The fatal competitiveness crisis for Korea Inc.

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The fatal competitiveness crisis for Korea Inc.

Published: 17 Oct. 2024, 19:42

Lee Sang-ryeol
The author is a senior editorial writer of the JoongAng Ilbo.

Samsung Electronics — the source of K-business pride — has become a locus of concern. According to its earnings report, the chip-to-home appliance behemoth is estimated to have racked up an operating profit of 9.1 trillion won ($6.7 billion) for the third quarter, falling short of market expectations and sending chip division chief, Jun Young-hyun, to issue a rare apology to its shareholders and investors as the bellwether stock neared two-year lows.

However, can this problem be restricted to Samsung? The company which has long reigned over the realm of memory chips has faltered by failing to foresee the sudden rise of an AI-driven age. It admitted that it has been stumbling in perfecting premium high bandwidth memory (HBM) chips to meet the standards of its primary customer, Nvidia, which nearly monopolizes the supplies of AI chips. But the bigger headwind stems from the fast-rising Chinese competition. In the earnings statement, Samsung partly blamed its underperformance to the “increased legacy memory chip supply from Chinese players.” What rocked the chipmaker was not its stalemate in the premium sector but the Chinese foray into mass-market mature chips. A Samsung executive said that a bigger problem than the HBM issue is China’s rapid inroads into the chip market.

Market tracker TrendForce estimates the share of Chinese names in the dynamic random-access memory (DRAM) market to rise from estimated 6.0 percent in the third quarter to 10 percent a year later. Their rise can break up the dominance by the trio — Samsung Electronics, SK hynix and Micron — which has been sustained in the DRAM market for more than a decade. This spells a nightmare for the Korean chip industry. China’s top DRAM player, Changxin Memory Technologies (CXMT), is still fledgling, having started selling DRAM chips in 2020. But the company’s fast ascension had the full blessing and funding from the Chinese government, which has launched chip funds to dole out $41 billion this year alone.

The chip sector is not the only danger zone. Korea prides supremacy in secondary batteries as much as chips, but producers these days stand no chance against China’s dominance. As of August, Chinese players accounted for 65.1 percent of battery supplies to EVs compared with 21.1 percent of Korean makers. Of the top 10 EV battery makers, six are Chinese, including CATL at the top with 37.1 percent. Korea has exited from the liquid crystal display market it once dominated — after being completely beaten by Chinese latecomers. Petrochemicals and steel producers also struggle against cheap Chinese supplies.

Korea so far was able to avoid a direct clash in the chip and battery war with China — largely thanks to U.S.-led sanctions that keep a Chinese foray into western markets at bay. We cannot know the outcome should there be any change in U.S. policy.

Jun, the chip division head at Samsung, vowed to revive its fundamental competitiveness in core technologies and realign its organizational culture. Technology and organizational culture are all linked to manpower. Samsung employees have lost their iconic morale and loyalty. Employees advise one another to keep low. The work-life balance culture has also reached the younger workforce of Samsung. Negative effects from the rigid 52-hour workweek also played a part in weakening the tech company as its competitiveness cannot be defended when employees drop their research projects and urgent issues to keep to the office hours. There has been little progress in the agenda to flex the uniform work hours. The government has been unable to revisit the issue after its proposals of loosening workhour rigidity were met with strong protest last year.

Recruiting talents also is not easy. Top brains choose medical schools over chip engineering departments. The enlargement of the medical school admissions quota can translate into a bigger hemorrhage of science majors to med schools. In his book “Hidden Heroes,” former Samsung Electronics chief technology officer Lim Hyung-kyu noted that the biggest risk in Korea’s chip industry is the shortage of talents which subsequently weakens technology competitiveness. Again, the problem is not restricted to Samsung.

All the setbacks — Chinese competition, rigid work hours and the medical school craze — aggrieving Samsung are common challenges for the Korean manufacturing industry. The dangers are obvious, but nothing is being done. One consulting agency observed Korea was “NATO (No Action Talk Only)” when it was desperately striving to stave off a national liquidity crisis in 1997. Obviously, no lessons have been learned.

Translation by the Korea JoongAng Daily staff.