By hwaq 
The global industrial upgrade toward smart manufacturing has created a widening digital divide, with small and medium-sized enterprises (SMEs)—the backbone of most economies—trailing far behind large corporations in adopting transformative technologies. While industry giants leverage AI-native production systems, digital twins, and cloud-based integration to boost efficiency and competitiveness, 89% of small and medium-sized manufacturers remain stuck in the initial stages of digital exploration, with merely 3% achieving deep digital application in core operations. This gap threatens not only the survival of individual SMEs but also the resilience of entire supply chains, as large enterprises increasingly rely on agile, tech-enabled partners. By 2026, the chasm is projected to widen further: 68.3% of large-scale industrial enterprises have completed digital transformation of production systems, compared to just 15% of SMEs. Addressing this divide requires targeted support that tackles the unique barriers SMEs face—cost constraints, talent shortages, and limited access to tailored solutions—while unlocking the transformative potential of smart factory technologies for smaller operations. This article explores the roots of the digital divide in industrial upgrading, highlights successful support models, and outlines actionable strategies to empower SMEs in their smart factory transition.
The Digital Divide: Why SMEs Lag in Smart Factory Adoption
The digital divide between large enterprises and SMEs stems from a confluence of structural, financial, and operational barriers that disproportionately impact smaller manufacturers. Unlike large corporations with dedicated digital transformation budgets and in-house expertise, SMEs operate under tight margin pressures and resource constraints, making smart factory adoption a high-risk, unclear-reward proposition.
Financial limitations stand as the most formidable barrier. Smart factory technologies—from industrial IoT sensors and AI-driven production systems to cloud-based manufacturing execution software—require significant upfront investment, with average implementation costs exceeding $150,000 for even basic upgrades. For SMEs operating on thin profit margins, this investment is often prohibitive, compounded by uncertainty about return on investment (ROI). Unlike large firms that can spread costs across multiple production lines and leverage economies of scale, SMEs face the risk of sunk costs if digital upgrades fail to deliver immediate efficiency gains or if market conditions force production changes. Compounding this, 80% of industrial software and 95% of specialized chips rely on imports, driving up costs and creating supply chain vulnerabilities for SMEs without global procurement networks.
Talent scarcity further exacerbates the divide. Smart factory transition demands cross-functional talent with expertise in both manufacturing processes and digital technologies—skills that are already in short supply globally. SMEs lack the financial capacity to compete with large corporations for AI technicians, digital twin engineers, and data analysts, who command salaries 1.8 times higher than traditional manufacturing roles. Compounding the issue, most SMEs missed the earlier waves of computerization and internet adoption, leaving their existing workforce with low digital literacy: fewer than 40% of SME production workers possess the skills to operate even basic digital equipment, and only 1% of SMEs have teams capable of using intelligent technologies to support core business operations.
Limited access to tailored solutions and information gaps also hinder progress. Most digital solution providers focus on large enterprises, offering modular, one-size-fits-all products that fail to align with SMEs’ specialized processes, smaller production volumes, and unique pain points. SMEs often struggle to identify which technologies will deliver the greatest value for their operations, lacking the resources to conduct in-depth feasibility studies or pilot projects. A lack of awareness about the long-term benefits of smart factory adoption—such as 19.7% higher equipment efficiency (OEE) and 33% sales growth reported by tech-enabled SMEs—further delays decision-making, trapping many in a cycle of incremental improvement rather than transformative change.
The Ripple Effect: Why SME Digital Inclusion Matters
The digital divide is not just an SME challenge—it poses systemic risks to global manufacturing ecosystems. SMEs account for over 90% of enterprises worldwide, employing more than 50% of the manufacturing workforce and contributing 40-60% of GDP in most economies. Their exclusion from smart factory transformation weakens supply chain resilience, as large corporations struggle to find tech-compatible partners capable of real-time data sharing, agile production adjustments, and quality control standardization. For example, automotive manufacturers transitioning to electric vehicle production require SME suppliers to adopt digital quality monitoring systems, but many SMEs cannot meet these requirements, causing production delays and increased costs.
Conversely, bridging the divide unlocks significant economic and environmental value. SMEs that adopt even basic smart factory technologies report 15-20% reductions in energy use, 25% lower material waste, and 30% faster time-to-market—gains that enhance their competitiveness while contributing to global decarbonization goals. The broader adoption of smart technologies by SMEs also drives innovation, as smaller firms are often more agile and responsive to market needs than large corporations. For instance, South Korean SMEs that integrated AI into their operations saw a 33% surge in sales, demonstrating the transformative potential of digital inclusion when supported by targeted policies.
Successful Support Models: Empowering SMEs Across Regions
Governments, industry consortia, and technology providers are increasingly recognizing the need to support SMEs, developing tailored programs that address cost, talent, and solution barriers. These models offer actionable frameworks for bridging the digital divide, combining financial incentives, skills development, and ecosystem collaboration.
1. Government-Led Financial Incentives and Funding
Financial support programs reduce the upfront risk of smart factory adoption, making digital technologies accessible to cash-strapped SMEs. The U.S. Department of Energy’s State Manufacturing Leadership Program (SMLP) has allocated nearly $13 million in funding—part of a $50 million initiative—to help SMEs access smart manufacturing tools and high-performance computing resources. The program supports state-led projects that provide technical assistance, pilot funding, and training, enabling thousands of SMEs to implement AI-driven efficiency tools and real-time monitoring systems without bearing the full cost burden.
