Korea needs to readjust its policies to encourage companies operating plants abroad to return, analysts said Wednesday.
The policies should include bigger and better tax benefits and financial help for relocation, like those offered by the United States, Japan and Taiwan. Otherwise, the country could continue to lose money and its edge in manufacturing and face higher unemployment.
There were about 5,780 Korean manufacturers operating abroad at the end of last June, according to the Korea Trade-Investment Promotion Agency (KOTRA). They employ about 3 million people.
If Korea could attract about 10 percent of those companies back, the Korea Economic Research Institute (KERI) said the country could create up to 290,000 jobs.
“That could help resolve our youth unemployment,” KERI researcher Yang Geum-seung said.
There about 467,000 young unemployed Koreans, a record high.
Even though Seoul introduced the so-called “U-turn” incentive policy four years ago, only 30 manufacturers returned as of last year, investing about 160 billion won and hiring just 1,800 people.
This is in stark contrast to the U.S. U-turn policy under the Barack Obama administration, which resulted in more than 150 companies moving back to the U.S. and creating more than 600,000 jobs. More U.S. firms are expected to return to the world’s biggest economy as the Trump administration seeks to impose higher tariffs, even on American manufacturers operating abroad.
More than half the 30 companies that returned to Korea said they were not satisfied with the level of state support for relocation, according to KOTRA and KERI.
They said that even with the incentives, relocation costs outweighed those of maintaining and expanding their overseas plants. They also complained of Korea’s higher labor costs compared with emerging markets and its inflexible labor market.
About $3.4 billion a year, on average, has flowed out of the country to local manufacturers’ overseas operations since 2006, according to the Hyundai Research Institute (HRI). This is up from $344 million between 1991 and 2005.
As the companies increase their investment abroad, Korea loses about 24,000 jobs a year.
“The state incentives should not only encourage them to relocate but also naturally expand their facilities here,” the HRI said in a report.