The "manufacturing paradigm" that has sustained Korea's economy is shaking from its foundations. Trapped in a low-growth rut, Korea's manufacturing is facing a compound crisis from China's fierce chase and a global supply chain reshuffle. In particular, small and midsize manufacturing sites—the 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 rollout; it is the final bulwark 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 maps a "new growth route" for Korea's manufacturing. [Editor's note]
"We are past the time when people asked why to introduce artificial intelligence (AI). We are in a "survival era" where the question is whether adopting it means life or death."
The voice of Park Yong-sun, Deputy Minister for Small and Medium Enterprise Policy at the Ministry of SMEs and Startups, whom we met on the 7th, was resolute. A policy expert who came up through the technical civil service and has spent 25 years in the field, Park defined the crisis facing Korea's manufacturing as a "structural sinking." Noting that 87% of the nation's 610,000 small and midsize manufacturers are located outside the Seoul metropolitan area, Park said the success or failure of their AX (AI transformation) will be the key variable determining whether regional economies can survive.
The reason Deputy Minister Park stresses AX is clear. While the greater Seoul area is propped up by finance and services, the regions rely on a single pillar: manufacturing. "Manufacturing is the core axis of local economies outside Seoul," Park said. "If small factories fall behind in AI transformation and begin to close, jobs and added value in those areas will vanish overnight. AX is not a simple technology upgrade; it's CPR for regional economies."
The "Smart Manufacturing Innovation 3.0" strategy unveiled by the Ministry of SMEs and Startups (MSS) starts from this urgency. Its core is to raise the AI adoption rate among small businesses from the current 1% to 10% by 2030. "If 1.0 and 2.0 were about wiring factories with PCs and the internet, 3.0 is about "intelligence," where factories judge and act on their own," Deputy Minister Park said. "Beyond simple support, we will nurture 500 specialized AI suppliers to fundamentally upgrade the ecosystem."
Deputy Minister Park is a small-business policy expert with experience across technology and policy. Park graduated from the Department of Electrical and Electronic Engineering at the Korea Advanced Institute of Science and Technology (KAIST) and completed a master's program in electrical engineering at Seoul National University. Entering public service in 2000 through the 34th technical civil service exam, Park has overseen the real-economy policies of small businesses at the MSS, including venture, startup, and technology. The following is a Q&A with Deputy Minister Park.
— Why is AX for small and midsize manufacturers important?
"Manufacturers around the world have begun applying AI across production lines. In price, quality, and delivery competition, corporations that do not adopt AI will inevitably fall behind structurally. AX should now be seen as a matter of survival, beyond strengthening competitiveness. In particular, manufacturing is a field where the effects of AI adoption directly link to productivity and quality.
Given that Korea's economy has grown on the back of manufacturing, weaker manufacturing competitiveness can spread into a broader national economic problem. Small and midsize manufacturers are especially vulnerable to changes at home and abroad, including tariff issues, global supply chain instability, the onslaught of Chinese manufacturing, and rising labor and energy expense. On top of that is a labor shortage. AX is a realistic tool that can address these intertwined problems."
— The government aims to become a "top 3 AI power." What is the MSS's role?
"Becoming an AI power involves infrastructure, data, developing models using them, and applying those models in the field. The Ministry of Science and ICT and the Ministry of Trade, Industry and Resources are responsible for infrastructure and data, while the MSS's role is to ensure that developed AI technologies are actually used on small and midsize manufacturing floors. The government is currently preparing a pan-ministerial "Manufacturing AI 2030 Strategy."
— You stress that AX for small and midsize manufacturers is directly tied to regional economies.
"Of the 610,000 small and midsize manufacturers nationwide, 87% are located outside Seoul. Seoul has a diverse industrial base, including finance, culture, and tourism, but in the regions, manufacturing is virtually the only economic axis. If regional manufacturing collapses, regional economies will inevitably collapse with it."
— You recently announced the "AI-based Smart Manufacturing Innovation 3.0 Strategy."
