Fit-for‑Future Manufacturing SMEs

Executive summary

Manufacturing plays a central role in the global economy, with SMEs contributing significantly across value chains

Manufacturing is a cornerstone of global economic value creation, directly contributing around 16% of global GDP and 14% of employment. Beyond these direct contributions, the sector generates wider economic impact through extensive upstream and downstream linkages, technological diffusion and productivity-enhancing innovation spillovers. Within this ecosystem, small and medium-sized enterprises (SMEs) play a crucial role. They operate across value chains – from supplying essential raw materials to producing components and finished goods – supporting both domestic industries and international trade. While large corporations typically bring branded products to the market, SMEs are integral to the production and distribution processes (e.g. as retailers and service providers) that underpin global manufacturing. In 2023, SMEs accounted for around 41% of value added and 57% of employment in the manufacturing sector, on average across the OECD.

New industrial strategies have emerged in response to megatrends and recent shocks

The manufacturing landscape is being reshaped by three powerful forces: digitalisation, policy and consumer incentives for more resource-efficient production methods, and a stronger appreciation of factors and policies that support long-term competitiveness, including reduced vulnerabilities to geopolitical risks and supply chain disruptions. Technological advances are transforming operations, as factories and supply chains increase uptake of digital tools such as data analytics and artificial intelligence (AI), as well as broader technologies that enable automation and data sharing across interoperable ecosystems. At the same time, a combination of emerging environment-related regulations, high energy costs and adoption of more resource-efficient production processes have also resulted in transformations in manufacturing value chains. In addition, the shifting patterns of trade in recent years have also increased tendencies to shorten supply chains. The COVID-19 pandemic accelerated these trends, as have tariff uncertainties.

While these changes present new opportunities, SMEs often face barriers to adapting and profiting from them, constrained by limited internal capacity and limited access to external strategic resources, such as finance, technology, talent and knowledge networks.

New industrial policies need to factor in SME realities

New industrial strategies, intended to strengthen industrial competitiveness, economic resilience and sustainable growth, have typically focused on large firms, often resulting in SME‑specific needs being sidelined or insufficiently integrated into policy frameworks. At the 2023 OECD Committee on SMEs and Entrepreneurship (CSMEE) Ministerial Meeting, Ministers emphasised the need for industrial policies that embed SME perspectives from the outset, not least to support their participation in supply chains during a period of significant change in international trade patterns.

Understanding sector-specific transformations

This report takes a granular and sector-specific approach to enhance understanding about manufacturing transformations and policy responses. It focuses on the automotive, electronics (semiconductor) and machinery sectors, which are at the forefront of digital and low-carbon transformations, and in which SMEs contribute significantly to value added and employment. For example, as input providers in the automotive sector, micro firms and SMEs generate around 58% of the value added. Transformations unfold differently across the three industries, resulting in distinct supply chain dynamics and priorities for SME policy:

• Automotive SMEs face structural shifts due to the rise of electric and autonomous vehicles. Many SMEs in internal combustion engine supply chains must either pivot their capabilities or exit the sector. Substantial opportunities emerge for SMEs and start-ups offering information and communication technology (ICT) services, software and connectivity-related components. However, uncertainty about regulations and strategies by original equipment manufacturers (OEMs), including trends towards vertical integration, affect SME investment and adaptation.

• Semiconductor SMEs operate in a highly capital- and skill-intensive environment with high entry barriers. However, niches such as fabless design and resource-efficient chip innovation offer growing opportunities, if SMEs can overcome barriers like access to intellectual property (IP) talent, and financing. The ongoing reshoring of semiconductor production is also creating new opportunities. Reshoring efforts and the development of local ecosystems also open doors for SMEs, particularly in areas where they already have a foothold, such as materials, tooling and back-end services.

• Machinery SMEs are navigating the convergence of hardware and software, with increasing demand for smart, connected and energy-efficient equipment. New technologies like augmented and virtual reality (AR/VR), digital twins and 3D printing are transforming product development, with benefits for SMEs producing in small batches. Despite these opportunities, many SMEs lack digital capacity and investment readiness, especially to shift from hardware to service-based models.

Across all sectors, the pace and scale of transformation, combined with SME inherent challenges, highlight the need for sector-specific and SME-tailored strategies to unlock new opportunities and address transition bottlenecks. While new industrial strategies are emerging across many countries, including all those covered in this report, dedicated SME support often remains limited. Many policies still rely on assumed trickle-down effects from broader industrial competitiveness measures. However, there is growing recognition of the need for approaches that are better adapted to SME challenges and opportunities – not only to help SMEs overcome persistent barriers such as financing and skills shortages, but also to maximise synergies between major industrial policies and SME-specific interventions, given their critical role in value chains.

Drawing on sectoral and country-level analysis, this report identifies emerging SME-responsive industrial strategies. Key features of these approaches include:

• Ecosystem approaches that foster structural linkages between SMEs and key players in local and global supply chains, including large firms and research organisations. These include taking into account SME specificities in the funding of industry-led R&D consortia – such as through the development of SME-friendly “plug-and-play” solutions – and supporting SME-enabling regional clusters by improving access to hubs, shared infrastructures and advanced technologies through targeted financial incentives.

• Place-based support that addresses SME skill gaps and promotes knowledge and technology transfer, such as through advisory services and SME-targeted training programmes, often implemented by regional actors and networks. These initiatives align SME capabilities with local industry needs and regional specialisations, helping SMEs better integrate into local supply chains and innovation systems.

• Simplified access to industrial policy programmes and support, in particular funding and advice. This includes reducing administrative complexity, streamlining application procedures, minimising access costs, as well as designing programmes that accommodate diverse needs and characteristics of SMEs, with flexible implementation mechanisms that adapt to varying business sizes, sectors and stages of development.