Manufacturing Innovation Promotes Reshoring of Global Companies

- The United States, Japan, and Germany, that have high technological innovation indicators, have many reshoring cases -

- The higher the technology level, the greater the employment effect of reshoring... support for innovation in domestic manufacturing process is desperately required -

It is argued that Korea needs to attract companies to reshore by actively supporting manufacturing innovation as companies in advanced countries such as the United States, Japan, and Germany have made their manufacturing processes smart and value-added, while expanding the relocation of overseas production bases to their home countries.

According to a report titled, “The Era of 4^th Industrial Revolution, Manufacturing Technology Innovation and Reshoring” issued by the Institute for International Trade (President: Choi Yong-min) of the Korea International Trade Association on February 8^th, as the 4th industrial revolution technologies have brought manufacturing innovation and production cost reduction, it appears that they have contributed to the creation of an environment in which reshoring, manufacturers' relocation back to the home country, is likely to expand.

In particular, many such cases have appeared in the United States, Europe, and Japan. In the case of the United States, there were only 95 reshoring companies in 2010, but it increased significantly to 886 in 2018, and 193 companies in Europe also chose reshoring between 2016 and 2018. In Japan, 7,633 companies returned from overseas from 2006 to 2018.

The United States, Germany, and Japan, where reshoring took place actively, were found to be advanced manufacturing powerhouses that are among the top 30 in terms of technological innovation related indicators. Japan, Germany and the United States took 5^th, 7^th, and 9^th place respectively in the world rankings of the ratio of research and development (R&D) spending to gross domestic product (GDP). Japan, the United States, and Germany also ranked 4^th, 5^th, and 21^st respectively in the ratio of high-level technology to entire patents. It was analyzed that manufacturing technology innovation promoted reshoring.

In addition, the higher the technology level of a company, the greater the effect of creating local jobs with reshoring. Among the total jobs created by reshoring in the United States from 2010 to 2019, 67 percent was the high-ranking and the mid-to-high-ranking technician jobs.

On the other hand, Korea's R&D ratio to GDP ranked 2nd in the world, high-level technology manufacturing exports took 6th place, high technology patents ranked 3rd, and information and communication (ICT) industry development index ranked 2nd. Those rankings show that Korea's degree of innovation in the manufacturing industry was higher than that of major countries. However, the number of reshoring companies in Korea has slowed down since 2019, and the export of intermediate goods for the production of final goods at overseas production bases has also expanded considerably since 2011, indicating that the reshoring performance was insignificant compared to that of major countries.

The repost asserted, “There is a need for various supports at the government and corporate level so that manufacturing innovation become the foundation for reshoring,” and added, “In particular, in addition to tax cuts and employment subsidies for returning companies, it is required to support innovation in manufacturing processes of companies utilizing ICT technology.”

Kang Nae-young, a senior researcher at the Korea International Trade Association, stressed, “For successful manufacturing process smartization, paradigm shift through high value-added ecosystem of the overall manufacturing must be accompanied,” and added, “Moreover, it is important to expand investment in R&D at the government and corporate level, nurture high-quality human resources, and support small and medium-sized companies' technology development through industry, academia, and government collaboration activities.”