As technology advances, small and medium-sized enterprises (SMEs) are facing increasing pressure to adapt and innovate. Digital and artificial intelligence (AI) tools can transform businesses, promising enhanced efficiency, innovation and new market opportunities. Yet a recent survey covering seven OECD countries reveals that while most SMEs are adopting digital tools and express satisfaction, too many barriers remain.
Controlling the costs
One of the most significant barriers is the cost associated with implementing new technology. For SMEs, budgets are often tight, and the upfront investment required to purchase and deploy digital and AI tools can be prohibitively expensive. This includes not only the costs of the technology itself but also the infrastructure upgrades needed to support them.
The recent survey found that more than a third of small businesses cited the high cost of hardware and maintenance nearly a quarter found the cost of training major impediments to adopting digital tools. The return on investment (ROI) is often unclear at the outset of these projects, making it seem a risky venture for smaller companies with limited financial flexibility. This is compounded by difficulties in accessing finance, a longstanding issue for SMEs that is currently even more challenging due to tightening credit conditions and high interest rates.
Lack of knowledge
Another major hurdle is the lack of technical expertise. Specialised knowledge is needed to identify the right digital solutions for each business, as well as to effectively implement and manage them on an ongoing basis. Many SMEs do not have access to IT professionals versed in the latest technologies. This talent gap means that even if an SME can afford to invest in technology, they might not have the internal capabilities needed to integrate and leverage it effectively.
Better the devil you know
Resistance to change is a common barrier within organisations, and SMEs are no exception especially in Korea. I would According to recent statistics (KOSTAT) on the age demographics of small business owners in Korea, as of 2023, individuals in their 50s constitute the largest proportion, accounting for around a third of all small business owners whereas the individuals in their 20s have the smallest proportion. Many older small business owners have spent decades perfecting their traditional business practices.
Familiarity and comfort with these methods can make the shift to digital solutions seem unnecessary or daunting. In addition, employees and management may view new technologies with scepticism or fear of job displacement. Furthermore, security and privacy concerns are significant deterrents for SMEs considering the adoption of digital and AI tools.
Many SMEs fear that integrating new technologies could expose them to cyber threats, data breaches, and compliance issues.
A helping hand
To address these challenges, government and relevant organisations need to provide targeted support for SMEs, as the Korean government did in response to the COVID pandemic. This includes tailored digital education programmes that simplify the learning process and highlight the tangible benefits of digital transformation.
Financial support and incentives can also help alleviate the economic burden of adopting new technologies. The Korean Ministry of SMEs and Startups and the Small & Medium Business Distribution Center offer a program called ‘Valuebuy’, for SMEs interested in adopting digital and AI tools. This program provides information, and education, and expands distribution channels to online platforms. Large firms that are on the front line of adopting digital and AI tools can also lend a hand. Kakao, a tech firm in Korea that provides a diverse range of digital services has launched several programs that support SMEs’ digitalisation, including free digital communication tools, online platforms, and educational programmes to help SMEs to communicate with their customers, provide better customer service, and expand into the online market at low cost.
Taking the plunge
With the right support and resources, SMEs can overcome these barriers and harness the power of digital and AI technologies to drive growth and competitiveness in the digital age. Collaboration between government, large enterprises, and educational institutions is crucial to ensure that SMEs are not left behind in the digital revolution. By working together to foster an environment of continuous learning and adaptation, SMEs can become agile and resilient, ready to face the challenges and opportunities of the modern digital economy.
Jane So is an Assistant Professor of Marketing at Sejong University's Business School in South Korea. Prior to her current position, she served as an Assistant Professor at the City University of Hong Kong. Her research focuses on resource scarcity, poverty, and emotions, exploring their influence on consumer behavior, particularly within the contexts of public policy and business communication. Jane So earned both her Bachelor's and Master's degrees in Business from Seoul National University, South Korea, and holds a Ph.D. in Marketing from the Foster School of Business at the University of Washington.