[Editor's Note] As the global supply chain crisis intensifies due to the COVID-19 pandemic, geopolitical risks, and the U.S.-China conflict, domestic companies continue to face high levels of tension in production and trade, characterized by logistical difficulties, skyrocketing raw material prices, and disruptions in the supply of key goods. With the global supply chain crisis entering a prolonged phase, semiconductor and electronics-related companies are facing significant hardships. Accordingly, this publication aims to examine the challenges faced by domestic companies amidst the trend of supply chain restructuring and to explore the policy implications for the incoming Yoon Suk-yeol administration.

■ Current Status of Supply Chain Difficulties Faced by Domestic Companies
According to the report 'Global Supply Chain Crisis and Current Status of Response by Korean Companies' released by the Korea International Trade Association on the 2nd, concerns about damage to domestic companies are increasing as supply chain disruptions become prolonged and constant.

A survey of 1,094 domestic companies revealed that 94.9% of companies are interested in supply chain issues, and 85.5% have experienced supply chain problems. Among the supply chain problems faced by export companies, logistics difficulties were the highest at 35.6%, followed by rising raw material prices and deteriorating profitability at 27.8%.

It was found that smaller SMEs are more sensitive to the deterioration of profitability caused by rising raw material prices, while larger corporations face difficulties due to disruptions in raw material supply and lockdowns in specific regions.

In particular, 29% of respondents in the parts and equipment sector cited deteriorating profitability due to rising raw material prices, ranking second among all sectors. To address this, 21.9% of the parts and equipment sector and 20% of the electrical and electronics sector cited the storage of key items as a countermeasure, while regarding the discovery of alternative supply sources for key items, the petroleum and chemical sector ranked second with 44.3%, followed by the parts and equipment sector with 39.3%.

In response to the need for an early warning system, the electrical and electronics industry and the parts and equipment industry ranked first (22%) and second (21.6%), respectively, indicating that the need for such countermeasures is high in industries that use a large number of parts in final products. Regarding the role of specialized supply chain organizations, "rapid information delivery" was the highest at 31.6%, followed by the operation of an early warning system at 18.7%.
While domestic companies are demonstrating their respective response capabilities, such as finding alternative sources, the proportion of SMEs lacking response strategies is high, making it difficult for them to devise self-help measures. With a high number of responses indicating a need for rapid information dissemination by specialized agencies and the presentation of opinions by relevant ministries, the industry is expressing its need for active policy support from the government that reflects industry views.

■ Major Countries' Supply Chain Restructuring Movements
Competition to secure semiconductor manufacturing bases is intensifying among major countries, including the U.S., China, the EU, Japan, and Taiwan. The semiconductor supply chain crisis has led to moves toward supply chain restructuring, signaling a shift in the global semiconductor supply chain.

According to the i-KIET Industrial Economic Issues released by the Korea Institute for Industrial Economics and Trade on the 29th, it analyzes the restructuring of the global semiconductor supply chain and presents suggestions regarding policy implications.

First, looking at the semiconductor policies of major countries, it was explained that the United States has been proposing related financial support and policy bills since June 2020 to reorganize the semiconductor supply chain, which is concentrated in Asia, into a U.S.-centered one. It was analyzed that the U.S. proposed benefits such as a 40% tax reduction on the purchase of manufacturing equipment, direct financial support, and tax support through the Semiconductor Industry Act, and although the financial support measures were scrapped in December of the same year, they were included in the National Defense Authorization Act in January of last year, significantly influencing the decision on U.S. semiconductor support policies.

Subsequently, the U.S. Innovation and Competition Act, introduced last April, was passed this February, and a budget of $52 billion is set to be injected into the semiconductor industry over five years, while the U.S. Semiconductor Promotion Act, introduced last June, includes provisions for a tax credit of up to 25% on investment in semiconductor manufacturing facilities and equipment.

