From EVs to AI: Why the Future of Global Manufacturing May Depend on Small Businesses

The OECD warns that manufacturing transformation could leave SMEs behind despite their 57% share of OECD manufacturing employment, unless governments improve access to finance, skills, technology and industrial networks. Targeted SME support can turn electrification, digitalisation, semiconductors and supply-chain restructuring into opportunities for stronger productivity, resilient industries and sustainable job creation.

Manufacturing is being reshaped by electric vehicles, artificial intelligence, automation, digital technologies, cleaner production and changing global supply chains. The OECD's Fit-for-Future Manufacturing SMEs: Effective Policies for Transformation warns that governments cannot focus only on large industrial companies and assume smaller businesses will automatically benefit. SMEs accounted for around 41% of manufacturing value added and 57% of manufacturing employment across OECD economies in 2023, making their ability to adapt important for jobs, productivity, regional economies and supply-chain security.

Manufacturing itself contributes around 16% of global GDP and 14% of employment. Yet smaller manufacturers often have less money to invest, fewer specialised workers and weaker access to technology and research networks. As governments spend heavily on semiconductors, electric vehicles and advanced manufacturing, the danger is that large companies modernise while thousands of smaller suppliers struggle to keep pace.

Electric Vehicles Put Traditional Suppliers at a Crossroads

The automotive transition shows how quickly the competitive landscape is changing. Micro firms and SMEs generate around 58% of value added among automotive input providers, but electric vehicles require fewer traditional engine and transmission components. Suppliers heavily dependent on internal-combustion vehicles therefore face pressure to diversify, upgrade or eventually leave shrinking markets.

There are also significant new opportunities. Software, sensors, connectivity, cybersecurity and autonomous-driving technologies are becoming increasingly important parts of vehicle production. Potential autonomous-driving revenues could reach USD 300–400 billion by 2035, creating space for innovative technology suppliers.

But transition costs are already high. German automotive suppliers surveyed in 2023 directed 28% of investment towards e-mobility, although it generated only 10% of their profits. Korean evidence is equally concerning: 84% of small enterprises, 58% of medium-sized enterprises and 24% of middle-market companies surveyed were not ready for the transition towards future vehicles.

For policymakers, this makes predictable regulations, accessible transition finance and workforce retraining essential. Sudden changes in electric-vehicle incentives can be particularly damaging for SMEs that cannot easily absorb investment losses.

The Chip Race Needs More Than Billion-Dollar Factories

Semiconductors have become central to economic security as governments try to reduce dependence on vulnerable international supply chains. Around 2,500 industrial-policy interventions targeting advanced technologies and critical inputs have been introduced globally over the past decade.

SMEs cannot normally compete with multinational companies in building enormous semiconductor fabrication plants. Their opportunity lies instead in specialised areas such as fabless chip design, materials, manufacturing equipment, packaging, back-end services and energy-efficient technologies.

Governments and development partners should therefore avoid measuring semiconductor strategies only by the number or size of new factories. Shared research infrastructure, affordable financing, skills programmes, technology partnerships and access to larger semiconductor ecosystems could help smaller companies capture more value.

Korea offers one example. Its Semiconductor Mega Cluster includes support for smaller businesses, while the country aims to increase domestic self-sufficiency in key semiconductor materials from 30% to 50% by 2030.

Supply-Chain Resilience Begins With Smaller Manufacturers

Recent disruptions demonstrate why SME modernisation is also a resilience issue. Between 2020 and 2024, 31% of French SMEs experienced supply-chain disruptions. Among affected businesses, 61% increased inventories or diversified suppliers. In contrast, Korean evidence from 2022 indicated that only 2% of SMEs had established supply-chain risk-management strategies.

Digitalisation can make smaller companies better prepared. Digital inventory systems, data analytics and connected production networks can help businesses detect shortages, identify alternative suppliers and respond more quickly to disruptions.

Machinery manufacturers face similar pressures. SMEs generated around 44% of machinery-sector turnover across OECD economies in 2022, down from 50% in 2010. Machinery increasingly combines physical equipment with software, sensors, automation and data services. Digital twins, 3D printing and augmented and virtual reality could lower development and prototyping costs, but companies lacking finance and digital skills risk falling further behind.

For private-sector stakeholders, this creates opportunities in industrial software, cybersecurity, training, automation, specialised finance and technology services. Large manufacturers also have an interest in helping suppliers modernise because weaknesses among smaller firms can become vulnerabilities across entire production networks.

Industrial Policy Must Reach the Factory Floor

The OECD points towards a different model of industrial policy. Germany's Manufacturing-X promotes collaborative digital manufacturing ecosystems, Japan provides advisory assistance to automotive suppliers, Korea combines semiconductor investment with SME support, and the US Manufacturing Extension Partnership operates 51 centres providing regionally tailored assistance.

The lesson for governments is to make industrial programmes easier for SMEs to use. Funding procedures should be simpler, advisory services affordable and technology programmes tailored to different levels of business readiness. Regional centres can connect manufacturers with universities, research institutions, technology providers and larger companies.

International development partners can complement these efforts through guarantees, concessional financing, technical assistance, workforce development and supplier-upgrading programmes. Instead of financing isolated flagship projects, they can help build industrial ecosystems around them.

For policymakers, investors and businesses, the central message is that the future of manufacturing will not be decided by major factories alone. With SMEs providing 57% of OECD manufacturing employment, their ability to adopt technology, attract skilled workers, secure financing and enter emerging supply chains will influence whether industrial transformation produces broadly shared growth or leaves a large part of the manufacturing economy behind.