This study identifies the determinants of Korean firms’ decision on foreign market entry by focusing on the role of labor market rigidity using the Korean manufacturing sector data from 2007 to 2017. We use the data from HCCP survey by the KRIVET(Korea Research Institute for Vocational Education and Training). Empirical results show that the strength of labor union has significant effects on the probability of overseas expansion. The firm-specific analysis confirms that the impact of labor union is greater for labor-intensive firms. The regression analysis by investment destination reveals that overseas expansion towards Asian countries is largely affected by labor costs and the number of union members, but for expansion into North America is not affected by labor market rigidity. For the labor-management relations within company, the estimation results show that the more confrontational the labor-management relations, the higher the possibility of overseas expansion. Lastly, we find that overseas expansion increases in companies with decreasing demand for their main products or innovative companies that develop new products. All these results indicate that labor market rigidity affects firms’ decision on overseas expansion, and the government should consider these effects when designing reshoring policies.