Global Manufacturing at Risk: OECD Warns Small Businesses Could Lose Out in Technology Race

The OECD warns that small manufacturers, which account for 57% of manufacturing employment across OECD economies, risk falling behind as AI, automation and clean technologies reshape global industries. Governments, development partners and investors must improve access to finance, technology and skills to protect jobs, strengthen supply chains and ensure inclusive industrial growth.

The Organisation for Economic Co-operation and Development (OECD), in its 2026 report Fit-for-Future Manufacturing SMEs: Effective Policies for Transformation, warns that small and medium-sized enterprises (SMEs) risk being left behind as global manufacturing moves towards artificial intelligence, automation, electric vehicles and cleaner production. Drawing on research and policy experiences from France, Germany, Japan, Korea and the United States, the report finds that governments are investing heavily in advanced industries, but smaller manufacturers often lack the money, technology and skilled workers needed to benefit. The findings raise important questions about industrial competitiveness, employment, economic growth and whether public investments are reaching businesses that support millions of jobs.

Small Manufacturers Power the Economy but Face Growing Pressure

Manufacturing contributes approximately 16% of global GDP and 14% of employment, making it a major driver of economic development. SMEs are especially important, accounting for 41% of manufacturing value added and 57% of manufacturing employment across OECD economies in 2023.

Despite their contribution, smaller businesses face growing difficulties as production becomes more technology-driven. Large corporations can invest in robotics, artificial intelligence and modern equipment, while SMEs often struggle with high costs, limited access to credit and shortages of technical expertise.

The OECD warns that industrial policies focused mainly on large companies could widen this gap. If smaller suppliers cannot modernise, countries may experience job losses, weaker local industries and reduced competitiveness.

For governments, the findings underline the need to make affordable financing, digital technology and workforce training central parts of industrial development strategies. Supporting SMEs is not simply about protecting small businesses; it is about strengthening the wider economy.

Electric Vehicles and Chips Are Reshaping Industrial Jobs

The automotive industry illustrates how technological change can create opportunities while threatening existing businesses. SMEs and microenterprises generate approximately 58% of value added among automotive input providers, but the shift towards electric and autonomous vehicles is changing demand for traditional components.

Manufacturers producing engine parts and mechanical systems increasingly need to develop capabilities in batteries, electronics, sensors and software.

In Germany, automotive suppliers directed 28% of their total investment towards electric mobility in 2023, even though the segment generated only 10% of their profits. This highlights the financial pressure businesses face when investing in technologies that have not yet become fully profitable.

The semiconductor industry faces different challenges. According to evidence cited by the OECD, chips can cross international borders up to 70 times during production, making supply chains highly vulnerable to trade restrictions and geopolitical tensions.

While large semiconductor factories require enormous investments, smaller companies can find opportunities in chip design, specialised materials, equipment maintenance and related services.

For private investors, these emerging activities offer new markets. For governments, the challenge is to help smaller suppliers enter advanced industries instead of allowing the benefits to remain concentrated among major corporations.

Supply Chain Risks Could Weaken Economic Growth

The OECD identifies supply chain disruption as another major threat to manufacturing competitiveness. The COVID-19 pandemic, geopolitical tensions, changing trade policies and rising costs have exposed weaknesses in international production networks.

SMEs are particularly vulnerable because they often depend on a limited number of suppliers and customers. Many also lack financial reserves and systems to anticipate disruptions.

When smaller manufacturers cannot obtain essential materials or deliver products on time, the consequences can spread across entire industries. Production slows, costs rise and employment becomes less secure.

For developing economies seeking to attract international manufacturers, reliable infrastructure and capable domestic suppliers are therefore essential.

The report suggests that governments should encourage supplier diversification, digital supply chain management and stronger cooperation between businesses.

International development partners can support these efforts through technical assistance, infrastructure investment, training and financing programmes. Such interventions could help countries build more reliable industrial networks while improving opportunities for local businesses.

Governments Must Turn Industrial Investment into Wider Development

The OECD's assessment of France, Germany, Japan, Korea and the United States shows that industrial transformation requires more than subsidies for large factories.

France combines industrial investment with innovation and regional support. Germany promotes digital cooperation across manufacturing supply chains. Japan focuses on automation and productivity, while Korea supports smart manufacturing and semiconductor development. The United States uses regional technology hubs and manufacturing assistance programmes to strengthen industrial capabilities.

These experiences suggest that governments should design policies around the needs of entire supply chains, including smaller manufacturers.

Access to affordable loans, credit guarantees, research facilities and technical training can help SMEs adopt modern technologies. Policies should also reflect differences between industries, as automotive suppliers, semiconductor businesses and machinery manufacturers face distinct challenges.

For development banks and international organisations, opportunities exist to finance cleaner production, digital infrastructure, workforce development and supplier-upgrading programmes.

Large private companies can contribute by sharing technology, strengthening local procurement networks and helping smaller suppliers meet international standards.

Governments should also measure industrial policy success through job creation, SME productivity, technology adoption and participation in global markets, rather than investment announcements alone.

The OECD's central message is that industrial transformation will deliver lasting economic benefits only when smaller manufacturers can participate in it. Without targeted support, technological progress could increase inequality between large corporations and smaller businesses. With coordinated policies, however, countries can strengthen competitiveness, create skilled jobs, improve supply chain resilience and ensure that the benefits of advanced manufacturing reach more businesses and communities.