Korea’s Smart Manufacturing Innovation Initiative (SMII) is a national programme supporting the competitiveness of manufacturing SMEs through the large-scale diffusion of smart factories, the development of a digital manufacturing ecosystem and the upgrading of production technologies. Overseen by the Ministry of SMEs and Startups and administered by the Korean Smart Manufacturing Office (KOSMO), the programme combines strong central co-ordination through a national digital delivery platform with decentralised implementation through regional innovation centres. It operates through demand-driven support and co-financing arrangements involving government, SMEs, large firms and local authorities. Since 2014, the programme has supported more than 32 000 smart factory projects across nearly 24 000 firms. The programme illustrates the value of combining a unified national delivery system, regional implementation capacity and flexible co-funding models to scale technology adoption among manufacturing SMEs.
Korea’s Smart Manufacturing Innovation Initiative
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Introduction
Korea’s Smart Manufacturing Innovation Initiative (SMII) is a government-led national programme that supports the mass dissemination of smart factories, the development of an advanced digital ecosystem, and technology upgrading in manufacturing, with the goal of strengthening the competitiveness of small and medium-sized enterprises1 (SMEs). The programme was launched in 2014 as part of the national Manufacturing Innovation Strategy, which intended to respond to the increasing global shift toward digitalisation in manufacturing.
Delivery arrangements
Korea’s SMII is currently overseen by the Ministry of SMEs and Startups (MSS) and is administered by the Korean Smart Manufacturing Office (KOSMO), a specialised taskforce operating under the MSS. In 2023, the enactment of the Smart Manufacturing Innovation Promotion Act2 reinforced the programme’s continuity by clearly defining its objectives, target beneficiaries, and implementation framework. Operationally, the initiative works through a multi-level delivery system: while KOSMO leads strategic planning, programme administration, and digital infrastructure management at the national level, implementation is supported through a network of regional centres that provide firm-level outreach and on-site project assistance.
At the national level, the SMII is implemented through the Smart Factory Management System (SFMS), a digital platform which is run by KOSMO to manage the entire project cycle. The SFMS supports core functions such as programme design and announcement, supplier matching, the application process, progress monitoring and evaluation, and outcome tracking. The cloud-based system enables standardised and transparent procedures nationwide, support the collection and utilisation of structured data at all stages the programme implementation and contribute to identifying successful cases for wider dissemination.
At the local level, the programme is supported by a network of 19 regional innovation centres3, one in each metropolitan or provincial region. These centres function as field-level delivery agents and are supported by KOSMO through dedicated operational funding and co-ordinated through the SFMS platform. Their core role is to identify local SME demand, provide application support, co-ordinate supplier matching, deliver on-site consulting, and monitor project implementation.
The SMII programme is delivered via three main modalities, each with distinct funding structures and partnership configurations: i) the standard model; ii) the win-win partnership model, and iii) the local government engagement model. In the standard model, individual SMEs apply directly and select suitable technology providers through SFMS, receiving matching grants from the central government. The win-win partnership model supports joint projects between large enterprises and SMEs, with both parties contributing resources and government funding provided as an incentive. The local government engagement model is initiated and co-financed by local governments, often in collaboration with KOSMO, to support firms in line with regional industrial priorities. Local authorities and innovation centres jointly plan and implement customised projects, sometimes with additional national co-funding. This enables flexible adaptation to local contexts while maintaining procedural coherence through the shared use of the national platform.
KOSMO’s centralised digital platform SFMS automates and standardises all stages of the programme lifecycle (application, evaluation, agreement, implementation monitoring, and performance tracking). One of the platform’s core features is a structured process for matching SMEs with registered technology providers. The matching process is facilitated in the following way:
Supplier registration and database management: Technology providers register in advance, submitting detailed information on technical domains, available solutions, certifications, past implementation cases, and contact details. As of 2024, approximately 2 400 suppliers are registered in the system, with capability assessments and past performance records maintained by KOSMO.
Targeted supplier search: SMEs can search for suppliers by filtering criteria such as technology category, location, and project scale. The platform displays detailed supplier profiles for comparison and contact.
Consortium formation and application: After identifying a supplier, the SME and provider form a consortium, establish a joint project plan and submit an application via SFMS. The system verifies supplier registration and initiates a separate approval process for unregistered suppliers.
Evaluation and matching validation: During project evaluation, the platform provides supplier-specific data – technical capacity, experience, and rating – for reviewers. KOSMO may recommend adjustments to ensure appropriate matching.
Post-project collaboration: After project completion, SMEs can continue working with the same supplier or search for advanced solutions through SFMS. Suppliers can also update their offerings to pursue future opportunities with participating firms.
These functions are fully digitalised within the platform, allowing KOSMO to manage the supplier pool, monitor implementation in real time, and use accumulated data for policy evaluation and design.
