[Post-China Vietnam]② Korean Semiconductors Heading from China to Vietnam

"De-Chinaization, Samsung, Semiconductors"

Last year, the trade surplus with Vietnam reached $34.25 billion (approximately 43 trillion KRW), making Vietnam South Korea's largest trade surplus partner in history. This was driven by three key factors. As the US-China hegemonic competition intensified, companies seeking alternative export routes to the US have actively turned to Vietnam to secure a stable export market.

Samsung plays a central role in Vietnam's emergence as the top country for South Korea's trade surplus last year. According to the Korea International Trade Association on the 19th, semiconductors were the number one export item to Vietnam last year. Semiconductor exports to Vietnam increased from $11.5 billion in 2020 to $14 billion in 2021, and continued to rise to $16.2 billion in 2022. South Korea's total exports to Vietnam last year amounted to $61 billion, with semiconductors accounting for 27% of that figure.

The trade structure between South Korea and Vietnam involves South Korea exporting intermediate goods, which are then assembled into finished products at local Vietnamese factories and exported worldwide. Intermediate goods accounted for the largest share of South Korea's exports to Vietnam, growing at an average annual rate of 19.7% from 2010 to 2020. The share of intermediate goods exports was 85.5% in 2020, increasing to 87.4% in 2021 and 88.8% in 2022. As Vietnam's manufacturing sector normalized last year and global consumption demand recovered post-COVID-19, Vietnam's total exports reached a record high of $371.3 billion. Consequently, South Korea's intermediate goods exports to Vietnam rose 9.2% year-on-year to $54.1 billion.

Samsung Electronics’ Early Commitment to Vietnam... Rising as a Semiconductor Backend Processing Hub

Vietnam plays a significant role as an IT production base for South Korea and other countries. Samsung Electronics has been investing in Vietnam early on. Samsung produces smartphones locally in Vietnam and exports them to 128 countries. Since establishing a production plant in Vietnam in 1995, Samsung has continuously increased its investments there. Currently, it operates six production subsidiaries, one sales subsidiary, and one research and development (R&D) center.

According to the Trade Association, Samsung Electronics' exports from Vietnam amounted to $65 billion last year, accounting for 17.5% of Vietnam's total exports. Although the combined sales of Samsung's four subsidiaries in Vietnam decreased by $500 million year-on-year to $71.3 billion, net profit slightly increased to $4.64 billion, marking the highest level in five years. Samsung has invested over $18 billion in Vietnam to date and plans to continue increasing its investment.

Especially amid US-China tensions, Vietnam is taking over the semiconductor manufacturing position previously held by China. Recently, Vietnam has emerged as a backend OSAT (Outsourced Semiconductor Assembly and Test) hub, leading to increased exports of semiconductors that have completed front-end processing in South Korea. Vietnam is gradually specializing in labor-intensive backend processes such as testing and circuit packaging. As IT set (finished product) production in Vietnam increases, semiconductor exports embedded in these products are also rising.

Global semiconductor companies turning their attention to Vietnam is partly due to the Vietnamese government's support for nurturing the semiconductor industry. The Vietnamese government exempts high-tech foreign companies, including those in semiconductors, from corporate tax for four years and offers a 50% corporate tax reduction for up to nine years. Kwak Sung-il, head of the Economic Security Strategy Office at the Korea Institute for International Economic Policy (KIEP), stated, "Due to US-China trade conflicts, global companies are sending love calls to Vietnam to secure stable supply chains," emphasizing, "South Korea, as Vietnam's largest investor, should actively utilize Vietnam as a gateway to the global value chain (GVC)."

Most Vietnam Trade Is Between Our Companies... Must Accompany Vietnam Government’s Industrial Development Efforts

However, experts agree that for Vietnam to firmly establish itself as a market alternative to China, structural improvements are necessary. Currently, semiconductors and displays account for over 50% of Vietnam-bound exports, which is excessively concentrated. Moreover, looking beneath the surface, a significant portion of exports to Vietnam is actually exports to South Korean companies operating there rather than to Vietnam itself.

Kim Dong-su, senior research fellow at the Korea Institute for Industrial Economics and Trade, explained, "The large volume of exports to Vietnam is because South Korean mobile phone and home appliance manufacturers operating in Vietnam purchase core components in large quantities from South Korea." He added, "Vietnam Samsung, which produces about 50% of global mobile phone sales in Bac Ninh and Thai Nguyen, annually purchases core components worth approximately 40 trillion KRW from affiliated companies in South Korea." The fact that trade between South Korea and Vietnam is largely trade between South Korean companies operating in Vietnam, rather than direct trade between the two countries, raises potential future conflicts.

To strengthen bilateral cooperation in semiconductors, issues such as Vietnam's shortage of skilled labor, limited access to advanced semiconductor technologies and equipment, and lack of a supply chain ecosystem need to be addressed gradually. Senior Research Fellow Kim noted, "Most core components are purchased from South Korea, and general components are sourced from China, so Vietnamese companies are effectively excluded from our supply chain." He emphasized, "Since Vietnamese companies currently have low technological capabilities, there are limits to involving them in our supply chain. Therefore, the Vietnamese government must actively support and foster the industry so that our companies can procure general-purpose components from local Vietnamese firms." He also stressed the need for South Korean companies to recognize Vietnamese companies as partners and to operate phased technology transfer and workforce training programs.