Global Reshoring Trends
Despite a global rush of major companies reshoring, South Korea uniquely trails its competitors in encouraging businesses to return, with the growth in returning companies remaining slow. Despite recent government efforts to encourage reshoring, assessments indicate that it is still insufficient.
According to industry sources on Aug. 8, since the government began encouraging the return of companies through the “Act on Assistance to Korean Offshore Enterprises in Repatriation” from 2014, 126 companies have returned to Korea over the past 9 years. Meanwhile, during the same period, 26,406 new overseas entities were established. This underscores that domestic companies are more interested in overseas expansion and leaving South Korea rather than reshoring. Last year, only 24 companies decided to return to Korea, backsliding from the 26 that returned in 2021.
The number of such returning companies is significantly lacking when compared to competing countries like the U.S., Japan, and Taiwan. In the U.S., the number of returning companies grew more than fivefold from 340 in 2014 to 1,844 in 2021. Japan saw a slight decrease from 628 in 2014 to 612 in 2018, but has maintained an annual level of 600-700. The total number of returning companies in Japan from 2006 to 2018 was 7,633. Taiwan also had 364 companies return from 2010 to 2015.
The slow spread of domestic reshoring is attributed to an unattractive business environment. According to the 2023 National Competitiveness Evaluation results released by the International Institute for Management Development (IMD) in Switzerland, South Korea’s economic performance ranked 14th out of 64 countries, but its business conditions ranked only 53rd. The results are based on a comprehensive measurement of factors, including the degree of business hindrance due to labor regulations.
Controversy also surrounds the lack of expanded tax benefits for companies returning to the metropolitan area (overpopulation control zone). Recently, the ruling party decided to adjust the reduction in income tax and corporate tax for supporting the return of overseas businesses from the existing “100% for 5 years, 50% for 2 years” to “100% for 7 years, 50% for 3 years.” However, if they return to the metropolitan area, the reduction remains at “100% for 3 years, 50% for 2 years.”
According to data on the “Support Status for Domestic Return Companies” received by Representative Noh Yong-ho of the People Power Party from KOTRA last year, of the 90 companies that returned to Korea from 2018 to August last year, only 26 received reshoring subsidies (investment subsidies) and employment creation incentives. An industry insider said, “The paperwork to receive subsidies and incentives is complicated.”