"Low Job Creation Effect of Reshoring Companies"...Need to Reconsider Policy

KDI, Report on "Characteristics of Reshoring Companies and Investment Determinants" on the 22nd

An analysis has emerged that the government's policy on returning companies (U-turn companies) is not very effective. Although calls to strengthen reshoring policies are growing due to supply chain instability, it is diagnosed that reshoring companies supported by the government have weak global competitiveness, are relatively small-scale, and have low employment creation effects.

On the 22nd, KDI diagnosed this in its report titled "Characteristics of Reshoring Companies and Determinants of Investment." Jeong Seong-hoon, a KDI research fellow who authored the report, said, "We need to check whether the policy is getting caught up only in the form by focusing solely on reshoring (withdrawing or withholding overseas investments and investing only domestically)." He added, "Companies that are not doing well in overseas business are most likely to welcome the domestic U-turn company support system."

According to Jeong's analysis, companies with weak global competitiveness and relatively small scale mainly chose reshoring. The analysis showed that reshoring companies had domestic parent companies that were 34% and 21% smaller in size compared to expansion-type companies and offshoring companies, respectively.

Especially regarding the important goal of employment, the employment creation effect relative to investment amount of reshoring companies was significantly lower than that of similarly sized companies operating only domestically. The net employment per 1 billion KRW of net domestic investment made through reshoring was 1.17 persons, which was lower than the net employment per investment amount of purely domestic companies without overseas subsidiaries (2.48 persons). Therefore, Jeong suggested that if the goal is employment, supporting pure domestic company investments could be more than twice as effective as supporting reshoring companies.

Jeong also stated, "It is necessary to review the argument that U-turn companies should be supported to secure a domestic production base due to global supply chain instability." He said, "There is no need for companies that went overseas for production stabilization to withdraw factories and return domestically," adding, "Overseas companies can increase domestic investments overseas, or foreign-invested companies can produce domestically." He emphasized, "Instead of being bound by the form of reshoring, incentives for domestic investment should be strengthened."

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