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Prerequisites for Small Firms’ Digital Transformation

Prerequisites for Small Firms’ Digital Transformation

LEE Seung-Hwan

Aug. 6, 2012

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Originally released in July 2012

Although Korea is recognized as an information technology (IT) powerhouse, the IT utilization rate of the country's small- and medium-sized enterprises (SMEs) remains stagnant. The smaller their size is, the lower their digital technology utilization levels are. In addition to their size, differences also exist among SMEs depending on their industrial field. Small firms exhibit weaknesses in understanding and utilizing new technologies such as cloud computing and social networking services, and thus lag behind large firms in launching smart devices.

SMEs have cut back on IT investments, which are concentrated on infrastructure. In small firms, CEOs play an important role in IT investment and utilization. However, their determination to or involvement in promoting the technologies is low. And SMEs' IT departments often struggle due to understaffing. To tackle this problem and prompt them to go digital, the government is implementing numerous projects. However, the results fall short of expectations as there are too many projects and potential beneficiaries compared to the limited resources.

Unlike Korea, SMEs abroad are aggressively adopting the latest information technologies, which help enhance competitiveness. Moreover, they are increasing investments in software and IT services and have CEOs showing growing interest in new technologies to enhance work efficiency and agility.

Given these situations, the current digital divide between Korean SMEs and their foreign counterparts is likely to widen in the future. The continuing global economic uncertainties will deepen the gap even further. Accordingly, Korean small firms need to hurry their digital transformation to boost competitiveness. They should consider the following three in the process.

First, investments in software and IT services need to be expanded. This is to raise the level of their competitiveness in a practical manner as well as to create new business models. Second, CEO leadership and organizational capacity need to be upgraded. SMEs' small size and quick decision making process will make it easier to introduce innovative technologies than large firms. As such, SME CEOs should do away with the psychological bias against IT investment and utilization, and recognize the positive effects. Third, the government needs to consider platforms as a channel to providing support. Platform-based support ensures that more firms can enjoy the benefits while drawing in more developers, thereby enhancing the efficiency of support.

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