Acceleration of global supply chain reorganization... Strategic movement of Korean companies to India and Vietnam

During the COVID-19 pandemic, the shutdown of factories in Wuhan and Guangdong, China had a direct impact on the overall global manufacturing industry.

For example, according to market analysis firm AutoForecast Solutions, as of 2021, the automobile industry has experienced production disruptions of more than 7.7 million units due to a shortage of semiconductors.

In addition, the Shanghai Container Freight Index (SCFI), a global maritime freight index, soared from about 1,000 in 2020 to more than 5,000 in 2021, resulting in a 4 to 5-fold increase in logistics costs.

This experience served as an opportunity for the company to reexamine the standards of its supply chain strategy.

Rather than a structure that minimizes production costs, it is recognized that it is necessary to build a distributed structure so that risks in specific regions do not affect overall production.This has spread.

The conflict between the US and China is another key factor in changing the supply chain structure.

For example, the United States provides subsidies for semiconductor production through the CHIPS and Science Act (2022), while also imposing restrictions on investment in cutting-edge semiconductors in China.

Additionally, the U.S. Department of Commerce is strengthening the Export Administration Regulations (EAR) to restrict exports of semiconductor equipment and technology to China.

These regulations are creating a structure where, from a company’s perspective, “choosing a production location means choosing regulatory risks.”

This is because if you focus your production in a specific country, your entire business may be affected by policy changes surrounding that country.

The war between Russia and Ukraine had a direct impact on the energy and raw material supply chain.

Rising natural gas prices and a surge in prices of major metals such as nickel and aluminum have changed the cost structure of the entire manufacturing industry.

As tensions in the Middle East increase and maritime risks in the Red Sea are added, supply chain uncertainty is further expanding.

Some shipping companies are choosing the African route instead of the Suez Canal, which is increasing both shipping times and costs.

These changes are making procurement schedules and production plans difficult to predict, and the need for companies to design their supply chains more flexibly is increasing.

The existing China-centered production structure was very effective in terms of cost reduction and production efficiency.

In fact, global companies have long maintained a strategy of concentrating production in China, which has advantages in terms of labor costs and infrastructure.

However, this structure has the problem that risks are concentrated in specific regions.

Ultimately, companies are faced with a situation where they need to simultaneously consider a structure that can distribute risks while maintaining production efficiency.

To compensate for these limitations, companies are revising their strategies to disperse their production bases.

This approach is closer to redesigning the entire supply chain rather than adding a production base.

Vietnam is a country that has already established itself as an important production base in the global manufacturing industry.

Especially for Korean companiesA large-scale production infrastructure has been established centered around Samsung Electronics, and it plays a key role in the overall electronics and components industry.I'm doing it.

Recently, there has been a trend of expanding beyond simple assembly-oriented production to include research and development functions, and Samsung Electronics' Hanoi R&D Center operation is a representative example of this change.

Additionally, the Vietnamese government is actively seeking to attract foreign investment by pursuing policies to foster semiconductor and high-tech industries.

This is acting as a factor accelerating the transition from a production base to a technology-based industrial base.

However, Vietnam still has limitations such as a lack of advanced technical manpower and an immature parts supply chain, so it is currently reasonable to evaluate it as a complementary base to disperse manufacturing functions rather than a structure that completely replaces China.

India is playing an important role in reshaping supply chains in a different way than Vietnam.

The biggest characteristic is that it is both a production base and a huge consumer market.

The domestic market, which is based on a population of approximately 1.4 billion people, provides companies with a long-term demand base and forms a structure that can simultaneously promote local production and market entry.

This is why major companies, including Samsung Electronics and LG Electronics, are expanding their production facilities in India.

Also, the Indian governmentActively promotes foreign investment attraction by introducing the PLI (Production Linked Incentive) system to foster the manufacturing industry.I'm doing it.

This provides a policy basis for global companies to relocate their production bases.

However, India is evaluated as a market with high operational risk after entry due to the complexity of administrative procedures, lack of infrastructure, and possible regulatory changes.

In an environment where the global supply chain is multipolar, legal review at the business structure design stage serves as a key element of corporate risk management.

Accordingly, the Corporate Legal Group provides practical assistance in the following areas.

In particular, Daeryun Law FirmEstablishing a collaboration infrastructure optimized for companies entering the New Southern region through a close MOU with a local Vietnamese law firm.I'm doing it.

Through this, we provide one-stop quick response strategies and effective legal advice according to changes in local laws.
 

If you want to systematically manage legal risks from the structural design stage during the global business expansion process,corporate lawyerPlease respond proactively based on professional advice.