[Reshoring Reality] The Mindset of 'Support Only After U-Turn' Must Change

Growing Need for 'Stable Supply Chains' Due to COVID-19
Urgent Creation of Industrial Ecosystem for Return
Preemptive Support Required for New Technology R&D Costs

[Sejong=Asia Economy Reporter Joo Sang-don] Experts point to the premise of "providing incentives on the condition of U-turn" as the reason why Korean companies that have expanded overseas fail to achieve results in returning domestically. The government has already enacted and amended the Act on Supporting the Return of Overseas Businesses (commonly known as the U-turn Act) to expand the scope and benefits for companies returning from overseas. However, it is argued that offering only incentives to overseas companies while leaving the domestic industrial ecosystem untouched renders the system ineffective. Especially since countries worldwide have focused on strengthening 'stable supply chains' after the COVID-19 crisis, there is a growing view that creating an industrial ecosystem attractive enough for companies to return is more urgent than anything else.

Last year, the government improved the U-turn system through three measures: the 'COVID-19 Export Measures (February),' 'Second Half Economic Policy Direction (June),' and 'Materials, Parts, and Equipment 2.0 Measures (July).' Knowledge service industries and information and communication industries were added to the target sectors for U-turn company support. A new criterion, 'current R&D expenses,' was introduced for reducing overseas business sites, enabling the return of research facilities whose production volume was difficult to measure, unlike general business sites. However, according to data obtained by Rep. Choo Kyung-ho of the People Power Party from the Ministry of Trade, Industry and Energy, only three companies chose to return domestically as of last January.

Experts argue that the government's perspective of "supporting only if a U-turn is made" must fundamentally change. Kang Nae-young, senior researcher at the Korea International Trade Association, said in a phone interview with Asia Economy on the 4th, "Currently, the government's U-turn policy centers on direct post-support such as subsidies and tax benefits for reshoring (domestic return)." He added, "Preemptive support such as research and development (R&D) of new technologies that can be integrated into production lines to reduce labor costs is necessary instead of post-support."

Kim Hyuk-hwang, senior researcher at the Korea Institute for International Economic Policy, also said, "Institutional issues pointed out by the industry, such as abolishing the requirement for reducing overseas business sites, relaxing the sameness criteria, and supporting large corporations upon U-turn, have been improved." However, he pointed out, "To make companies return again, advanced technology that can offset these factors must be secured." Kim particularly diagnosed that inducing companies to return domestically is even more difficult amid rising trade barriers. He said, "It is difficult for companies that relocated production plants due to trade barriers, like Samsung Electronics and LG Electronics building washing machine factories in the U.S., to return."

Therefore, advice has emerged that fundamental measures are needed to overcome obstacles blocking reshoring. Kim Joo-hoon, research fellow at the Korea Development Institute (KDI), said that industry-academia cooperation should be strengthened to induce digital transformation of production lines. Kim said, "The industry's concern is that existing production workers skilled in industrial knowledge are unfamiliar with IT, and software (SW) engineers lack industrial knowledge, so not only is fusion between the two impossible, but even communication is poor." He suggested, "A system should be established behind companies where universities, research institutes, vocational training institutions, and policy agencies can effectively and efficiently support their fusion."

Min Hyuk-ki, research fellow at the Korea Institute for Industrial Economics and Trade, emphasized the need to strengthen analysis of the effects of U-turn support. It is necessary to understand which factors influenced companies' decisions to return domestically to increase future utilization. The government has mandated an annual survey to identify difficulties faced by U-turn companies through the U-turn Act amendment at the end of last year. Min said, "It is necessary to quantitatively and qualitatively analyze the overall economic ripple effects, including companies withdrawing overseas relocation plans or similar U-turn companies, and their roles in the global value chain (GVC)." He added, "Such data must be built to accurately identify areas for improvement."

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