In the wake of the COVID-19 pandemic, many governments across the globe have rolled out incentives and tax cuts to encourage companies to reshore. However, South Korea’s efforts have resulted in disappointing figures, primarily due to a lack of robust government support and effective rewards.

The Korea Economic Daily reports that South Korea launched the “Reshoring Act” back in 2014, which promised various incentives and tax benefits. This past May, the country updated its approach with the “Reshoring Support Strategy 2.0,” now offering subsidies of up to 40 billion won (about $30 million) for each company that returns. Despite these measures, by August, only 13 companies had qualified for the benefits, and none were large enterprises.

Currently, reshoring companies in South Korea can receive a full exemption from corporate taxes for seven years, followed by a 50% reduction for the subsequent three years. However, in the last five years, these companies have only seen tax benefits totaling 2 billion won.

Data from the Ministry of Trade, Industry, and Energy reveals that a mere 108 Korean companies have returned to the domestic market over the last five years, averaging just over 20 per year. Notably, only four of these are large firms; the majority are small and medium-sized enterprises.

Industry experts are sounding the alarm that if this trend persists, the annual number of reshoring Korean companies could drop below 20.

Go Dong-jin, a lawmaker from the ruling party and former senior executive at Samsung Electronics, pointed out a glaring disparity: “Last year, 2,816 Korean companies sought overseas development through foreign direct investment, which is more than a hundred times the number of reshoring firms.”

In stark contrast, large Japanese companies have been steadily returning home, with around 600 to 700 companies reshoring each year over the last decade. This significantly outpaces the 151 Korean companies that made the same move during that time. Notable returnees include giants like Toyota, Honda, Yaskawa, Subaru, and Canon. Panasonic even relocated its air conditioning manufacturing from Guangzhou back to Shiga Prefecture in Japan last year.

Former President Obama spearheaded the “Remaking America” initiative in 2010, promoting corporate reshoring in the U.S. Between 2011 and 2019, a total of 3,327 American companies moved back to the U.S., averaging 369 per year. Similarly, the European Union has been offering generous subsidies to encourage companies to return.

Experts argue that South Korea’s smaller market and higher labor costs pose significant hurdles for local companies looking to reshore. They are calling on the government to foster a more conducive business environment concerning employment and infrastructure and suggest regulatory reforms, particularly easing operational restrictions in the Seoul metropolitan area.

According to the “IMD World Competitiveness Yearbook” released in July, South Korea ranked 49th out of 67 evaluated countries for “business conditions,” while its “government efficiency” placed 39th.