Acceleration of Global Supply Chain Realignment: The Strategic Shift of Korean Companies Toward India and Vietnam

During the COVID-19 pandemic, the suspension of factory operations in Wuhan and Guangdong, China, had a direct impact on global manufacturing as a whole.

For example, according to the market analysis firm AutoForecast Solutions, the automotive industry suffered production losses of more than approximately 7.7 million vehicles in 2021 due to the semiconductor shortage.

In addition, the SCFI (Shanghai Containerized Freight Index), a global ocean freight rate index, surged from around 1,000 in 2020 to over 5,000 in 2021, a phenomenon in which logistics costs increased by four to five times.

This experience served as an occasion that prompted companies to reexamine the criteria of their supply chain strategies.

The recognition spread that, rather than a structure that minimizes production costs, it is necessary to build a diversified structure so that risk in a particular region does not affect overall production.

The conflict between the United States and China is another key factor in the structural change of supply chains.

Notably, the United States, through the CHIPS and Science Act (2022), is providing subsidies for semiconductor production while at the same time imposing conditions restricting advanced semiconductor investment in China.

In addition, the U.S. Department of Commerce has strengthened the Export Administration Regulations (EAR) to restrict exports of semiconductor equipment and technology to China.

From a corporate standpoint, these regulations are creating a structure in which “the choice of a production location is itself a choice of regulatory risk.”

This is because, when production is concentrated in a particular country, the entire business can be affected by policy changes surrounding that country.

The Russia-Ukraine war dealt a direct shock to the energy and raw material supply chains.

Rising natural gas prices and the sharp increase in the prices of key metals such as nickel and aluminum changed the cost structure of manufacturing as a whole.

With the added escalation of tensions in the Middle East and maritime risk in the Red Sea, supply chain uncertainty is expanding even further.

Some shipping companies are choosing routes around Africa instead of the Suez Canal, and as a result, transport times and costs are increasing simultaneously.

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

The previous China-centered production structure was a highly effective approach in terms of cost reduction and production efficiency.

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

However, this structure carries the problem that risk is concentrated in a particular region.

In the end, companies have come to face a situation in which they must simultaneously consider a structure that can diversify risk while maintaining production efficiency.

To address these limitations, companies are revising their strategies in the direction of diversifying their production hubs.

This is closer to redesigning the supply chain as a whole than to merely adding production bases.

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

In the case of Korean companies in particular, large-scale production infrastructure has been built centered on Samsung Electronics, and it performs a central role across the electronics and components industries.

Recently, a trend has emerged in which production expands beyond simple assembly to encompass research and development functions, and Samsung Electronics' operation of its Hanoi R&D center is a representative example demonstrating this change.

In addition, the Vietnamese government is actively working to attract foreign investment while promoting policies to foster semiconductors and advanced industries.

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

However, Vietnam still has the limitations of a shortage of advanced technical personnel and an immature component supply chain, so for the time being it is reasonable to assess it as a complementary hub for diversifying manufacturing functions rather than a structure that completely replaces China.

India plays an important role in supply chain realignment in a way different from Vietnam.

Its greatest characteristic is that it is both a production base and an enormous consumer market.

A domestic market based on a population of approximately 1.4 billion provides companies with a long-term demand base and forms a structure in which local production and market entry can be pursued simultaneously.

This is also the reason that major companies, including Samsung Electronics and LG Electronics, are expanding their production facilities in India.

In addition, the Indian government is actively promoting the attraction of foreign investment, including by introducing the PLI (Production Linked Incentive) scheme to foster manufacturing.

This provides a policy foundation on which global companies can relocate their production bases.

However, India is assessed as a market with high post-entry operational risk due to the complexity of administrative procedures, insufficient infrastructure, and the possibility of regulatory change.

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

Accordingly, the Corporate Legal Group provides practice-oriented support in the following areas.

In particular, Daeryun Law Firm LLP is building a collaborative infrastructure optimized for companies entering the New Southern region by concluding a close MOU with a local Vietnamese law firm.

Through this, it provides, on a one-stop basis, prompt response strategies and effective legal advice in line with changes in local laws and regulations.

If you wish to systematically manage legal risk from the structural design stage in the course of global business expansion, you are welcome to respond proactively in line with the professional advice of 🔗a corporate attorney.