"The core is ecosystem building. Technology suppliers that develop AI solutions, small and midsize manufacturers that use them, and the talent and funding that support them must move together. The MSS will focus its policy capacity on building this ecosystem. So far, among about 160,000 small and midsize manufacturers nationwide with factories, we have supported the adoption of 35,000 smart factories, or 20%. Going forward, we will support an additional 12,000 AI-centric smart factories by 2030 and continue to create success stories. Through this, we will raise the AI adoption rate of small and midsize manufacturers from the current 1% to 10% by 2030. At the same time, we will work to improve job quality in small and midsize manufacturing, targeting a 20% reduction in industrial accidents."
— Training AI talent is also a key task.
"AI-based smart factories ultimately must be run by people. We are approaching this on several fronts: leveraging talent with experience at large corporations, providing CEO and on-the-job training through the Korea SMEs and Startups Agency (KOSME) training center, and offering consulting by AI suppliers. The talent issue is as important as technology adoption."
— You are pursuing a "smart manufacturing official development assistance (ODA)" project to transfer Korea's smart factory technology to Vietnam.
"Starting this year, we will launch an ODA project in smart manufacturing in Vietnam. Manufacturing is Vietnam's key growth industry, but it still lacks smart factory technology and experience. This year, we will provide consulting to Vietnamese manufacturers and push to build a demo factory. This project supports the smart transition of Vietnam's manufacturing while helping domestic technology suppliers expand overseas. By transferring Korea's smart manufacturing technology, we aim for a "win-win strategy" that lays a springboard for domestic companies to enter the global market."
— Major countries, including the United States and Japan, are also pursuing manufacturing AX that includes small businesses.
"We need to view this in the context of the overall manufacturing trend. The United States is expanding robot- and AI-based smart factories through subsidy policies aimed at supply chain resilience and advanced manufacturing innovation. Since "Made in China 2025," China has been shifting its manufacturing from quantitative expansion to qualitative sophistication under a state-led approach. Japan is pursuing a smart manufacturing strategy against the backdrop of its aging population. Looking solely at smart factories and the manufacturing sector, Korea is by no means lagging in manufacturing AX. I believe Korea is the country best positioned to rapidly scale an ecosystem that fuses AI with manufacturing."
— How do you measure policy outcomes?
"Overall, our goal is to raise the share of AI-based smart factories. At the individual corporation level, we will assess business performance using indicators for productivity, quality, cost, and delivery lead times. Another area we consider important is safety and the environment. We expect AI-based smart factories to reduce industrial accidents and will manage accident reduction rates as a key metric. Through future research projects, we also plan to develop more refined indicators to measure the outcomes of AI adoption."
Deputy Minister Park stressed that AX for manufacturing SMEs cannot be separated from aging and business succession issues. "If aging manufacturers in the regions cannot be succeeded, they will shut down and local jobs will disappear," Park said. "As important as AX is creating structures that allow businesses to be passed on."
— The aging of small and midsize manufacturers is serious.
"The aging of CEOs at small and midsize manufacturers is accelerating rapidly. The share of managers aged 60 and older was 17.1% in 2014, but rose to 36.8% in 2023—more than doubling in 10 years. Companies that have not undergone technological transition inevitably see weaker acquisition demand, which in turn increases the likelihood of closure. Alongside AI transformation, we view the activation of business succession through mergers and acquisitions (M&A) as very important. The MSS recently announced a "framework to promote business succession," covering everything from M&A brokerage support to post-succession management stabilization. We see this as a core policy to increase continuity among small and midsize manufacturers and sustain regional manufacturing and regional economies."
— What is the policy direction for small businesses going forward?
"If last year we focused on overcoming crisis and recovery, going forward we will shift the center of small-business policy to growth promotion. We will especially push for growth on a regional basis. AI transformation, research and development (R&D) support, and regional venture investment are all aligned in the same direction. In addition, we will segment businesses by type and upgrade our support system based on which businesses, when supported, yield the greatest growth effects and policy outcomes. We believe Korea's economy can be sustainable only if regional small and midsize businesses grow."