‘More companies considering reshoring after COVID-19’

A much greater number of Korean companies are considering bringing their manufacturing and services back home compared to two years ago, the Federation of Korean Industries said Monday.

According to a survey of 105 of the country’s top 500 businesses in sales, conducted for a week through Feb. 24 by a pollster commissioned by the business lobbying group, 27.8 percent said they were currently mulling reshoring.

In a similar poll of Korea’s 1,000 largest firms in sales conducted in May 2020, only 3 percent said they were thinking of relocating their overseas factories and services back home.

In last month’s survey, 29.2 percent said they could consider reshoring should the government’s support and business environment at home improve.

“Six out of 10 (57 percent) businesses have said reshoring is a possibility,” the FKI said.

“As the pandemic disrupted the global supply chain, causing production deadlocks and increased logistics costs, in addition to the prolonged US-China conflict, chances of reshoring have grown.”

Greater government support for reshoring companies is also a campaign pledge of President-elect Yoon Suk-yeol.

Under current rules, companies can get tax cuts and other benefits if they build or expand their domestic business establishments within two years after transferring or shutting down overseas facilities.

Yoon has promised to extend the period to three years, expand subsidies and offer additional tax cuts.

In the FKI survey last month, companies chose improved regulatory environment (35.3 percent), expanded tax cuts (29.5 percent) and greater subsidies (17.6 percent) as the three biggest tasks to promote reshoring.

Nearly half (49.5 percent) said they have set investment plans for this year, while 38.1 percent said they have not done so yet, and 12.4 percent said they have no plans to invest this year.

Among the companies that have made plans for investment, about half said the size of their investment this year would be similar to last year’s, while 38.5 percent said they will be greater than last year and 11.5 percent said they will be less than last year.

As for the reason they cannot increase investment, 37.7 percent of the businesses pointed to “unstable macroeconomic situation at home and abroad such as the pandemic and rising prices of raw materials,” followed by “worsened external financing environment such as higher interest rates and tightened credit appraisals by banks” (20.6 percent); “worsened business environment such as low sales” (15.4 percent); “completion of major investment projects” (8.5 percent); and “fears of more regulations” (6 percent).

The FKI said about three-quarters (74.4 percent) of the companies that aren’t increasing investment this year said it was due to external circumstances, as opposed to internal.

Nearly 2 in 5 (38.9 percent) companies chose inflation as the key risk for investment this year, followed by monetary tightening by major countries and an ensuing economic slump (19.4 percent); emergence of a highly deadly variant (15.5 percent); China’s industrial production deadlock and economic slowdown (10.7 percent); and intensifying US-China conflict and supply chain restructuring (6.8 percent).

The survey was conducted before Russia’s invasion of Ukraine on Feb. 24.

By Kim So-hyun (sophie@heraldcorp.com)