A reality check for chip policy

A remark by SK Group Chairman Chey Tae-won during a visit to Japan last week sent a ripple through South Korea's business community. Asked where the company's next semiconductor plant might be built, Chey replied that if construction in South Korea proves unfeasible, the company may have to look abroad. Building the facility in South Korea, he added, should not be viewed as a foregone conclusion.

For years, South Korea has regarded domestic memory chip production as virtually unquestionable. Much as Taiwan views Taiwan Semiconductor Manufacturing Co. (TSMC) as a strategic asset that underpins national security, South Koreans have generally assumed that the next major DRAM plant would also be built at home, following Samsung Electronics' facilities in Giheung, Hwaseong and Pyeongtaek and SK hynix's operations in Icheon and Cheongju. Chey's comments, however, suggest that assumption is beginning to erode. A series of developments this year has led chipmakers to take a fresh look at whether an all-in commitment to South Korea still makes strategic sense.

Labor risk has emerged as one of the clearest concerns. In this year's bonus negotiations, Samsung Electronics departed from its long-held approach to profit distribution and agreed to allocate 10.5 percent of operating profit to employees in its semiconductor division. The company also relaxed its principle that bonuses should be tied to profitability, promising substantial payouts even to some loss-making chip units. Within Samsung, there has been growing discussion that the potentially staggering cost of a strike, combined with the company's complete reliance on domestic DRAM production, weakened management's negotiating position. The episode exposed an uncomfortable reality: the geographic concentration that has long been considered a strength of South Korea's semiconductor industry may also make it more vulnerable to labor disruptions than sectors such as automobiles or shipbuilding.

Political headwinds have also intensified. With another semiconductor boom expected and annual operating profits projected at 200 trillion to 300 trillion won for some companies, local governments have enthusiastically joined the race to attract chip plants. During the June 3 local elections, six of the country's 16 provincial and metropolitan governments pledged to bring semiconductor facilities to their regions, regardless of whether companies had expressed any such plans. In some cases, local officials have publicly suggested that specific companies will soon build factories in their jurisdictions even though those companies say no decisions have been made. If those projects never materialize, public disappointment is likely to be directed at the companies rather than the politicians who made the promises.

Few things concern corporate leaders more than investment decisions made under pressure. Companies do not fear investment. If they see a compelling business opportunity, they are often willing to move quickly and commit substantial capital. Investments driven primarily by political expectations, however, are fundamentally different. Once business judgment is overshadowed by external pressure, companies can find themselves bearing the consequences if a project later fails to meet expectations.

The global race to attract semiconductor investment is growing more intense. As chips become the backbone of the artificial intelligence era, governments around the world are competing aggressively to secure new manufacturing facilities. The United States is dangling massive subsidies and generous tax breaks, while Japan has won over chipmakers with streamlined approvals and strong administrative support. South Korea, by contrast, often seems more focused on dispersing semiconductor plants in the name of balanced regional development than on strengthening the investment environment. If policymakers truly want chipmakers to expand beyond the Seoul metropolitan area, they should first create conditions that make such investments worthwhile and then allow companies to decide where to invest.