Case 1: Standard Model Example: Daesung Tech (Gunsan, Jeollabuk-do)
Daesung Tech is a small industrial valve manufacturer that has introduced a smart factory system focusing on real-time production monitoring and defect traceability. The company selected a certified MES (Manufacturing Execution System) supplier through SFMS and applied the system according to the standard model. The new system integrates process data and quality records to improve data visibility and reduce unnecessary work.
Funding Structure: Central government 50% + SME 50%
Governance Structure: Supported by the Jeonbuk regional innovation centre and co-ordinated through SFMS, the project was implemented independently by the SME under the supervision of KOSMO throughout the entire process.
Case 2: Win-Win Partnership Model Example: LG Electronics-Shinsung Delta Tech (Changwon, Gyeongnam Province)
LG Electronics partnered with its supplier, Shinsung Delta Tech, to jointly develop and implement the world’s first laser-based automatic welding system for drum washing machines. LG provided technical experts and implementation support, while the SME contributed production data and participated in project planning. A formal consortium was established between the two firms.
Funding Structure: Central government 30% + LG Electronics 30% + SME 40%
Governance Structure: The project was implemented under a national call administered by KOSMO. The Gyeongnam regional innovation centre handled project intake, site-level assessment, and implementation support. Funding was disbursed by KOSMO, and all project stages – including consortium formation, application, evaluation, and final inspection – were managed through SFMS.
Case 3: Local Government Engagement Model Example: Jeollanam-do Smart Factory Support for the Food Industry (2025)
The province of Jeollanam-do launched its own smart factory support programme to strengthen digital capabilities in the local food manufacturing sector. The project was implemented by the regional smart manufacturing centre within the Jeonnam Technopark and focused on quality control technologies for local SMEs. The programme was divided into two tiers: basic type (targeting early-stage digitalisation, such as digital record keeping and basic automation) and advanced type (supporting full smart factory deployment, including sensors, inspection systems, and data analytics).
Funding Structure: Basic (Province 30% + Municipal governments 30% + SMEs 40%), Advanced (Central government 50% + Province 15% + Municipal governments 15% + SMEs 20%).
Governance Structure: The programme was designed and led by the provincial government. For advanced projects, national co-financing was secured through co-ordination with KOSMO. The SFMS was used to manage applications and project tracking, while the regional innovation centre handled SME recruitment, consulting, supplier matching, and post-implementation support.
Budget
The SMII began in 2014 with a government budget of approximately KRW 25 billion (USD 24 million). By 2025, the budget had grown to KRW 247.9 billion (USD 174.4 million). About 95% of the 2025 budget was allocated to smart factory adoption, with the rest supporting data infrastructure and regional AI initiatives.
The programme follows a core funding principle: the government covers up to 50% of project costs, and SMEs pay the rest. Within this framework, three delivery models are implemented, each with a distinct cost-sharing structure (see Box 2 for details): the standard model, the win-win partnership model, and the local government engagement model.
Outreach
In terms of outreach, Korea’s smart manufacturing programme supported a cumulative total of 32 662 projects across 23 784 manufacturing companies between 2014 and 2023, representing approximately 14.7 percent of all eligible SMEs with production facilities. On an annual basis, therefore, about 3 200 projects and 2 400 companies are supported, which means that about one-third of companies may get support at the same time for more than one production facility.
While the programme is open to all manufacturing sectors, the cumulative number of supported projects between 2014 and 2024 shows clear variation across both sectors and regions. The number of supported projects has been the highest in capital-intensive sectors such as machinery and equipment, automotive parts, metal products, and food processing. In contrast, industries such as textiles, apparel, furniture, and wood products, have received relatively limited support. Regionally, while the absolute number of projects is concentrated in major manufacturing regions such as Gyeonggi, Gyeongnam, and Gyeongbuk, adoption rates – measured as the number of supported firms relative to the number of eligible firms – are highest in Daegu (22.8%), Ulsan (22.6%), and Gyeongnam (20.6%), and lowest in Gangwon (12.6%), Gyeonggi (11.6%), and Seoul (9.8%).4
Independent external evaluation
An impact evaluation conducted by the Korea Development Institute (KDI) provides empirical evidence on the effects of SMII, using firm-level panel survey data from 2015 to 20175. The study compared key performance indicators such as productivity, product defect rates, and employment trends between adopters and non-adopters. Key findings from the study are as follows:
Firms that adopted smart factory systems showed measurable improvements in production efficiency, including increased daily output and reduced defect rates.
The gains in operational productivity were most evident among small manufacturers that adopted multiple technologies (e.g., automated sensors, real-time monitoring, and digital inventory control), suggesting synergies from integrated solutions.
No significant decrease in employment was observed among adopting firms; rather, firms improved the efficiency and flexibility of existing human resources.
Most gains appeared at the process level (e.g., production lead time, defect rates), while the impact on broader performance indicators (e.g., overall firm productivity or profitability) was limited within the short two-year observation window, possibly requiring more time to emerge.
