You might not realise, but many of the components of many of the devices you use on a day to day basis come from South Korea.
Titanic technology manufacturers LG and Samsung are located in Seoul, which is not too far from the heavily fortified border between North and South Korea. This buffer zone-of sorts is known as the De-Militarised Zone, or DMZ, and runs along the 160 mile width of the country.
At 2 ½ miles wide, it’s actually a wondrous, organic nature reserve since no man dare enter from either side for fear of instantly being shot. However, it will be the epicentre of crisis should tensions between the two nations reach a catastrophic climax.
Samsung and LG not only make their own products, but they also manufacture parts for a large number of other consumer technology giants, including Apple, Qualcomm, and Texas Instruments. The iPhone may be assembled in the Chinese city of Zhengzhou, for instance, but many of the individual components come from Samsung, in South Korea.
If North Korea’s rattling of its sabres actually descends into an all-out war, there could be major disruptions in the supply chain for products such as LCD TVs, smartphones and tablets, analysts have said.
“Anything that disrupts the work flow of supply is going to be an issue,” Thomas J. Dinges, Senior Principal Analyst, Outsourced Manufacturing for IHS, said.
Speaking to US publication LAPTOP Magazine, Dinges said that more than half of the world’s supply of DRAM and a substantial amount of its flash memory and display panels are manufactured in Korea.
“Somewhere between 40 and 50 percent of the world’s supply of these three major components are coming out of Korea,” Dinges said.
According to market research firm TrendForce, during the fourth quarter of 2012 alone, Korea accounted for a frightening 78.5 percent of the global DRAM market share, with Japan coming in at a distant second with 19 percent. Most desktop computers and laptops use DRAM to store data because its less expensive than RAM alternatives such as SRAM.
Samsung is at the forefront of the semiconductor industry in Korea. Theoretically, if warfare in Korea blocked major suppliers like Samsung from exporting product, we could see affects on product availability in about three months.
“There’s so much that’s already in the pipelines whether it’s in inventory or in transit,” Gene Tyndall, executive vice president of global supply chain solutions for Tompkins International told LAPTOP Magazine. “There’s probably about two to three months of safety, but after that [companies] would have to find alternate sources of production.”
Samsung could experience more severe availability issues with its products than other competing brands. Companies such as Apple and HP keep about four to six weeks of inventory handy to prepare for any supply chain disruption, Dinges said, but Samsung operates differently.
“They’ll keep what they consider to be emergency stock, but they don’t like to keep stock that may not be able to be sold,” Tyndall said. “They’re very tight on that.”
Although Samsung does have smaller factories in other areas of the world, it relies primarily on its factories in South Korea to manufacture its own products and components for clients.
“Samsung doesn’t have a lot of flexibility around the world because they don’t have that many plants outside of Korea,” Tyndall said. “They do have some in Mexico and a few in Europe, but that’s not enough. Because they are primarily a produce-at-home company, [a production slowdown] would indeed impact others in about two to three months, again if the conflict drags a bit.”
According to Dinges, a supply chain disruption in South Korea could also ignite a surge in component demand from Samsung’s customers.
“The natural reaction is that things start to look like they’re going to get worse,” he said. “The natural reaction is that [companies] dependent on these types of products are all of a sudden going to say ‘Look, I don’t know what the supply disruption is going to be, just open the checkbook up and buy whatever we can.”
However, the biggest potential obstacle for Samsung customers would be seeking out new suppliers, Tyndall said. Similarly, when Japan was struck by an 8.9 magnitude earthquake in 2011, panel makers were forced to scout out new material suppliers to keep their product lines going. Sony, Toshiba and Texas Instruments halted production at their plants for months following the disaster.
“First of all, the customers of Samsung would have to find alternate suppliers, and that’s not easy,” Tyndall said. “It will take time to even find alternate sources. It doesn’t happen overnight. The risk plans are there and they’re probably being discussed right now, but depending on the length and severity we can see availability problems.”
Unless warfare escalates into more than disturbing threats and mounting tensions, the supply chain isn’t likely to suffer, according to Tyndall.
“I think these days we’re pretty much okay, but again if the conflict goes on for months we could see all sorts of problems,” he said. “I think we’d have to watch it very carefully and see what can be done.”
[via LAPTOP Magazine and Mashable]
