Industrial Research Institute "Reshoring Policy, Differentiation by Industry Such as SoBuJang"

No Large Domestic Market in Korea... Reality Different from Major Countries
"Need for Differentiated Support Policies by Industry with High Economic Impact such as Materials, Parts, Equipment, Advanced Technology, Medical and Security"
"Relaxation and Abolition of Requirements like 'Overseas Business Closure, Transfer, Reduction'"

[Asia Economy Reporter Moon Chaeseok] The Korea Institute for Industrial Economics and Trade, a government-funded research institute, suggested on the 6th that policies aimed at encouraging the return of Korean companies operating overseas have been applied in ways that do not fit our reality and need improvement.

◆Most Returning SMEs Are Those That Entered China... "Limited Trend Expansion"

Status of domestic return of Korean companies that expanded overseas from 2014 to August 2020. (Source: KOTRA·Korea Institute for Industrial Economics and Trade)

In its report titled 'The Current Status and Improvement Directions of Korean Companies' U-Turn,' the Korea Institute for Industrial Economics and Trade stated that the system must be changed to increase the sustainability and scalability of Korean companies returning from overseas.

Due to the expansion of global protectionism, the US-China trade dispute, and the slowdown in the expansion of global value chains (GVC), major countries are adjusting their supply chains to reduce dependence on China. It is characteristic that they are trying to establish independent supply chains in strategic industries and the medical sector.

Status of domestic return by industry and year of Korean companies that expanded overseas from 2014 to August 2020. (Source: KOTRA·Korea Institute for Industrial Economics and Trade)

Korea introduced the 'Act on Support for the Return of Overseas-Expanded Companies (U-Turn Act)' in 2013, and as of last month, 80 companies have returned domestically. The investment scale was 1.1103 trillion KRW, and employment totaled 2,967 people.

However, most of the returning companies were small and medium-sized enterprises (SMEs) that had entered China, and cases of large companies returning were rare. The trend expansion that can determine the success or failure of the U-turn and the business continuity of returning companies have not been clearly observed.

Source: Korea Institute for Industrial Economics and Trade

◆Customized U-Turn Policy Improvements for Materials, Parts, and Equipment, High-Tech Industries, Medical and Security Industries

Minister Sung Yun-mo of the Ministry of Trade, Industry and Energy attending the 'Materials, Parts, and Equipment Industry Current Issues Review Meeting' held at the National Assembly on June 24, delivering opening remarks. Photo by Yoon Dong-joo doso7@

The Korea Institute for Industrial Economics and Trade advised that under the economic and political conditions Korea faces, it is necessary to seek U-turn policies that fit our reality. We must accept that Korea’s reality differs from other countries that can implement unilateral and mandatory policies due to its domestic demand-centered economic structure, large domestic market, and tariff imposition.

The institute suggested ▲shifting from universal policies to differentiated policies by industry ▲changing the perspective from domestic return to activation of domestic investment by overseas companies ▲promoting U-turn policies linked with domestic policies ▲systematizing and formalizing the evaluation system for U-turn performance.

First, it is necessary to select core U-turn industries such as materials, parts, and equipment (securing supply chains), high-tech industries (growth potential), and medical and security-related industries (exclusive protectionism responses by major countries after the pandemic), and consider applying relaxed U-turn conditions or providing additional support.

Also, by shifting the perspective from corporate domestic return to activation of domestic investment, key requirements such as 'liquidation, transfer, or reduction of overseas business sites and domestic production of the same products' should be relaxed or abolished. The same principle should apply to returning companies as it does to foreign-invested companies, which are not subject to such requirements.

Domestic investment related to necessary associated activities at the corporate level, such as relocating specific business sites domestically, should also be recognized as U-turn. The policy should shift from focusing on 'individual business sites' to 'corporate-centered' application.

Source: Korea Institute for Industrial Economics and Trade

◆Linking National Core Strategy and Regional Specialized Industry Development Strategies with U-Turn Company Policies

Changwon National Industrial Complex. (Photo by Changwon City)

The system should be improved by strengthening the linkage between domestic economic policies such as industrial strategy, regional industry strategy, and domestic supply chain securing strategy, and the return of companies to Korea.

This is because there is a growing need to strengthen U-turn policies in a direction that supports strategies related to building domestic supply chains for national core strategic industries, regional specialized industries, and key industries.

The institute urged that the performance of corporate U-turns should be comprehensively analyzed, including not only direct effects such as investment scale and employment numbers but also analyses of upstream and downstream related effects.

It is necessary to introduce a comprehensive comparison and evaluation system that includes the environments faced by each country, reshoring (return of overseas companies), and support policies.

Source: Korea Institute for Industrial Economics and Trade

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