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3 Ways Tensions in North Korea Could Impact the Electronics Supply Chain

Here’s how escalating tensions in East Asia could disrupt the supply chain in the coming months, and how buyers can prepare in advance.

As the tensions involving North Korea, South Korea, Japan, the United States, and various other countries continue to escalate, the electronics supply chain could experience a number of short- and long-term impacts related to the crisis. By Global Industry Analysts’ measure, Asia-Pacific represents the largest and fastest-growing market for electronic component production, which is expected to reach $191.8 billion by 2022. It singles out the rise of Taiwan, Singapore, China, and South Korea as production hubs for semiconductors, and the overall consumerization of electronics as two of the key driving market forces.

The question that many procurement professionals may be asking themselves right now is:  How will these escalating tensions impact our supply chains, and what can we do about it? Here are three scenarios to consider:

  1. Supply chain disruption is likely if North Korea continues to make nuclear-related threats to its neighboring countries and the U.S. “There could be considerable disruption to Asia's supply chain, particularly in electronics, if North Korea makes good on its threat to launch nuclear attacks,” according to ABS-CBN News’ Asia supply chain under threat from North Korea tensions. “If there were to be a conventional conflict, let alone a nuclear conflict, there could be quite a lot devastation to the South Korean economy and South Korea is a very important part of the global supply chain—for electronics in particular—so there could be considerable disruption to the Asian manufacturing supply chain,” IHS Markit Asia Pacific chief economist Rajiv Biswas told ABS-CBN.
  2. Buyers whose electronics components are made in Japan, South Korea, and/or Taiwan could experience the biggest impacts. In These 72 Companies Are in the Eye of the Nuclear Storm Brewing Between the U.S. and North Korea, Fortune’s Shawn Tully notes that North Korea “could attack those nearby nations with either conventional or nuclear weapons, with a much higher probability of inflicting devastating damage.” Because those three countries harbor “an enormous share of the industrial and financial power of the global economy,” with heavy concentrations in auto, tech, and finance, the supply chain impacts could be far-reaching. “And the tech sector in those three nations features a roster of the world's biggest names in consumer electronics and industrial automation,” Tully writes, “from Sony, Panasonic, and Mitsubishi Electric of Japan to Samsung of South Korea and no fewer than four Global 500 members from Taiwan, ranging from Hon Hai in electronics to Pegatron in computers and office equipment.”
  3. The impact on global key chip supply could be devastating. In assessing North Korea’s attempt to drive a wedge between the U.S. and South Korea, CNBC’s Leslie Shaffer highlights the crucial role that the latter plays in global supply chains.  According to IDC, South Korea comprised 17% of the global semiconductor market and 64% of the memory chip market last year. “If South Korea is hit by a missile, global key chip supply will stop immediately and all electronics production will stop too,” an IDC analyst told CNBC in Why South Korea is a linchpin for all global tech. South Korea is also the largest producer of liquid crystal displays globally, with a 40% market share. “If South Korean production was badly damaged by a war there would be shortages across the world,” Shaffer writes. “The disruption would last for some time—it takes around two years to build a semiconductor factory from scratch.”

Precautionary Measures
Buyers concerned about these and other potential supply chain risks should keep in mind that companies in South Korea have been “living with the provocative actions of North Korea for decades,” Tim von der Decken points out in The Korean conflict - a potential risk for your supply chain?  Suppliers in countries such as Taiwan, Japan, China, and India could potentially provide an alternative source of supply, he notes, but some could cease tendering for new contracts if already engaged by bulk purchasers. This could leave chief procurement officers (CPOs) struggling to find suitable suppliers.

“Businesses should review the dependencies of their supply chain and explore access to alternative suppliers so that any disruption to their supply chain is kept to a minimum,” von der Decken writes. “CPOs with semiconductors and displays among their product groups should be particularly aware of the situation and mindful that production deadlines could be missed and limited supply may result in potential price hikes—regardless of whether they are ordering directly from South Korea.”

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