billion annual revenue. Workers at the facility demand a wage increase from 25,000 rupees ($300) to 36,000 rupees ($430) per month over three years and union recognition.
This week, the Tamil Nadu government called on the striking workers to resume work. The government is concerned about potential job losses and the fact that families won’t be able to meet their basic requirements due to lost wages.
This labor unrest occurs at a critical time for Samsung, which this year has been posting solid financial performance. The company’s Q2 2024 earnings showed consolidated sales of KRW 74.07 trillion ($55 billion), up 3 percent from the previous quarter and 23 percent year-on-year growth. Operating profit surged to KRW 10.44 trillion ($7.7 billion), mainly driven by booming demand for high-bandwidth memory (H.B.M.) and DDR5 products amid a surge in investments in artificial intelligence infrastructure.
Meanwhile, last month, Samsung claimed that the plant returned to full capacity. “The strike at the Chennai factory, now in its 15th day, hit the production of consumer goods such as televisions, refrigerators, and washing machines initially. However, the impact of the strike is minimal now, and the company expects production to be near normal starting this week,” said Samsung. According to The New Indian Express, Samsung hired contract workers to resume normal production while suing the striking workforce. The company’s decision to withhold wages for striking employees is controversial and could further escalate tensions.
The ongoing strike at Samsung’s Chennai factory is a clear reminder of multinational corporations’ challenges in maintaining harmonious labor relations. The workers’ demands for higher wages and union recognition reflect a global growing trend of workers demanding better conditions and a share of the profits generated by global corporations, especially by manufacturers of consumer electronics.
Samsung argues that it pays above-average wages in the region. “The average monthly salary of our full-time manufacturing workers at the Chennai plant is 1.8 times the average salary of similar workers employed at other companies in the region,” Samsung said.
This strike also casts a shadow over Indian Prime Minister Narendra Modi’s “Make in India” initiative, which seeks to attract foreign investment and boost electronics manufacturing to $500 billion over the next six years.
While Samsung has seen solid financial growth globally, with the memory and AI sectors contributing to substantial gains, the strike highlights the risks of over-reliance on specific manufacturing locations. As the global supply chain remains under pressure, the impact of these disruptions on Samsung’s ability to meet international demand could be significant.
Samsung to cut thousands of jobs
Samsung Electronics plans to cut about 10 percent of its workforce in Southeast Asia, Australia, and New Zealand as part of a global layoff effort. The company aims to streamline operations and improve efficiency.
The job cuts will mainly affect management and support roles, with most manufacturing jobs being preserved. Samsung, as it faces tough competition in the AI and custom-chip sectors, is looking to renew efforts in those areas. The layoffs come as the company undergoes a leadership transition and deals with internal and external labor unrest, including its first-ever strike in South Korea in May this year.
The layoffs do not extend to Samsung’s domestic workforce, where it employs about half of its 267,800 global staff.
“Some overseas subsidiaries are conducting routine workforce adjustments to improve operational efficiency,” a Samsung spokesperson said. “The company has not set a target number for any particular positions.”
A strategic gamble for chip production in the Middle East
On Sept. 22, the Wall Street Journal reported that Samsung and TSMC are in negotiations to build new semiconductor factories in the UAE. While the discussions between Samsung, TSMC, and Abu Dhabi-based Mubadala are in the early stages, the proposed chip-manufacturing complexes could represent investments of more than $100 billion. The projects are part of the UAE’s broader ambition to diversify its economy beyond oil and establish itself as a global hub for artificial intelligence and semiconductor production.
Abu Dhabi skyline. Credit: Neil Dodhia
If successful, the Middle Eastern mega factories could help mitigate the global semiconductor supply chain risks, which have been exacerbated by pandemic-induced disruptions, geopolitical tensions—especially with China—and labor unrest in several countries.
However, substantial challenges remain. Semiconductor manufacturing requires significant amounts of pure water, which the UAE, relying on desalination, would need to produce. Additionally, concerns about the availability of skilled engineering talent and the UAE’s history of human-rights violations, pose hurdles to large-scale chip production in the region.
The lure of AI-driven growth and the promise of cutting-edge chip manufacturing are central to the UAE’s efforts to transition from a resource-based economy to a tech powerhouse.
If the reported UAE projects proceed, they would represent one of the most significant expansions in the semiconductor industry since the U.S. and Europe unveiled their CHIPS acts, massive subsidy programs to bolster domestic chip production. While Samsung and TSMC continue to pursue their expansion in both regions, Intel, due to its financial woes, has recently decided to pause its investments in Europe.
Samsung’s plans to invest billions of dollars in semiconductor manufacturing facilities in the UAE represent a significant strategic shift. The move is driven by a desire to diversify the company’s supply chain and reduce reliance on traditional Asian manufacturing hubs.
Broader implications for global supply chains
The developments at Samsung highlight the growing challenges and complexities of managing global supply chains. Companies must now contend with various factors, including labor unrest, geopolitical tensions, technological disruptions, and environmental concerns. The trend toward diversification and regionalization of manufacturing will likely continue as companies seek to reduce their reliance on single-source suppliers.
The future of global manufacturing is still being determined. While the Middle East offers new opportunities for companies like Samsung, the challenges of building and operating large-scale manufacturing facilities in a new region are significant.
The outcome of the Samsung strike in India will also have important implications for the company’s global operations. If the company cannot handle labor disputes, it could face further disruptions and damage its reputation.
Samsung’s efforts to balance its global ambitions with labor relations challenges and supply chain resilience are emblematic of the broader trends shaping the modern economy. As companies continue to navigate the complexities of the global marketplace, adapting to changing conditions will be essential for long-term success.
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