South Korea’s political unrest threatens the stability of global tech supply chains

South Korea’s sudden political upheaval has raised fresh concerns for its economy and global supply chains, with analysts warning of potential disruptions to its critical technology exports.

As a major producer of memory chips, displays, and other critical tech components, South Korea plays an essential role in global supply chains for products ranging from smartphones to data centers.

Earlier this week, South Korea’s President Yoon Suk Yeol briefly declared a state of martial law, citing threats from North Korea and the need to counter domestic “anti-state forces.”

The declaration, seen by many as a response to growing internal pressures, was swiftly overturned after lawmakers staged an unprecedented intervention in the National Assembly, unanimously voting to block the move.

The reversal calmed immediate fears of an extended crisis, but the political instability sent ripples through financial markets and heightened uncertainty for South Korea’s role as a global technology hub.

Tech supply chain risks

South Korea’s semiconductor ecosystem, driven by industry leaders like Samsung and SK Hynix, is a cornerstone of global technology supply chains. Its dominance in critical areas like memory chips makes it indispensable to industries worldwide.

“South Korea is a semiconductor superpower, especially in memory chips and camera sensor chips, accounting recently for some 18% of the world’s total semiconductor production capacity,” said Sujai Shivakumar, an expert at the Center for Strategic and International Studies (CSIS). “It accounts for 60.5% of the global memory semiconductor market, with a DRAM market share of 70.5% and a NAND market share of 52.6%.  The recent turmoil in South Korea only emphasizes the fragility of this network.” 

This highlights broader concerns about the vulnerability of global supply chains, exacerbated in recent years by China’s assertive geopolitical actions and the disruptions caused by the COVID-19 pandemic.

“CIOs, drawing from recent black swan events, should proactively prepare for such shifts,” said Prabhu Ram, VP of the industry research group at Cybermedia Research. “This would include measures such as fostering greater flexibility in IT infrastructure, equipping teams to respond swiftly to market developments, and leveraging advanced analytics tools for real-time supply chain insights to proactively anticipate and mitigate potential disruptions effectively.”

Pushing companies to diversify

Global technology companies are increasingly reassessing their supply chain strategies, aiming to reduce vulnerabilities and build resilience in the face of geopolitical and economic uncertainties.

Diversification and trust-based partnerships are emerging as key pillars of this shift, as businesses seek to mitigate risks associated with reliance on a single region or supplier.

“Multinational firms have begun to undertake potentially costly changes to supply chains to achieve a greater level of resiliency – whether generated by redundancy, stronger trust-based relationships, or through the distribution of assets,” Shivakumar added. “The events in South Korea will again accelerate this trend.”

For companies heavily reliant on South Korea’s stable infrastructure and government policies to support advanced manufacturing, the recent turmoil introduces risks that may force them to reevaluate their expansion strategies.

Some of the major semiconductor companies, such as Applied Materials, Lam Research, KLA, and ASML, have all been investing in or strengthening their presence in South Korea.

Last year, ASML announced plans to invest one trillion South Korean won ($760 million) in collaboration with Samsung to establish an advanced semiconductor fabrication plant in the country.

Potential escalation concerns

If current political challenges escalate, they could lead to further disruptions in operations and supply chains, Ram said. The stalemate is far from over, with uncertainty prevailing amid growing calls for the president’s impeachment.

“Meanwhile, other countries are advancing their semiconductor capabilities, intensifying global competition in the tech sector,” Ram added.

The US has been working to address the inherent fragility of supply chains by building stronger, trusted networks among allies and strategic partners. However, this strategy relies heavily on the political and economic stability of those nations.

This approach also involves mitigating risks associated with single points of failure, and the political instability in South Korea underscores this need.

“With the Chips and Science Act, the US has sought to lower dependence on Taiwan and South Korea, which currently collectively account for roughly half of global semiconductor fabrication capacity,” Shivakumar said. “The news from South Korea underlines the importance of this strategy of building more capacity in the US.”

Samsung and SK Hynix have not responded to requests for comments.