China aims for semiconductor self-reliance by simultaneously fostering domestic companies and attracting foreign firms. The 14th Five-Year Plan, announced in December 2020, designated semiconductors as a key science and technology sector and included details on related tax incentives. In addition, it was explained that while strategic M&As of global semiconductor companies were pursued to acquire 부족한 semiconductor technology, most fell through due to U.S. restrictions, and efforts are now being made to attract foreign companies to establish production plants in China.

Japan is focusing on attracting foreign semiconductor companies, such as TSMC, with the goal of reviving its semiconductor industry. The Ministry of Economy, Trade and Industry announced a semiconductor strategy last June, emphasizing the attraction of advanced foundries and the revitalization of the manufacturing base. In November of the same year, it announced a package to strengthen the semiconductor industry base, which included support for the location of semiconductor factories within Japan. In addition, it plans to provide 400 billion yen in funding for fab construction to attract TSMC to Japan and intends to establish a 500 billion yen fund to support essential supply chains, such as semiconductors and rare earth elements.

The report states that the European Union (EU) is also formulating policies to expand semiconductor production within the region and highlight its role in the restructuring of global supply chains. The key points can be summarized into three categories: the establishment of the European Semiconductor Initiative, the creation of a supply stabilization framework, and the establishment of a monitoring and crisis response coordination system.

The EU has set a goal to expand its share of global semiconductor production to 20% by 2030, and in February of this year, it proposed the European Semiconductor Act and is pursuing support for semiconductor research and technology as well as the expansion of semiconductor production capacity. The report noted that, in line with this, there are plans to create a fund of over 43 billion euros through public and private investment.

In addition, Taiwan currently maintains a competitive edge in semiconductor manufacturing and is striving to strengthen its domestic semiconductor industry by promoting reshoring support policies focused on high-tech industries, providing semiconductor subsidies and R&D programs. It was explained that the Indian government is also taking active steps to attract foreign companies and expand domestic production, such as establishing semiconductor and display incentive programs, to foster its domestic electronics industry.

■ Supply Chain Restructuring, Expectations for Government Policy Response

The domestic semiconductor industry faces a dilemma where it is difficult to choose one side, as it relies on the United States for technology while depending on China for the market.

The Korea Institute for Industrial Economics and Trade (KIET) projected in its report, "Movements in the Restructuring of the Global Semiconductor Supply Chain and Policy Implications," that the global semiconductor supply chain will be reorganized starting in 2025 amidst support from various governments. Concerned about the potential negative impact on the global standing of the domestic semiconductor industry, the report emphasized the need for preemptive measures.

According to the report, it is projected that maintaining neutrality may be difficult following the restructuring of the semiconductor supply chain, and even if exports to China are halted, it is expected to be a temporary phenomenon leading to alternative demand from other countries. In addition, it was projected that production bases being reorganized due to the decoupling from China in major countries such as the United States and Japan would absorb the alternative demand.

Accordingly, it was mentioned that based on the 'Special Measures Act on Strengthening and Fostering the Competitiveness of National Advanced Strategic Industries' to be implemented from July 2022, it is necessary to strengthen joint public-private strategies to expand domestic semiconductor manufacturing capabilities and secure core technologies for next-generation semiconductors, including system semiconductors.

Kim Yang-paeng, a senior researcher at the New Industries Division, stated, “Our government must pursue a strategy to leap forward as a comprehensive semiconductor powerhouse by strengthening our current strength in semiconductor manufacturing infrastructure and securing system semiconductor capabilities.”
Meanwhile, President-elect Yoon Seok-yeol, who visited a high-tech research site on the 29th, remarked at the National Nanotechnology Center, “There is a saying that we wage war with semiconductors, not guns,” adding, “Semiconductors are at the core of the national economy and security.”

The transition committee of President-elect Yoon, who will lead the next administration, has pledged to implement semiconductor policies by unveiling blueprints for R&D support and talent development to foster the semiconductor industry. Amidst movements to restructure the global semiconductor supply chain, attention is focused on whether the next government's stance on fostering the semiconductor industry will be maintained and serve as an effective strategy.