The intricate web of global supply chains is increasingly shifting the balance of power in the semiconductor industry, particularly as South Korea’s dependency on China for critical materials continues to rise. Recent data from the Korea Eximbank Overseas Economic Research Institute highlights a stark shift in this vital sector. Major South Korean firms, specifically Samsung Electronics and SK hynix, reported substantial sales growth stemming from Chinese markets in the first half of this year, yet the simultaneous rise in dependence on China’s semiconductor raw materials cannot go unnoticed.

To illustrate, the need for essential materials, including silicon, germanium, gallium, and indium, is witnessing a significant uptick. Notably, South Korea’s reliance on silicon surged from 68.8% to 75.4% in just one year, from 2021 to 2022. This increasing reliance on key resources such as these presents potential vulnerabilities that could have severe implications for South Korea’s semiconductor landscape.

The background of this dependency involves a noteworthy crisis: China’s restrictions on critical minerals such as germanium and gallium, enacted in response to escalating trade tensions and sanctions imposed by the United States. This creates an environment where strategic resources are limited, and South Korea finds itself at a critical juncture. The statistics paint a concerning picture—China currently accounts for a staggering 98% of global gallium production and 60% of germanium, reinforcing its dominant position in the supply chain.

Chinese native production has surprisingly remained resilient despite external pressures. In fact, the dependence on germanium saw a significant increase of 17.4 percentage points, reaching 74.3% in 2022, while the reliance on gallium and indium also jumped by 20.5 percentage points, landing at 46.7%. This data underscores how South Korea is not just reliant on finished semiconductor products but, alarmingly, on the very materials that empower their production.

Examining regional manufacturing dynamics, Samsung’s NAND flash facility in Xi’an stands as a testament to the shifting tides. The facility’s contribution to Samsung’s overall NAND capacity climbed from 29% in 2021 to an expected 40% in 2023. Such a trend indicates that while Korean firms are navigating boosted sales, they are simultaneously embedding themselves deeper into a supply chain that they do not fully control.

The increasing fixation on local supply chains, particularly in response to geopolitical tensions, could be seen as both a curse and an opportunity. Companies may need to recalibrate their strategies, prioritizing partnerships, diversification, and robust supply chain management to buffer against such shocks in the future.

In response to these challenges, a proactive approach could involve investing more substantially in domestic manufacturing capabilities or sourcing alternative materials from other regions. Building resilient supply chains, cultivating domestic rare earth element production, and even fostering innovation in materials science could serve as vital steps in mitigating risks associated with foreign dependency.

Understanding the complexity of these dependencies is crucial for stakeholders within the global semiconductor industry. Korea’s current trends call for a strategic reevaluation of relationships in the supply chain, addressing vulnerabilities head-on to elevate South Korea’s semiconductor landscape.

By analyzing these evolving trends in real-time, business leaders and policy-makers can better position themselves to anticipate challenges and drive innovations that ensure sustainable growth in a highly competitive and rapidly changing global marketplace.

As South Korea’s reliance on China intensifies, it illustrates a critical lesson for tech industries worldwide: the importance of supply chain diversification cannot be overstated. The future of semiconductor technology hinges not just on innovation but also on how well countries can manage the geopolitical dynamics that shape their raw material supply chains.