[Reporter’s Notebook] While 480 US Companies Return, Only 10 in Korea: Preventing Corporate Exodus is Crucial

"Considering high labor costs, various regulations, and taxes, bringing factories located abroad back to Korea is practically difficult."

A senior executive of a leading domestic conglomerate recently said this when asked about the possibility of reshoring. It means that reshoring is virtually impossible.

Concerns about offshoring by Korean companies have resurfaced as LG Electronics decided to move part of its Gumi TV line to Indonesia. Offshoring refers to the phenomenon where companies send production, services, and jobs overseas to reduce costs. Reshoring is the opposite.

When companies relocate factories overseas, it is very negative for the country economically. Not only do jobs disappear, but taxes decrease, and the local economy is adversely affected. If a large company moves, related parts suppliers may go bankrupt. This is why governments around the world are competing to implement reshoring policies.

However, compared to other countries, Korea's reshoring performance is poor. According to a survey by the Federation of Korean Industries, from 2014 to 2018, the average number of reshoring companies returning to the United States was 482 per year. In contrast, during the same period, Korea had only 10.

Since the inauguration of the Donald Trump administration, the U.S. has induced corporate returns by implementing corporate-friendly policies such as drastic corporate tax cuts, various tax reductions, deregulation, and protecting domestic companies based on America First principles. Large companies like Apple, Boeing, and GM responded to government policies, achieving significant results.

As of 2017, the jobs newly created by reshoring companies in the U.S. amounted to 81,886, accounting for about 55% of new manufacturing employment in the country. On the other hand, Korea began actively promoting reshoring by enacting the "Act on Support for Domestic Return of Overseas Expansion Enterprises (U-Turn Act)" in 2013, but the results have been minimal. So far, the only major company that has returned is Hyundai Mobis.

The Federation of Korean Industries investigated why companies hesitate to reshore, and the biggest reason was high wages. Compared to Southeast Asian countries, Korea's wage level is more than 3 to 4 times higher. The labor cost difference is too large. It became even more difficult as the current government raised the minimum wage too much at once.

There are no significant tax benefits either. Companies want to return to the metropolitan area, which has geographical advantages, but they cannot receive any tax benefits if they come here. To receive benefits, they have to move to provincial areas, but it is difficult to find manpower there. They also said rigid labor-management relations are a burden.

The current government declared that it would actively promote reshoring in response to the COVID-19 pandemic. However, unless these difficulties faced by companies are resolved, second and third LG Electronics will inevitably continue to emerge.

This content was produced with the assistance of AI translation services.