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Korean Industries Investment Overseas and Likelihood of Investment Reshoring

Author Mun Jong-cheol, Cho Hyeon-seung, Koh Dae-yeong Date 2014.12.29 Page 225
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Bringing off-shore enterprises back to domestic ground has recently gained the attention of policy makers as a tool to promote the manufacturing sector, generate added values and create jobs. Korea is no exception. Interest in back-shoring, or bringing back the enterprises that had already moved their production function abroad resulted in the launch of the Act on Assistance to Korean Off-shore Enterprises in Repatriation. Though this effort is one of the pioneering examples of the institutionalization of the govern ment effort to repatriate off-shore firms, much still remains to be reviewed and revised in the law to achieve its objective more effectively.
The purposes of our research are to review the current government policies to help the firms bring their off-shore productions back and to provide useful policy implications for making improvements in the current institution represented by the Act on Assistance to Korean Off-shore Enterprises in Repatriation. Hence, it is necessary to analyze the factors that determine the returning decision of firms.
We used the following methods to achieve these purposes. First, we reviewed the literature to identify the main reasons that the firms decide to bring their production functions back to their home countries. Then we analyzed the trends and the motivations of foreign direct investments in the manufacturing sectors and surveyed the previous project reports to understand the current economic environment the Korean off-shore enterprises are facing as well as the demand of policy assistance to encourage them to return to Korea. We also conducted empirical analyses using the Business Activity Survey Data from Statistics Korea to estimate which characteristics of a firm affect its back-shoring decision. Finally, we compared the current back-shoring assistance law with other investment promotion acts and foreign cases.

After analyzing the Korean off-shore enterprises and institutions and assessing their possibility to return through various ways, we conclude our study with the following policy suggestions to promote the repatriation and accommodation of the off-shore enterprises and functions. The first is to establish enhanced criteria to select beneficiaries and assess the firms’eligibility to receive policy benefits based on them. The second is find a way to substitute firms’localization demand with domestic operation. The third is to compensate the domestic firms for continuing operations without taking advantage of overseas production. The fourth is to revise the rules to attract so-called anchor firms that can induce the related firms to relocate domestically. The fifth is to protect the relocating firms as well as those which continue to operate abroad. Finally, we suggest simplifying the implementation system and accelerating the process of policy support.