How to bring back Korean firmsSome companies are considering an exit from the Chinese market due to friction between the two countries on regional security issues. Their concern is where to move next. Southeast Asia and India have been mentioned.
It is at this juncture where we need to pay attention to why they are not considering returning to Korea. In 2013, the National Assembly passed legislation to help companies reshore and provide them with financial support.
Around the world, countries have been competing to bring back business and create jobs, and there have been successful cases of companies returning to their countries of origin. However, the number of Korean companies reshoring has decreased every year, and there are a few reasons.
First, companies that relocated overseas to take advantage of lower wages do not see viable incentives for returning. If they do, they will seek a cheaper workforce and demand they be allowed to bring in foreign laborers who are paid less. But the current administration is pursuing a higher minimum wage and raising corporate taxes, while other countries are lowering them.
Second, recent overseas investment has typically focused on expanding into other markets. The Korean market, given its size, is less attractive as an investment destination compared to its neighbors, and to overcome these limits, the government has aggressively pursued free trade deals with big markets like the United States, China and the European Union, arranging opportunities to access these markets.
That might help Korean companies return home, but if they really went overseas to expand their business abroad, that cannot be replaced by domestic production and exports. As a result, Korean companies have continued to move to countries that have free trade deals with Korea. Companies are reluctant to return while the Korea-U.S. free trade agreement is being renegotiated and while relations with China continue to be tense.
Third, Korea’s many small and midsize companies have partnered with Korean conglomerates operating in other countries. As long as they maintain their partnership and those conglomerates continue to work abroad, these companies are unable to relocate and return.
Korean conglomerates need to return first as an anchor to create added value, bring back other Korean enterprises and provide quality jobs, but they’re not likely to, given deep-rooted regulations. How can the system be improved to encourage their return?
First, the designation of reshoring companies needs to be more flexible. Under the current law, Korean companies can receive assistance to reshore when they completely close their overseas facilities or partially reduce those facilities and rebuild production in Korea.
This restriction has made the assistance program impractical as companies find it hard to return and expand their production. The central government needs to consider giving each local government the autonomy to designate requirements for assistance rather than relying on a law that determines the designation of all companies.
Second, companies are not getting the support quickly enough. Right now, they have to individually apply for each type of assistance with a different agency in charge and go through separate screenings for each.
But a more fundamental solution is improving our environment for business executives. Korea has already passed the stage of attracting companies with wage competitiveness. In order for companies to continuously operate in Korea unencumbered, executives should not be swayed by political or external factors.
Policy needs to be more predictable. The basic direction is already there: to encourage investment in Korea by Korean and foreign companies, and encourage the return of Korean companies operating abroad.
Translation by the Korea JoongAng Daily staff.
JoongAng Ilbo, Oct. 19, Page 37
*The author is a researcher at the Korea Institute for Industrial Economics and Trade.