[Digital Brink SME] Feeling Overwhelmed Trying to Change for Survival

Increase in Companies Facing Liquidity Crisis After Digital Transformation Investment
SMEs Digital Maturity Score 41.4...Only 16.7% Strategically Prepared
Gap with Large Corporations Widens...Urgent Need for Comprehensive Customized Policy Support

#. Geummun Industry, a surface treatment parts company located in Busan, faced a crisis that nearly forced it to close its doors while attempting to transition to a smart factory. The company began investing in smart factory technology in 2015 and was in the final stages by 2017, but due to delayed financial support from the banking sector, it had to file for corporate rehabilitation the following year. Although the rehabilitation process ended last year, allowing the company to escape the crisis, it still faces numerous challenges during the smart factory transition. Surface treatment companies like Geummun Industry operate in capital-intensive industries, requiring almost complete dismantling of existing equipment, which incurs enormous costs. Space for installing smart equipment is also an issue. Even after resolving these problems, obtaining new permits for various equipment such as chemical auxiliary tanks takes so long that it significantly delays factory operations. Kim Moon-sik, CEO of the company, said, "There are many smart factory support programs, but they are not strongly felt on the ground. Large corporations have specialized departments and personnel, but small and medium-sized enterprises (SMEs) have to rely on external technicians, which takes more time and costs more."

SMEs and small business owners have been pushed to a 'digital cliff.' Companies that have invested in digital transformation because they believe they cannot survive without change are now facing liquidity crises. Many are falling behind and becoming marginalized as they fail to keep up with the accelerated pace of digital transformation across all industries due to the pandemic. While many companies recognize the necessity of digital transformation, they express frustration over not knowing how to proceed. For small business owners already struggling with revenue losses caused by COVID-19, digital transformation can seem like an empty promise.

◆ 66% of SMEs Abandon Digital Transformation = According to the 'Digital Maturity Survey of SMEs' recently conducted by the Korea Federation of SMEs on 414 small and medium-sized enterprises, the digital maturity score of domestic SMEs was only 41.4 points. Notably, only 16.7% of companies are strategically preparing for digital transformation, while 65.5% of SMEs have no digitalization strategy in place. When limited to domestic market companies, only 10.5% have prepared digitalization strategies. The Small and Medium Business Corporation (SMBC) also found in its survey on SME business structure transformation trends that only 20.6% of respondents are responding to post-COVID-19 crises through digital transformation. Although many companies recognize that their future cannot be guaranteed without digital transformation and that it has become an opportunity to strengthen digital business models, the reality is that more companies lack the capacity to keep up with these changes.

Moreover, 73.1% of Korean SMEs independently decide on business structure transformations, including digital transformation. This highlights the need for systematic and comprehensive policy support through diagnosis and consulting from the early stages of setting transformation pathways.

◆ Growing Digital Gap Between Large Corporations and SMEs... Tailored Policy Support Urgently Needed = Experts predict that this reality will lead to an even wider digital gap between large corporations and SMEs in the future. Professor Choi Kyung-jin of Gachon University Law School explained, "Ultimately, digital transformation requires costs. Large companies can bear these costs, but smaller companies find it increasingly difficult. To promote a digital transformation across all industries rather than focusing only on large corporations, it is necessary to change SMEs' mindset about digital transformation, provide economic support, and offer systemic support evenly; otherwise, the gap will widen."

Industry insiders agree that since digital transformation is an unavoidable global trend, tailored support is essential to prevent SMEs, the cornerstone of our economy, from losing global competitiveness. For example, smart factories, a representative digital transformation project for SMEs, require capital investment, making it difficult for small companies to adopt. Because only large companies can afford it, the actual adoption rate of smart factories among domestic manufacturing companies is only 3.97%. Professor Lee Jeong-hee of Chung-Ang University’s Department of Economics emphasized, "Digital transformation means shifting production factors from labor to capital, requiring a systematic and comprehensive approach. Smaller companies especially need tailored support to enhance competitiveness to survive against large corporations, and policies that reflect the characteristics of each company."