[Choi Jun-young's Urban Pilgrimage] Reshoring and Regional Cities

The novel coronavirus disease (COVID-19) is changing many things. Among these changes, one that is expected to continue having an impact is the perception of manufacturing. The presence or absence of manufacturing, once considered unattractive, is now recognized as having made a significant difference in responding to COVID-19. Countries with major manufacturing industries such as South Korea, Germany, and China have effectively managed the production and supply of various medical supplies, including masks, whereas countries like the United Kingdom, France, and the United States, which relied entirely on external sources, have suffered heavy casualties due to COVID-19. The stark contrast between South Korean mask factories producing hundreds of thousands of masks daily on automated production lines and luxury artisans painstakingly sewing handmade masks by hand is striking.

Recognizing the risks of complete dependence on overseas sources for essential products including medical supplies, governments worldwide are actively pursuing so-called reshoring?bringing back companies that had relocated overseas, including to China, back to their home countries. In fact, reshoring has been promoted mainly by the United States since 2010 amid growing concerns over China’s rapid rise. Economic reasons such as the narrowing cost gap between production in the U.S. and China due to rising Chinese production costs, along with technological advances represented by robots and artificial intelligence (AI), have made reshoring a realistic option. However, separating specific companies and sectors from well-established global supply chains and relocating them has not been easy. Many companies returning with high expectations have revealed limitations in productivity.

Regional Cities That Lost Large Industrial Complexes Hope for Reshoring Due to COVID-19
Advanced Manufacturing Companies Prefer the Seoul Metropolitan Area Over Provinces

Reshoring, which had been sluggish, began to emerge as a major issue targeting semiconductor and information and communication companies including Huawei as the U.S.-China trade dispute intensified. With the global spread of COVID-19, reshoring has transformed into a national imperative that many countries, including the U.S., must undertake rather than an option. The era of offshoring?relocating manufacturing overseas?that had continued since globalization in the 1990s and the full launch of the World Trade Organization (WTO) system in 2000 is coming to an end.

South Korea has also seen many manufacturers relocate their production bases overseas, including to China and Southeast Asia. It is reported that about $35 billion in investment and 250,000 jobs were lost overseas in just ten years from 2006 to 2016. This trend continued, with South Korean large corporations’ overseas direct investment (ODI) reaching $10.2 billion in the first quarter of 2019. As a result, domestic manufacturing has become increasingly vulnerable, with the impact concentrated especially in provincial cities where large industrial complexes were located. Cities that had grown alongside corporate development have shrunk as employment and resources declined due to corporate relocations. Many industrial cities, including Gumi, have failed to introduce and nurture new industries to replace those lost and have been unable to find a way forward.

Choi Jun-young, Senior Advisor at Law Firm Yulchon

In this situation, expectations for reshoring have risen due to COVID-19, raising hopes that industrial cities may seize new opportunities for revival. However, it remains highly uncertain how many companies will actually return to South Korea. One thing is clear: most companies are positively considering returning only if it is to the Seoul metropolitan area rather than existing provincial industrial complexes. The preference for the metropolitan area is not new, but as South Korean manufacturing companies become more advanced and high value-added, securing the necessary workforce overwhelmingly favors the metropolitan area. The reason Gumi City lost the competition to attract SK Hynix in early 2019 despite offering unprecedented conditions such as free land leases was precisely the difficulty in securing personnel due to poor living conditions.

The government, which has been concerned about employment issues, is also in a position to welcome any company returning from overseas. In fact, to expand support for reshoring, it is known to be reviewing or promoting the relaxation of the 'factory total volume system' under the Capital Region Readjustment Planning Act and the expansion of industrial complex supply in the metropolitan area for specialized complexes in materials, parts, and equipment (SoBuJang). If these policies are implemented, reshoring companies are likely to choose the metropolitan area rather than provinces.

Even with Conditions Like Free Land Lease, Poor Living Conditions Are Unattractive
The Role of Industrial Complexes Packed Only with Production Facilities Is Disappearing
Changes in Awareness and Relationships Alongside Central Government Support Are Needed

What must provincial industrial cities do to overcome this situation and achieve a new leap forward? The government, along with local governments, is promoting the creation of digital industrial complexes using big data and AI, and has also begun a full-scale 'major renovation' project to improve the physical environment of existing aging industrial complexes. However, it is uncertain whether these projects will truly revitalize industrial complexes and cities. Perhaps the role of industrial complexes densely packed only with production facilities is now disappearing. It is time to consider transforming them into industrial production sites organically connected with cities, where workforce and activities take place within the urban environment rather than isolated like islands. However, the awareness of related local governments and industrial authorities has not yet reached this point.

A shift in perception regarding living conditions is also necessary. The reason almost all industries want to relocate to the metropolitan area is that provincial cities do not provide living conditions suitable for high-quality talent. This should not be understood merely as the supply of adequate housing. Living conditions comprehensively refer to childcare, education, culture, and more, and must be approached especially from the perspective of women. As dual-income households have become common, these factors are considered very important in choosing residence and workplace, but provincial industrial cities have not properly recognized this. People no longer silently leave their families and familiar homes to go to production sites just because companies demand it or offer higher wages as in the past.

Reshoring brought about by COVID-19 may be the last chance for South Korea and its provincial industrial cities. If the Korean New Deal and manufacturing reshoring are properly combined, it can change the fate heading toward provincial extinction. However, to seize this opportunity, support from the central government is necessary, but even more important is the ability to change oneself. It is necessary to transform cities, change the awareness of the people living there, and alter the relationships among people, companies, and local governments. Reshoring is not easy. Therefore, it is necessary to lead and achieve even greater change on one’s own.

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