The Korean conflict - a potential risk for your supply chain?

Words: Tim von der Decken

Sabre-rattling between US President Donald Trump and the North Korean leadership have fuelled deep fears of military action, putting South Korean companies and their supply chains at considerable commercial risk.

South Korea is the eighth largest import market and ninth largest export market for the EU, ahead of India, Canada and Brazil. It is a key global supplier in a number of sectors including consumer electronics (LG Electronics, LG Display), DRAM chip production (Samsung, SK Hynix), automotive (Hyundai – Kia), shipbuilding (Hyundai Heavy Industries, Samsung Heavy Industries, Daewoo) and steelmaking (POSCO, Hyundai Steel). 

It’s perhaps no surprise then that the heated exchange between the US and Pyongyang has had little effect on the South Korean economy. In fact, in the first quarter of 2017 exports rose by 15% to US$132 billion – largely driven by electronic components, semi-conductors and the chemical sector.

Still, with South Korean electronic components playing an integral part in supply chains around the world, many CPOs are closely monitoring events in the East.

Impact on consumer electronics

A military escalation of the conflict in South Korea could upset global production of the electronics sector – among others, and have a negative impact on the availability of smartphones, screens, computers and tablets. Electronic products make up just over a quarter of South Korean exports, followed by motor vehicles (13%) and machines (12%). 

China is likely to be most affected by a loss of production in South Korea, as more than a third of exports go to China and Hong Kong, where many of these components are installed and distributed. The second largest importer is the US, which receives around 13% of direct exports from South Korea. It’s important to note however that many smartphones and tablets manufactured in China using components from in and around Seoul are also intended for US and European consumer markets.

Contingency planning

Companies in South Korea have been living with the provocative actions of North Korea for decades. While they may have measures in place to deal with continuity of supply in the event of a conflict, the worst-case scenario would not only affect South Korean companies but also shipments from other Asian countries. 

Suppliers in countries such as Taiwan, Japan, China and India could potentially provide an alternative source of supply, but some could cease tendering for new contracts if already engaged by bulk purchasers. This could leave CPOs struggling to find suitable suppliers.

The Korean conflict highlights the need to consider the country risks of individual suppliers. Businesses should review the dependencies of their supply chain and explore access to alternative suppliers so that any disruption to their supply chain is kept to a minimum.

CPOs with semi-conductors and displays among their product groups should be particularly aware of the situation and mindful that production deadlines could be missed and limited supply may result in potential price hikes – regardless of whether they are ordering directly from South Korea.

How we can help

Efficio’s procurement experts are highly experienced in international supply management and can evaluate your supply chain risks, while considering the costs relating to a crisis. Please contact us for further information on how we can help you optimise your supply chain.