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More Incentives Needed for Companies Returning Home
Prerequisites for Reshoring of Korean Firms
More Incentives Needed for Companies Returning Home
  • By Jung Min-hee
  • July 20, 2018, 14:25
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A Hyundai Motor plant in Mexico
A Hyundai Motor plant in Mexico

Back in 2013, the South Korean government announced that the nation's GDP would increase by up to 45 trillion won (US$40 billion) if South Korean companies engaged in manufacturing activities in China in five different industries returned to their home country.

The next year, the Act on Assistance to Korean Off-shore Enterprises in Repatriation was enacted. Since then, 67 South Korean companies have expressed their will to come back and 47 have actually come back. The act is effective until the end of this year.

These days, a number of large corporations and their partners supplying components and materials are leaving South Korea. According to the Korea Chamber of Commerce & Industry, South Korean companies employed 533,000 workers abroad in 2005 and the number more than tripled to 1.625 million in 2015. During the same period, the number of South Koreans working for non-South Korean companies in South Korea edged up from 179,000 to 271,000.

This trend is particularly conspicuous in the manufacturing sector. For example, the ratio of overseas semiconductor production jumped from less than 10% to 20% between 2008 and 2016. Likewise, the ratio of overseas display production rose from close to 0% to 20% or so. The figure jumped from around 30% to over 50% when it comes to overseas automobile production.

In this context, the government decided to expand incentives for returners to cover large as well as non-large corporations. This has to do with the fact that most of the non-large companies that have gone abroad did so to follow their larger partners and it is practically impossible for the former to return with the latter remaining abroad. In other words, the outcome of the Moon Jae-in administration’s job policy depends on how many large South Korean corporations will come back.

The tax law is scheduled to be amended within this year for more tax credit for investment in new growth technology. Assistance for returners is slated to be overhauled in the second half as well. The government is hoping that the number of returners will increase at least to some extent based on such measures.