The Status of Korean Fabless Firms and Their Cooperation with Set Makers

In 2019, the Moon Jae-in administration promulgated its “System semiconductor vision” as a new growth engine for the sustainable growth of Korea. To achieve this goal, fabless SMEs and a competitive semiconductor ecosystem are regarded as key elements in fostering the system semiconductor industry in Korea, and new policy directions and alternative policy measures need to be addressed.The Korean government’s vision for making Korea a semiconductor powerhouse by 2030 is aimed at achieving the largest market share in foundry services and securing 10 percent market share in the fabless sector while main-taining Korea’s leadership position in the memory semiconductor market.This vision for the Korean semiconductor industry reflects the current economic environment of the industry. In fact, the competitiveness of the Korean semiconductor industry is challenged by a number of factors, such as a high dependency on memory chip markets, sharply increasing demand for system semiconductors in emerging industries (for example, artificial intelligence, autonomous vehicles, robots and so on), the rapid growth of the Chinese semiconductor industry, the US-China semiconductor war and so on. This calls for a new vision and strategy that includes expanding government R&D investment, supporting fabless SMEs through public investment, and creating demand for system semiconductors in the public sector.In order to foster a competitive semiconductor ecosystem, an active role for fabless SMEs is critical. This can be achieved by forging closer relationships with both set makers (for example, electronics companies) and foundries. To identify market demand for new product development, their growth strategies should focus on set makers’ demand, and this would be backed up by closer cooperation with set makers.Policy directions and strategies need to be carefully prepared in order to encourage fabless SMEs to play a vital role in the system semiconductor ecosystem.Unfortunately, in the extant literature, there is a dearth of discussion on fabless SMEs in Korea owing to a lack of accurate data.So for this article, we discuss the current status of Korean fabless SMEs and their cooperation with set makers using unique survey data collected from 81 fabless firms. Before we discuss the results of a survey of fabless SMEs, we frame the topic with a background discussion of the brief history of the semiconductor industry as a whole and the Korean semiconductor industry in particular. We conclude with suggestions for policies to foster a more competitive semiconductor ecosystem in Korea