Technological Innovation and Reshoring in Manufacturing in the era of the 4th Industrial Revolution

The leaders of the 4^th Industrial Revolution are reshoring back to their home countries. Companies from advanced nations are relocating their overseas production bases back to the home country or increasing investment in production infrastructure. This pattern emerged following the slowdown of the global value chain in 2011 and accelerated by the growing concerns over the weakening global supply chain because of COVID-19.

It appears that this phenomenon is catalyzed by manufacturing innovation, which in turn was catalyzed by new technology. This report finds that the technology of the 4^th industrial revolution leads to manufacturing innovation, which also fosters an environment that encourages companies to return. In the past, global companies moved their production bases to regions with lower labor costs. However, with manufacturing innovation, they are able to reduce production costs and, therefore, could relocate the production base back to their home country.

The number of Korean companies reshoring from abroad remains low compared to other major countries such as the US, Japan, and Germany despite Korea’s high degree of manufacturing innovation. The degree of manufacturing innovation was calculated using the total R&D spending to GDP; the ratio of high-tech industry in manufacturing export; the ratio of high-tech in total patent number; and the ICT development index. Korea ranked 2^nd, 6^th, 3^rd, and 2^nd, respectively. Inspite of it, the growth in the number of Korean companies reshoring has stagnated after 2019. Moreover, the export of intermediate goods to overseas production bases to produce final goods increased by a huge margin since 2011. All the evidence point to the lower number of companies returning to Korea when compared to major countries.

Against this backdrop, we need diversified governmental support programs to assist the companies so that manufacturing innovation can fuel further reshoring-specifically, tax reduction for returning companies, employment subsidies, programs to innovate the manufacturing process through ICT. Moreover, to successfully create the smart manufacturing process, we need a paradigm shift that adds higher value to the manufacturing ecosystem as a whole. Other solutions can be increasing R&D investment, fostering high-quality human capital, and boosting cooperation between the industry and academia to assist technological development for SMEs.

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