South Korea has taken a targeted approach with its AI-Based Smart Manufacturing Innovation 3.0 Strategy, which aims to foster 12,000 AI-adopting SMEs by 2030, raising the current adoption rate from 1% to 10%. The program focuses on培育 specialized AI solution providers that cater to manufacturing SMEs, creating an ecosystem where small firms can access affordable, industry-specific technologies. By funding the development of tailored AI tools for SMEs, the government addresses the gap in solution availability while driving scale in the domestic tech market.
2. Ecosystem Collaboration and Solution Tailoring
Industry consortia and technology providers are developing SME-focused ecosystems that combine affordable solutions, knowledge sharing, and technical support. Turkey’s KOBIGEL program, for example, supports SMEs in adopting eight key digital technologies—including industrial IoT, AI-driven smart factory systems, and augmented reality—by facilitating partnerships with local technology developers. The initiative prioritizes collaboration between industrial SMEs and domestic tech firms, ensuring solutions are tailored to local needs while strengthening the domestic digital supply chain.
The rise of low-code platforms has emerged as a game-changer for SME agility, enabling business teams to develop and iterate digital tools without specialized coding skills. By 2026, 37% of manufacturing systems use low-code platforms, up from just 12% in 2024, with SMEs leveraging these tools to build custom production monitoring systems, inventory trackers, and quality control workflows at a fraction of the cost of enterprise-grade software. IDC data shows the global manufacturing low-code market reached $84 billion in 2025, with a compound annual growth rate of 63.5%, reflecting the growing demand for accessible digital solutions among smaller firms.
3. Targeted Talent Development and Capacity Building
Addressing the talent gap requires collaborative training programs that equip SMEs with in-house digital expertise. Public-private partnerships between governments, technical colleges, and manufacturers are critical, as they combine industry insights with educational resources to deliver practical, job-ready skills. For example, U.S. community colleges participating in the SMLP offer certification programs in industrial IoT operation and data analysis, tailored to SME needs and subsidized by government funding. These programs enable SMEs to upskill existing workers rather than recruiting scarce external talent, reducing costs while building institutional knowledge.
Technology providers are also playing a role in capacity building, offering free training resources and technical support alongside their products. Many industrial software firms now provide online courses, webinars, and on-site workshops for SME teams, covering topics from basic digital tool operation to advanced AI-driven process optimization. This support not only increases adoption rates but also ensures SMEs maximize the value of their digital investments by using technologies to their full potential.
Actionable Strategies for Accelerating SME Smart Factory Transition
Bridging the digital divide requires a holistic approach that combines policy support, industry collaboration, and technology innovation. The following strategies provide a roadmap for stakeholders to empower SMEs in their smart factory journey.
First, prioritize modular, scalable solutions that allow SMEs to start small and expand gradually. Rather than investing in full-scale smart factory overhauls, SMEs should adopt pilot projects focused on high-impact areas—such as predictive maintenance for critical equipment or digital quality control—before scaling to other operations. Low-code platforms and cloud-based software enable this incremental approach, offering pay-as-you-go pricing models and flexible functionality that adapts to SME growth.
Second, strengthen public-private partnerships to create end-to-end support ecosystems. Governments should provide funding for SME-specific tech development and training, while large corporations can share expertise, provide mentorship, and create demand for tech-enabled SME suppliers. Industry associations play a critical role in aggregating SME needs, connecting small firms with solution providers, and facilitating knowledge sharing across peer networks.
Third, address data security concerns to build SME confidence in digital adoption. Many SMEs avoid digital transformation due to fears about data breaches and regulatory compliance, particularly when sharing data with supply chain partners. Governments and industry bodies should develop clear data security guidelines for SMEs, offer affordable cybersecurity tools, and establish trust frameworks that protect sensitive information while enabling the data sharing essential for smart factory operations.
Fourth, accelerate workforce upskilling through flexible, accessible training programs. Micro-credentials, on-the-job training, and online courses can equip existing SME workers with digital skills without requiring long-term commitments. Partnerships between technical colleges and manufacturers ensure training aligns with real-world needs, focusing on practical skills like IoT sensor installation, data analytics, and AI system troubleshooting.
Toward an Inclusive Industrial Upgrade
The digital divide in industrial upgrading is not an insurmountable barrier—it is a systemic challenge that requires collective action from governments, industry leaders, technology providers, and SMEs themselves. As smart manufacturing becomes the global standard, supporting SME digital inclusion is no longer a matter of equity but a strategic imperative for building resilient, innovative supply chains. By addressing cost constraints, talent shortages, and solution gaps through targeted funding, ecosystem collaboration, and capacity building, stakeholders can unlock the transformative potential of SMEs in the smart factory era.
The success stories of SMEs in South Korea, the U.S., and Turkey demonstrate that with the right support, small firms can leverage digital technologies to drive growth, improve efficiency, and compete with larger competitors. As low-code platforms, cloud-based tools, and AI become more accessible and affordable, the opportunity to bridge the divide has never been greater. By prioritizing inclusive industrial upgrading, we can ensure that the benefits of smart manufacturing—from increased productivity to reduced environmental impact—are shared across the entire economy, creating a more resilient and sustainable future for manufacturing worldwide.