Last year, 2,816 South Korean companies expanded abroad, while only 22 returned (reshored). Despite government incentives—including a seven-year, 100% corporate tax exemption and investment subsidies up to 40 billion won (about $29.65 million)—reshoring efforts have seen limited success.
In contrast, the U.S. has effectively implemented its reshoring policy, with over 300 companies returning annually. Japan sees an average of more than 600 companies reshoring each year. On the other hand, Korea has made only 108 U-turns over the past five years, with only four of them large. In Japan’s automotive sector, companies like Toyota, Honda, and Nissan have reshored production, shifting operations to the U.S. and Mexico or boosting domestic output. Hyundai Motor Group, however, responded to challenges like the Ukraine war by shutting factories in Russia and China and building new ones in India rather than reshoring to South Korea.
This disparity is largely due to South Korea’s restrictive investment climate. Concerns over several regulations, such as outdated labor laws that make layoffs nearly impossible, escalating labor costs due to rapid minimum wage hikes, the strict 52-hour workweek, and the Serious Accident Punishment Act, which holds CEOs criminally responsible for workplace fatalities, are pushing companies to relocate abroad. Additionally, restrictions on factory locations within the Seoul metropolitan area further hinder domestic investment. A survey by the Korea Trade-Investment Promotion Agency (KOTRA) found that 95% of South Korean companies operating abroad have no plans to return.
Economic growth depends on robust domestic business activity. If the focus remains on overseas investment, the country’s industrial future is uncertain. Given the U.S.-China trade conflict, the restructuring of global supply chains, and the growing trend of domestic protectionism, corporate reshoring is now critical for safeguarding economic security and maintaining supply chain resilience. South Korea must cut unnecessary regulations and create a more business-friendly environment to stay competitive.
