Strategic Advantage amid Geopolitical Tensions
South Korea’s semiconductor market is ruled by Samsung Electronics and SK hynix, and are going through transformative changes from traditional electronics support to AI-driven computing tools. This rise in generative AI accelerated the demand for high-bandwidth memory (HBM), advanced packaging and semiconductor tools. SK hynix had emerged as a technological giant in HBM, overthrowing Samsung in DRAM revenue by leveraging early investments in AI memory chips. Samsung on the other hand, is expanding beyond memory into logic chips and foundry services competing with Taiwan Semiconductor Manufacturing Co. and Intel in the U.S. This showcases a broader approach of Korean firms capturing the global market of semiconductors rather than remaining concentrated in memory chips.
Semiconductors as an Economic Pillar
South Korea alone accounts for a huge share of the semiconductor market globally. Over the past seven years, the semiconductor market has consistently represented around one-third of South Korea’s exports, demonstrating a sector’s systemic importance.
Market Fluctuations
Despite its strength, heavy reliance on semiconductors exposes the South Korea’s economy to vulnerabilities. This influences South Korea’s currency revenues and capital investment plans. As the chip prices rise, the export prices increase and currency strengthens, but as the prices drop, compressing the purchasing power and public finances. South Korea’s dependency on semiconductors translates to commodity dependency observed in rich economies with similar macroeconomic vulnerabilities.
Government Strategies and Geopolitical Trade
Seoul embraced an extended corporate policy to maintain its global presence. The government established a plan to open a mega semiconductors cluster near Yongin, supported by large-scale public-private sector investments. This will boom domestic manufacturing capacity and reduce dependency on foreign supply chains. The United States, China, and the European Union introduced million-dollar subsidiaries and export controls reflecting a broader global trend towards local technological advancements. US export restrictions on semiconductor manufacturing tools and advanced chips have impacted Korean firm’s distribution in China, forcing them to establish supply chains.