"Small to Medium to Large Enterprises, Productivity Rises... Support Needed for Growing Companies"

Support Growth-Oriented Companies to Drive Expansion
Redesign Smart Factory Implementation Programs
Accelerate the Introduction of Robots

It has been found that when companies grow from small to medium-sized, and from medium-sized to large enterprises, there is a dramatic increase in productivity. This suggests that supporting growing companies can enhance overall productivity and raise the nation's potential growth rate.

According to the report "Trends and Implications of Productivity by Company Size" released by the Korean Chamber of Commerce and Industry on November 26, the average annual labor productivity per employee at small businesses (with 299 or fewer employees) is 138 million won, while at medium-sized companies (300 to 1,000 employees), productivity rises to 276.8 million won-2.0 times higher. At the large enterprise level, it reaches 485.9 million won, which is 3.5 times higher.

The Korean Chamber of Commerce and Industry explained, "As company size increases, the capital-to-labor ratio for workers improves, and research and development (R&D) expenditures rise. In addition, economies of scale and access to global markets are enhanced." The organization offered recommendations to help small companies scale up. Escaping the so-called Peter Pan syndrome within the corporate ecosystem could double productivity, and at the large enterprise level, increase it by 3.5 times.

The Chamber first proposed a growth-oriented policy. It suggested eliminating regulations tied to asset increases that so-called Peter Pan companies try to avoid, and shifting support policies, which are currently focused on small and mid-sized firms, toward growth-oriented companies. In particular, the Chamber recommended that, when granting a grace period for small companies transitioning to medium-sized status, the conditions should include whether the company is pursuing digital transformation (DX) or artificial intelligence transformation (AX), rather than simply extending the period. By adding productivity innovation requirements, the aim is to encourage quality growth. In fact, the number of companies that benefited from the grace period, which was three years in 2020, was 949, but this increased to 1,377 in 2024 when the period was extended to five years.

Image created by ChatGPT

The report pointed out, "AI transformation can dramatically boost productivity, so the adoption rate of 'smart factories,' which serve as the starting point (currently 19.5%), should be increased." As a specific measure, it proposed manufacturing AX through "retrofit." The Chamber noted, "Small companies often lack the capacity to bring in new equipment," and added, "It is practical to use the AX method, which involves attaching machine vision and sensors to existing aging equipment to extract data and analyze it with AI."

The Chamber argued that the government’s smart factory support programs should be redesigned in this direction and emphasized the importance of building robust data security systems. "One of the reasons CEOs hesitate to pursue manufacturing AI transformation is the threat of hacking," it said. The Chamber suggested supporting cloud security services for small companies that have difficulty operating security systems, and, after further advancement, introducing AI-based endpoint detection and response, as well as security information and event management solutions.

In addition, the report advised that the introduction of robots should be accelerated. It noted, "The proportion of workers aged 60 and over in the root industry has increased by 8 percentage points over the past eight years to 10.3%," arguing that robots can be a good alternative in the process of manufacturing AI transformation. In fact, companies that have introduced robots have production volumes that are 20-25% higher than those that have not. Kim Taeyoung, Associate Research Fellow at the Korea Institute for Industrial Economics and Trade, added, "Research shows that introducing robots increases employment in processes where full automation is difficult, due to increased production volumes resulting from reduced lead times."

The report also stated that, in the process of introducing robots, drone video monitoring, Internet of Things (IoT) safety sensors, and AR manuals can be used to prevent industrial accidents. It estimated that the losses due to industrial accidents over the past five years have averaged 37 trillion won per year. The argument is that even just reducing unnecessary costs, such as increased lost workdays, can boost productivity at small companies.

Lee Jongmyung, Head of the Industrial Innovation Division at the Korean Chamber of Commerce and Industry, stated, "The era of AI is characterized by economies of scale that deliver cost savings, and the speed economy, where the first to launch an idea wins the market," adding, "It is time for small companies to make their own AX efforts and for existing small business policies to evolve to suit manufacturing AI."