Korea risks ‘Nokia paradox’ as chip giants dominate market

The combined weight of South Korea’s two semiconductor leaders, Samsung Electronics and SK hynix, now accounts for more than 43 percent of total market capitalization, edging closer to 50 percent. The concentration recalls Finland’s experience with Nokia.

At its peak, Nokia held about 40 percent of the global mobile phone market and made up more than 34 percent of the Helsinki stock exchange in 2007. The term “Finland paradox” emerged to describe a country with world-class R&D investment and education, yet weak corporate performance outside a single dominant company. Critics said the Finnish government grew complacent during Nokia’s boom and failed to develop other industries.

Similar concerns are emerging in South Korea. The country’s R&D spending reached 5.13 percent of gross domestic product in 2024, second only to Israel’s 6.35 percent. Despite years of heavy investment, few sectors beyond semiconductors are driving the stock market.

Education outcomes are also strong. South Korean students rank highly in the OECD’s Programme for International Student Assessment. Given the scale of spending on education, one might expect the emergence of figures such as Jensen Huang or Sam Altman. Instead, large conglomerates continue to dominate, reinforcing what some describe as a “Korea paradox.”

Meanwhile, the country’s potential growth rate is declining. OECD projections show it falling from 1.92 percent last year to 1.71 percent this year and 1.57 percent next year. Semiconductor-driven exports continue to reach record highs, even as long-term growth prospects weaken.

South Korea’s chipmakers are not destined to follow Nokia’s path, but the risks of concentration are clear. After Apple launched the iPhone in 2007, Nokia’s mobile business collapsed. Finland’s trade balance turned negative, and around the time of Nokia’s sale in 2013, the economy recorded three consecutive years of contraction.

Finland’s response offers a useful lesson. The government focused on fostering startups and small and medium-sized enterprises, overhauling outdated regulations and building an ecosystem to support new businesses.

Education reform is also essential in the age of artificial intelligence. While Korean students excel in core subjects, they are often seen as weaker in evaluating and analyzing information in digital environments and in self-directed learning, skills critical for AI. Peter Howitt, who is set to deliver a keynote at the 2026 Dong-A International Finance Forum, said in an interview that fostering innovation requires teaching students to take risks and embrace challenges.

South Korea cannot afford to miss the opportunity to develop new growth engines while benefiting from the current semiconductor boom.