Uncertainty boosts companies' enthusiasm for 'reshoring'

Since the outbreak of Covid-19, Korean companies have become increasingly apprehensive about running businesses abroad and are considering bringing overseas operations home, data showed Monday.

The Federation of Korean Industries (KFI) released the results of a survey it conducted of 105 out of the 500 largest companies in Korea last month.

Of the interviewed companies, 27.8 percent said they were considering "reshoring" businesses back to Korea. That’s nine times more than in 2020, when only 3 percent of companies in a similar survey said they were considering it.

Reshoring is the reverse of offshoring, with businesses bringing home overseas operations either partly or entirely.

Other contributing factors included disruptions to the global supply chain, aggravated in the recent days following Russia’s invasion of Ukraine, according to the FKI, and rising shipping costs.

Twenty-nine percent of companies said they would consider reshoring if the domestic market improved. Asked their idea of a better environment, 30.1 percent of companies chose loosened regulations, 26.8 percent picked tax cuts and 13.6 percent hoped for a boost in consumption.

Only 13.3 percent said they were satisfied with the local investment environment. While 62.9 percent of companies said they found the Korean environment to be at an average level, 23.8 percent said they were unsatisfied.

Uncertainties in the global economy also took a toll on investment sentiment.

Just under a half of companies surveyed, or 49.5 percent, said they had plans to make new investments this year. Of that number, 50 percent said their investment volume would be the same as last year, while 11.5 percent said they would invest less. The rest, 38.5 percent, planned to invest more.

Some 37.7 percent of companies cited instability as the No. 1 reason for hesitating to invest, including the prolonged pandemic and rising raw material prices.

Other reasons included rising interest rates and strict financial screening when taking out loans (20.5 percent), weakening business performances and worsening market environments (15.4 percent) and having finished major investment projects (8.5 percent).

Businesses found the biggest risks this year in rising raw material costs (38.9 percent), currency fluctuations (19.4 percent) and the emergence of a new coronavirus variant (15.5 percent).

This could pose some opportunities if the incoming administration plays its cards right, according to Choo Kwang-ho, head of the economic research division at the FKI.

“Companies are reluctant to invest due to uncertainties in and outside of Korea, but at the same time showing a willingness to come back domestically,” Choo said in a press release.

“The new government needs to focus on easing regulations and giving tax cuts to encourage domestic investment to reshore their businesses.”

BY YOON SO-YEON [yoon.soyeon@joongang.co.kr]