Virus prompts reshoring

Deregulation key to helping firms return home

Reshoring has become a buzzword around the world, especially since the coronavirus outbreak began early this year. It means the return of a business' manufacturing operations to its country of origin. The COVID-19 pandemic is prompting companies, which moved their production lines overseas in search of cheap labor and lucrative markets, to go back home.

One of the key reasons for reshoring is the disruption of global supply chains due to the pandemic. Many foreign-invested firms in China have shut down their factories because of lockdowns and border closures caused by the virus which originated in the central Chinese city of Wuhan. It is natural for them to speed up their reshoring to cushion the coronavirus shock and its devastating effect on their business and economy.

Yet the concept of corporate reshoring is anything but new. Even before the public health crisis, some advanced economies encouraged businesses to return home to help create jobs and boost economic growth. For instance in the United States, the Obama administration started the “Remaking America” campaign in 2010 to lure offshore businesses back by providing state subsidies for transfer costs.

President Donald Trump has accelerated the reshoring process to bring American jobs back and boost the economy. He reduced the corporate tax rate from 35 percent to 21 percent, while providing more financial support for returning businesses.

South Korea has also strived to bring overseas Korean-invested firms back to the country, enacting a law for corporate reshoring in 2013. But it has made little progress as only 64 companies have returned since 2014. Most businesses, which shifted their operations overseas, are reluctant to come back due to a lack of incentives.

Against this backdrop, President Moon Jae-in said in a speech marking his third year in office Sunday that his administration will do its best to turn the country into a “world factory of high-tech industries.” To that end, he has promised bold strategies to attract foreign high-tech industries and investments and help Korean firms return from abroad. But his promise stops short of concrete plans and support programs. Moon knows better than anyone else why it is difficult to stimulate reshoring.

Most of all, the country cannot provide a better environment for companies to do business here. Since the late 1980s many firms have transferred their production lines to China, Vietnam, Indonesia and other Asian countries to exploit low wages and explore new markets. This exodus has caused the problem of a hollowing-out of manufacturing, making it hard to create new jobs and achieve higher growth. Now a growing number of tech-based firms are moving overseas to avoid regulations in new industries such as self-driving cars, ride-sharing and t elemedicine.

The business environment has continued to deteriorate due to stringent regulations, a shortened workweek and higher wages which soared 32.8 percent during the past three years. It is urgent to push for drastic deregulation to help firms return home and enable the country to take the lead in the Fourth Industrial Revolution. Labor market flexibility is also imperative to promote corporate reshoring.