The "manufacturing paradigm" that has supported Korea's economy is shaking from the ground up. Mired in low growth, the country's manufacturing sector faces a compound crisis from China's fierce pursuit and the reorganization of global supply chains. In particular, the small and midsize manufacturing shop floors—capillaries of industry and the roots of supply chains—are groaning under a "triple whammy" of labor shortages, rising costs, and stagnant productivity, and are being pushed to the brink. Now the only breakthrough for survival is "AX (AI transformation)." Artificial intelligence (AI) is more than a simple technology adoption; it is the last bastion that can breathe new life into aging factories and restart the growth engine of Korea's economy. ChosunBiz takes a close look at why small and midsize manufacturers standing at the edge of a cliff must stake everything on AX, and the "new growth map" that Korea's manufacturing industry should follow. [Editor's note]
Company A, an auto parts maker in South Gyeongsang. In the past, two skilled workers strained to spot product defects with their eyes wide open. But the scene has completely changed recently. An AI camera scans parts on the conveyor belt in 0.1 seconds. After adopting AI, inspection accuracy jumped 80% and speed rose 66%. Inspection workers were reassigned to higher value-added processes. The results showed up in numbers. The company's sales last year soared 33% from a year earlier to 20 billion won.
Company B, a food manufacturer in South Chungcheong, captured both productivity and quality control after introducing automation and remote-control systems in production and packaging. A site that had relied on manual labor shifted to systematic equipment operations, and as a result, sales rose 34% in four years. Backed by stable quality, the products of this small and midsize company are exported to the United States, Canada and Japan, helping drive the global K-food boom. The head of B said, "If we laid the groundwork with digital transformation (DX), we will now take another step up with AX combining robots and AI."
◇ "Fall behind if you miss AI"… manufacturing SMEs go all-in on 'AX'
Small and midsize manufacturers, the roots of Korea's economy, have entered a survival game called "AX (AI transformation)." Manufacturing is a pillar of the economy, generating 28% of domestic value added and supporting 5.13 million jobs.
But the recent situation is a four-sided crisis. A "PerfecT storm" of China's low-price offensive, labor shortages from an aging population, and declining productivity has hit.
Now there is a growing view that "digital transformation (DX)" is not enough. Analysts say that only "AX," which goes beyond simple computerization to autonomous judgment and optimization, is the sole way out.
But the on-site threshold remains high. According to the Korea Federation of Small and Medium Enterprises, 45.7% of small and midsize manufacturers are hesitant to adopt AI due to expense burdens.
The aging of top management is also a stumbling block to spreading AX among small and midsize manufacturers. The older the CEO, the more conservative the tendency toward adopting new technology. There are growing cases in which second-generation managers participating in operations at manufacturing SMEs recognize AI as a strategy for boosting productivity and survival and move preemptively to invest.
While large corporations pull ahead on the strength of capital, SMEs face a new crisis of "AI polarization." Some warn of "K-shaped growth" in Korea's economy, where only large corporations and a few leading companies grow while the majority of SMEs stagnate.
The CEO of a small and midsize manufacturer who inherited the company from a father and has led it for seven years said, "Building on the DNA of perseverance and effort accumulated on the shop floor by my father, we are preparing for a second phase of growth by fusing advanced technologies such as AI," adding, "In the past we were cautious about facility investment, but now we are strategically expanding investment in AI and data-based systems."
◇ Government's 'manufacturing innovation 3.0' gambit… "train 500 specialist companies within five years"
The government has also rolled up its sleeves. The Ministry of SMEs and Startups has established the "AI-based Smart Manufacturing Innovation 3.0 Strategy," going beyond the previous ICT dissemination-focused "Manufacturing Innovation 1.0 and 2.0." The key is to nurture 12,000 AI-adopting companies by 2030 and lift the current AI adoption rate from about 1% to 10%.
In particular, the Ministry of SMEs and Startups (MSS) noted a shortage of specialist companies to supply AI solutions to manufacturing sites. Accordingly, it plans to foster AI solution suppliers to build an AX ecosystem.
Minister Han Seong-sook of the Ministry of SMEs and Startups (MSS) said, "The AI transformation of small and midsize manufacturers is an essential survival strategy," adding, "Within five years, we will cultivate 500 specialist manufacturing AI companies and create a structure in which they directly supply AI solutions to SME sites."
Through this, the plan is to not only boost productivity but also reduce industrial accidents by 20%, improving the "quality of the workplace."
◇ Move quickly to build a social safety net for the 'AX backlash'
Experts agree that "strategy" is as important as "speed." Given SME conditions, changing all processes at once is close to impossible. A "phased AX" approach that targets core processes where effects show immediately—such as defect inspection or equipment anomaly detection—is realistic.
Jeong Ji-o, senior researcher at the Seoul National University AI Institute, said, "It is more realistic for small and midsize manufacturers to apply AX selectively by picking repetitive processes rather than changing all processes at once," adding, "AI solution experts should inspect the site directly and, after fully discussing with the CEO the processes the company actually wants to improve, pursue AX selectively to reduce failures."
"Mutual growth" partnerships with large companies are also essential. SMEs lack capital, technology and data to push AX on their own. Analysts say it is effective for large companies, in the course of advancing their own AX, to also support on-site innovation at partner SMEs.
Currently, under a government initiative, large companies including Samsung Electronics and Hyundai Motor are participating in a large-small mutual growth smart factory dissemination program. The industry argues that this cooperation model needs to be expanded further from the perspective of spreading AX.
Still, warnings about the "shadow" that AI adoption may bring should not be forgotten. Jin Byeong-chae, head of the Korea Small Business Institute (KAIST professor), said, "The shift to the AX era is unavoidable, but we must prepare for side effects such as job cuts that will occur in the process," stressing, "Only when the building of a social safety net that supports retraining and job transitions is carried out in parallel will true manufacturing innovation be completed."