Korean Companies Moving to Southeast Asia Instead of China Amid Supply Chain Restructuring

Major Domestic Conglomerates
Recognized as Attractive Investment Destinations

POSCO Expands Steel Plant in Indonesia

SK 3 Companies, Lotte Chemical, etc.
Target Southeast Asia as Hydrogen Hubs

LG's 11 Trillion Won Project in Indonesia

[Asia Economy Reporter Jeong Dong-hoon] As the United States seeks to reorganize supply chains centered on its own country, domestic companies are strengthening collaboration with Southeast Asian countries.

According to the industry on the 19th, major domestic conglomerates such as Samsung Electronics, SK, Hyundai Motor Company, Lotte, and POSCO are accelerating cooperation with governments or companies in Southeast Asia, naming the region as a new location for overseas factory establishment and investment. Southeast Asian countries have a younger and larger population compared to other countries participating in economic activities, and their purchasing power is also increasing. The Southeast Asian region is also rich in major raw materials, making it an attractive investment destination where supply chains can be established and production, export, and consumption can take place.

In particular, the POSCO Group recently began cooperating on most of its major businesses within the group in Indonesia, ranging from steel to battery materials, steel, and construction. POSCO and Krakatau Steel will jointly invest $3.5 billion (approximately 4.6 trillion KRW) by 2026 to build a second blast furnace and a cold rolling plant at Krakatau POSCO. POSCO plans to expand the annual crude steel production capacity of the Krakatau POSCO plant, which was the first overseas plant built with proprietary technology and capital in 2010, to more than 6 million tons, double the current scale. Based on 'steel cooperation,' POSCO is also participating in the construction project of Indonesia's new capital city. Group companies such as POSCO Engineering & Construction, which developed Songdo International City, are reviewing participation.

Cooperation in the hydrogen sector in Southeast Asia is also being strengthened. Recently, SK Group's three companies?SK Materials, SK Ecoplant, and SK Signet?promised comprehensive business cooperation in the eco-friendly sector with Gentari, the eco-friendly business subsidiary of Petronas, Malaysia's largest state-owned energy company. Especially focusing on the hydrogen sector, SK Materials plans to produce blue hydrogen and ammonia in Malaysia using the technology of 8 Rivers, a U.S. company it invested in earlier this year, and to promote a CCS (carbon capture and storage) project for carbon dioxide storage. Samsung Engineering, Lotte Chemical, and POSCO Holdings are also jointly promoting the Sarawak clean hydrogen project in Malaysia with SEDC Energy since January.

The Southeast Asian market has the potential to become a new manufacturing and supply chain hub to replace China, once known as the world's factory. ASEAN's population is about 670 million (as of 2021), with 53.7% of the total being of working age between 20 and 54 years old. Labor costs are relatively low, and it is easy to secure talent. Diversifying production facilities to Southeast Asia can reduce dependence on China and also lessen concerns about economic friction with the United States, which is intensifying supply chain pressures.

LG is also pushing a large-scale project worth 11 trillion KRW to build an electric vehicle value chain in Indonesia, which has the world's largest nickel reserves, a key battery material. The plan is to establish a complete value chain from mining raw ore at Indonesian nickel mines through smelting and refining to precursor, cathode material, and battery cell production.

According to the Export-Import Bank of Korea, Korea's direct investment in Indonesia last year reached a record high of $1.8 billion (approximately 2.346 trillion KRW). Investment in Southeast Asia, which had been concentrated in Vietnam, is spreading to other ASEAN countries such as Indonesia, Malaysia, and Myanmar.