The number of U-turn companies that moved their production facilities from overseas to Korea

There were only 20 companies last year. Stuck by regulatory and high-cost structures. Reshoring support is also far from sufficient. The actual execution of foreign direct investment has ceased.

The number of U-turn companies that moved their production facilities from overseas to Korea last year hit a five-year low. Critics point out that the reshoring policy has actually become “useless” as various regulations and high-cost structures continue and government subsidies are far short compared to major overseas countries.

According to the Ministry of Trade, Industry and Energy on the 7th, there were only 20 U-turn companies last year. It’s the fewest since 2020. In 2020, during the COVID-19 period, the number of U-turn companies increased significantly from the previous year to 23. The number of U-turn companies has steadily declined since then, although it reached an all-time high of 26 in 2021.

This is significantly less than that of major foreign countries. The number of U-turn companies in the U.S. exceeded 1800 in 2021. Japan also has 600 to 700 U-turn companies every year.

Criticism has been raised that the environment that is not friendly to companies, such as various regulations and high labor costs, is blocking reshoring. Examples include the 52-hour workweek, the Serious Accident Punishment Act, and industrial complex location regulations.

Lee Jung-hee, an economics professor at Chung-Ang University, said, “Korea has a high-cost structure from labor costs in general, so the incentive to move its production bases to Korea is low. If the high-cost structure is not resolved along with labor and regulatory issues, it is difficult for the reshoring policy to work.”

Some analysts say that the lack of unconventional incentives, such as direct subsidies for high-tech industries, has affected foreign countries such as the U.S. The U.S. grants subsidies to semiconductor companies that build production facilities in the country through the “Chips Act.” In Korea, a plan to include mandatory subsidies in the Special Act on Semiconductors was also discussed, but it was canceled. The ‘white-collar executive’, which makes exceptions to the 52-hour workweek only for the semiconductor industry, has also made no progress in discussion.

Another problem is that the scope of tax benefits for U-turn companies is not wide compared to major overseas countries. Korea provides tax benefits if it reduces or closes its workplaces overseas and expands its domestic workplaces. On the other hand, the U.S. and other countries provide tax benefits even when outsourcing parts to foreign companies are transferred to domestic companies.

The Ministry of Industry will announce a U-turn company support plan within the first quarter to reflect the needs of companies. It also plans to hold an investment briefing session (IR) for companies that can return to Korea.

Critics point out that the foreign direct investment (FDI) is also “empty” along with sluggish U-turn company performance. Last year, the FDI (based on reporting) reached an all-time high of $34.568 billion. Manufacturing led the overall performance with a maximum amount of $14.491 billion. By country, Japan increased 375.6% year-on-year to $6.121 billion, and China increased 266.1% to $5.78 billion.

However, the actual investment execution amount was $14.77 billion, down 24.2% from the previous year. Existing companies’ increased investment (based on reporting) also decreased 17.7% year-on-year to $13.93 billion. Manufacturing, in particular, fell 27.5 percent.

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