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Business trends

What Korea Inc. stands to gain from a Biden presidency

More certainty and continued pressure on China would help Samsung and others

To take advantage of the Biden factor, experts say South Korean corporations will need to join U.S.-led supply chains while remaining on friendly terms with China.   © AP

SEOUL -- Shortly after Joe Biden was elected president of the U.S. last November, an executive at Samsung Electronics expressed relief at the result of the messy, contentious poll.

"Biden is more predictable than President Trump," the executive, who asked not to be named, told Nikkei Asia. "That is definitely better for us to set up plans. Certainty is the key in doing business."

Samsung, like many of South Korea's biggest companies, has benefited from Trump's crackdown on Chinese rivals over the past four years. But that is not stopping them from welcoming his replacement, who has vowed to cooperate closely with American allies while keeping a distance from China.

South Korea is a key player in the global tech industry, both as a maker of consumer electronics and as a supplier for other companies. This has made tech companies vital to the Korean economy -- Samsung alone accounts for 20% of the country's exports. But pressure from Chinese rivals has grown sharply over the past decade.

Trump's restrictions on Chinese tech companies, most notably Huawei Technologies, gave South Korean tech giants breathing room as they struggled to stay ahead of ambitious newcomers, many backed by Beijing's deep pockets. The outgoing president's unpredictable approach to governing, however, made long-term planning even more difficult for tech industry players already under pressure to rethink their supply chain strategies.

In 2017, Trump put Samsung in an awkward position, preemptively thanking the company for planned investment in the U.S. He tweeted, "Thank you, @Samsung! We would love to have you!" The company was left with little choice but to announce a plan to build a home appliance factory in South Carolina.

For the likes of Samsung and LG, Biden could improve the business climate by being equally tough on Beijing but more predictable and conventional in how he applies that pressure.

Samsung, in particular, was struggling to fend off challenges from Huawei in the global smartphone market until Washington slapped tough sanctions on the Shenzhen-based company. Huawei has been banned from accessing chips made using American technology since August, a critical blow to its mobile phone business. An earlier restriction on its access to Google's mobile operating system Android was another blow for the company.

Samsung claimed the largest share, 22%, of the global smartphone market by shipments in the third quarter of 2020, up from 21% a year earlier. Huawei's share for the quarter dropped to 14% from 18%, according to Counterpoint Research.

But Samsung has suffered through downsides, too. Huawei is a key customer of Samsung, which supplies memory chips and display panels for the Chinese company's smartphones. U.S. trade restrictions on Huawei made it harder for the two companies to do business together.

American pressure on Huawei has also given Samsung a leg up in the 5G network equipment market, where it is a relative newcomer. Washington has barred Huawei equipment from its infrastructure and persuaded several allies, including the U.K. and Canada, to follow suit. Samsung signed a $6.6 billion deal with Verizon in September to establish 5G networks for the U.S. telco.

Analysts say Samsung is likely to maintain this 5G tailwind under the new president, as Biden wants the U.S. to be a world leader in the establishment of 5G networks. "Biden has suggested setting up 5G networks regulated by laws and ethics along with [America's] democratic allies," said Song Young-kwan, a senior researcher at Korea Development Institute.

China policy is not the only area where Korea Inc. has hopes for the new president. The Korea Chamber of Commerce and Industry expects that the country's renewable energy and electric vehicle battery companies to have more opportunities in the U.S. under Biden, who has pledged to invest $2 trillion in renewable energy and infrastructure to cope with climate change during his four-year term.

"Industries benefiting the most from Biden's carbon neutrality [goal] are the rechargeable battery and hydrogen/electric vehicle sectors," said Lee Jae-sun, an analyst at Hana Financial Investment. "We need to pay attention to rechargeable battery companies supplying Tesla and other global players."

Hyundai Motor is among those expected to benefit. The country's largest automaker confirmed earlier this month that it is in talks with Apple to develop the California-based company's electric cars. The news boosted Hyundai's shares by 20% on the day.

LG Electronics is also hopping on the EV bandwagon. The country's third-largest tech conglomerate plans to spin off its automotive powertrain business into a joint venture with Canadian auto parts maker Magna International in July. Under the deal, Magna will take a 49% stake in the venture for $453 million. Nearly 1,000 LG employees will be transferred to the new company, to be headquartered in Incheon, South Korea, where LG's auto parts plant is located.

"Our aim is to be one of the industry's leading suppliers of automotive components and solutions," Brian Kwon, CEO of LG Electronics, said at a media event held by Magna at the CES electronics trade show last week.

The joint venture has drawn much market attention, as Magna is another candidate to supply parts for Apple's e-mobile. The announcement of the joint venture in December boosted LG's shares as investors bet on the company's EV market potential.

To take advantage of the Biden factor, however, experts say South Korean corporations need to actively join U.S.-led supply chains in the semiconductor and automobile sectors.

"We expect the Biden administration to exclude China in [these] supply chains," said Kang Goo-sang, a researcher at the state-run Korea Institute for International Economic Policy. "South Korean companies should consider joining U.S.-led supply chains in the chips and auto sectors where we have strengths."

Doing so, however, will not be easy as few other countries, if any, boast a tech supply chain as comprehensive and sophisticated as the one China has built over the past decades. There is also the risk that an obvious pullback from the country would anger China, a major market for many South Korean companies.

One positive, however: Korea Inc. already has four years' experience navigating tensions between the world's two biggest economies.

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