The study notes potential self-selection bias, as early adopters may already be more innovation-oriented and capable of absorbing new technologies. However, panel data and time-based comparisons help mitigate this concern.
Similar findings have been reported in other domestic studies, which found increases in sales and employment, typically becoming visible one to two years after adoption rather than immediately6.
Internal evaluation
Between 2019 and 2020, 7 052 SMEs that had completed smart factory implementation under the SMII were evaluated using project data accumulated through SFMS (self-reported data) and official statistics from Statistics Korea. Methods included before-and-after comparisons, subgroup analyses by firm size and technology level, and propensity score matching (PSM) with comparable non-participating firms. On average, firms reported a 29% increase in productivity, 42.1% improvement in quality, 35.2% reduction in unit costs, and 18.3% rise in on-time delivery. Sales rose by 11.3% and employment by 2.1 full-time workers per firm one-year post-implementation. Workplace accident rates declined by 1.54%. A follow-up evaluation covering all supports SMEs from 2014 to 2022 confirmed broadly similar outcomes, indicating consistent programme effectiveness at scale.
The following main lessons can be distilled from the study of this programme.
Strong central co-ordination through a dedicated national unit (KOSMO) and a unified digital platform (SFMS) ensures consistency, transparency, and real-time oversight across all implementation stages: from application and evaluation of the applications to project monitoring and outcome tracking.
The decentralised implementation model, supported by 19 regional innovation centres, enables regional customisation of support while maintaining alignment with national policy goals.
The combination of an integrated digital platform and a nationwide network of regional innovation centres facilitates technology adoption by SMEs. The single online entry point improves initial accessibility and supports continued engagement.
Co-financing requirements encourage greater ownership among SMEs and contribute to the programme’s financial sustainability.
The win-win partnership model involving large firms and SMEs has helped strengthen the financial sustainability and accelerate the diffusion of smart manufacturing technologies across supply chains. It also promotes collaboration between firms of different sizes, helping to narrow technology gaps and reinforce inter-firm networks.
This also points to the importance of flexibility in implementation arrangements, as different implementation models within the same programme may better cater to the needs of different clients.
Smart factory adoption yields early and measurable gains in process efficiency, especially among small firms with simple production lines. This suggests that scalable, modular technologies are well-suited for SMEs and should remain a focus of policy support.
Furthermore, efficiency gains are the highest when different technology solutions are implemented at the same time, pointing to the existence of network effects in the implementation of different technologies.
Despite concerns about automation-related job loss, evidence shows that firms can use smart technologies to enhance – not reduce – workforce capacity, reinforcing the need to link technology support with workforce development strategies.
Korea’s Smart Manufacturing Innovation Initiative provides a useful reference for how a centrally led, data-driven programme can support SME digital adoption while accommodating regional diversity. A dedicated national unit (KOSMO) and a unified digital platform (SFMS) standardise the full delivery cycle, supplier registration and matching, applications, monitoring, and outcome tracking, creating transparent procedures and real-time oversight. At the same time, 19 regional innovation centres provide on-site outreach and implementation support, enabling local customisation within a consistent national framework. The programme’s reach, over 32 000 projects across around 24 000 firms since 2014, shows what sustained, co-ordinated delivery can achieve at scale.
SMII’s co-financing architecture also offers potentially relevant insights, with several cost-sharing options that may be of interest in the UK context, including a standard model (government covers up to 50% of project costs), a win-win partnership model that mobilises large firms alongside SMEs (30% government / 30% large firm / 40% SME), and a local-government engagement model aligned with regional priorities.
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← 1. In Korea, SMEs in the manufacturing sector are defined as businesses with no more than 300 employees or annual revenue not exceeding KRW 150 billion, in accordance with the Framework Act on Small and Medium Enterprises.
← 2. See Korean SME Act (in Korean), available at: https://www.law.go.kr/LSW//lsInfoP.do?lsiSeq=247251&chrClsCd=010202&urlMode=lsInfoP&efYd=20230704&ancYnChk=0#0000
← 3. These centres are typically hosted by Techno parks, which are government-affiliated foundations jointly established by central and local governments. They function as platforms for university-industry-research institutes, supporting technology transfer and commercialisation.
← 4. Ministry of SMEs and Startups (MSS), internal data provided to the authors (2025).
← 5. Kim, M., Chung, S., & Lee, C. (2019). Smart Factory: Economic Impacts and Policy Implications [Research Report]. Korea Development Institute (KDI). (in Korean) https://www.kdi.re.kr/eng/research/reportView?pub_no=16317
← 6. Choi, T., Kim, J., & Choi, M. (2022). The impact of smart factory adoption support on firm performance: Evidence from SMEs in Incheon using difference-in-differences event study [in Korean]. Journal of Korea Planning Association, 57(6), 72–89.
