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The coronavirus domino effect: South Korean tech firms reel as Vietnam links curbed

First, the initial outbreak forced its China factory to shut down for almost three weeks and caused supplies from China for its Vietnam plant to begin to dry up. Then when the virus spread to South Korea, travel restrictions prevented its workers from keeping an expansion at the plant, located in the port city of Hai Phong, on track.

Now the company, which declined to be named to protect business relationships, is looking at disruptions in its factory in the industrial hub of Gumi, less than an hour’s drive from Daegu, the epicenter of South Korea’s coronavirus cases.

In addition to continued difficulties with sourcing from China, the supplier of smartphone screen parts and camera modules to LG firms has been hit by some worker quarantines and is fretting about the prospect of even more – problems likely to ripple through to end customers including Apple.

“The virus has a domino effect on suppliers,” a senior executive at the firm told Reuters. “I just look up to the sky and sigh.”

Its woes illustrate how the coronavirus crisis has shaken an Asian electronics supply chain still smarting from the U.S.-China trade war and the integral role played by China’s ecosystem of factories. The problems also expose how Korea Inc’s strategy of investing heavily in Vietnam has not proven to be a fully successful hedge against risks in China.

Led by national champions LG and Samsung, Korean companies have been building their presence in Vietnam for years as the costs of manufacturing in China rose along with political risks and concerns about intellectual property theft.

While China remains the best source for many parts and materials and is the base for major Chinese tech companies and big customers like Apple, Vietnam’s proximity made it an obvious choice for offsetting risk.

Korean firms are the biggest foreign investors in Vietnam, with over 4,000 operating in the country. Interdependence runs deep: Samsung alone accounts for one-fourth of Vietnam’s exports and the Southeast Asian nation is South Korea’s No. 3 export market as well as the fifth-biggest source of Korean imports.

Business is facilitated by a huge amount of travel. There were some 3.5 million arrivals from Korea in Vietnam in 2018, a 44% jump from a year earlier. South Korean and Vietnamese airlines flew routes between the two countries 538 times a week last year.

So when Vietnam began curtailing travel links, business plans went awry. Most flights between the two nations are currently suspended and starting Sunday, South Koreans entering Vietnam will have to undergo 14 days quarantine.

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