The global shortage of semiconductors has become an opportunity for world governments to usher in a new model of supply chains, a model inspired by resilience and, ultimately, tech sovereignty. Keen to capitalise on its tech prowess, South Korea has thrown its political and investment weight behind the ambition of strengthening its role as a chip powerhouse and fending off competition from friends (the US and Taiwan) and foes (China) alike. 

“The direction we should take is clear,” South Korea’s president Moon Jae-in said in May, referring to ongoing restructuring of global value chains. “Pre-emptive investments should further strengthen our domestic industry ecosystem, so it cannot be shaken by external shocks.”


Promising unprecedented incentives to research and development (R&D) and capital investment, Seoul is aiming to mobilise as much as Won510tn ($429.7bn) by 2030 for the development of the domestic chip industry, with the bulk of it generated by the country’s main chip giants, Samsung and SK Hynix. 

“Tech industries have become the lifeblood of the economy,” says Abishur Prakash, co-founder and geopolitical futurist at the Center for Innovating the Future, an advisory firm based in Toronto. “Governments don’t want to be reliant on other countries for this [supply of critical technologies], because their reliance could jeopardise other sectors. Localisation [of production] and self-reliance have become equally important. This is why South Korea, as well as other major economies, are in this.”

K-chip strategy 

South Korean companies currently account for 18.4% of the global sales of semiconductors, following their US peers, which make up 50.8% of the market, according to figures from national trade and investment promotion agency Kotra. At a more granular level, they have a clear global lead in memory chips, which enable short-term storage for graphic, mobile and server chips, where they account for 56.9% of global sales thanks to Samsung and SK Hynix’s position as the segment’s dominant players. On the other hand, their share of high-performance system semiconductors, which serves the more sophisticated needs of consumer electronics and automotive, is only 2.9%. 

The country is now planning to double its annual outbound shipments of chips to reach a value of $200bn by 2030, from $99.2bn in 2020. It wants to do so by developing a chip mega cluster – known as the “k-semiconductor belt” – in the Seoul metropolitan area and the Chungcheong region. In the government’s masterplan, the cluster will host functions along the whole value chain, from design and manufacturing to packaging, as well as intermediate functions such as the supply of materials, parts and equipment. 

The k-chip cluster will be built around two main locations: Pyeongtaek, where Samsung is already developing what it claims will be the world’s biggest semiconductor production hub; and Yongin, which will host the equally grand development plans of SK Hynix. 

Samsung is the world’s dominant producer of memory semiconductors. The company has now set its eyes on the lucrative high-performance system semiconductors segment. It announced a Won171tn investment plan “to become the world leader in logic chips by 2030” with a statement in May. Samsung’s Pyeongtaek campus forms the core of the firm’s grand scheme as its chip fabrication plants (known in the industry as fabs) will cater to the needs of the company’s orders for memory and logic chips, as well as those of fabless clients. Samsung already has two production lines up and running in Pyeongtaek. A third line is under construction, while the site is potentially able to accommodate the development of another three lines by 2030. 

In Yongin, SK Hynix is sinking Won120tn into the development of its own chip complex, which will accommodate four fabs (the first slated to come online in 2025) mostly devoted to the production of memory chips. 

A third centre of gravity for the k-chip vision is Pangyo, where local authorities want to develop a ‘fabless valley’ devoted to the design of high-performance semiconductors. 

R&D push 

While the likes of Samsung and Hynix are willing to buy into the k-chip vision, they will have to do so in a profitable fashion. In an industry driven by technological innovation, Seoul has introduced deductions of up to 50% of R&D costs for small and medium-sized  enterprises and 40% for bigger companies. Up to 20% of investment costs in new facilities will also be eligible for deductions. 

Although the cost of production in South Korea remains higher than that of China or other Asian manufacturing hubs, resilience and tech sovereignty, combined with the automation of production processes, are changing the industry’s cost-benefit dynamics. 

“Supply chains used to be designed for cost optimisation in the past, but during the Covid-19 crisis we learned this may not be the best idea,” says Bharat Kapoor, a partner at management consultancy firm Kearney. 

“Now policy-makers are thinking more in terms of resilient supply chains, and it will be this resilience over cost competitiveness that will drive the success of chip companies moving forward.”

Highly sophisticated and automated assembly lines of chip foundries tilt the balance in favour of highly skilled labour inputs for R&D functions, where South Korea excels, over blue-collar functions. “Value chains are built on intellectual capital over [factory floor] labour,” Mr Kapoor says. Besides, the country can also guarantee its chip industry safe supplies of power and water, another two major inputs for the production of chips. 

South Korea is not alone when it comes to promoting an agenda for the development of a domestic semiconductor industry. The US, Japan, Taiwan, the EU and China are all committed to nurturing their chip champions and expanding local chip value chains. In this day and age, resilient and domestic value chains, particularluy when it comes to critical technologies like semiconductos, have become a key item on the tech sovereignty agenda. 

“Countries are using technology to regain independence, to establish their presence in the world, and as they do so they create new barriers,” Mr Prakash says. 

While still committing to global value chains, policy-makers have started to consider dependence on trade partners for the supply of critical technologies as a major weakness to address with fine-tuned industrial policies. 

“Microelectronics components necessary for business continuity in current and future key German and EU manufacturing sectors must be placed at the centre of industrial strategies much more strongly than before and not be treated solely in the context of R&D funding structures,” reads a paper by the German Electrical and Electronic Manufacturers’ Association published in October. 

In the digital age, the competitiveness of whole economies will eventually hinge on the quality of the technology they have access to. Resilient, sovereign value chains so far promise to strengthen that access. They will also have to guarantee quality and innovation to demonstrate proof of concept.

This article was first published in the December 2021/January 2022 edition of fDi Intelligence magazine. Read the online edition here.