How digital services actually help Korea’s small businesses

Robert D. Atkinson

If you listen to Korea’s policy debate, you might think online platforms are mostly a problem to be managed: new regulations, algorithm fines and worries about “unfair practices.” What often gets lost is something more basic. For many of Korea’s small firms, digital services are not peripheral; they are the main way they find customers, manage costs and stay alive.

Globally, small and medium-sized enterprises (SMEs) face four chronic constraints: less capital, bigger skills gaps, access to markets and lower productivity. McKinsey research shows that in advanced economies, SMEs operate at roughly 50 percent of large-firm productivity.

In Korea, OECD firm-level data indicates a much wider gap, with SMEs averaging about 30-40 percent of the productivity of large firms — one of the biggest gaps in the developed world. Yet SMEs employ the majority of workers and generate close to half of value added in OECD economies. If SMEs remain low-productivity and low-tech, the broader economy inevitably follows.

That is why recent analysis from the Information Technology and Innovation Foundation (ITIF) stresses that digital services are no longer optional for small firms. Cloud computing, artificial intelligence (AI)-based tools, digital advertising, e-commerce platforms and online human resources systems have become the most practical way smaller firms close the capability gap with larger competitors.

Sejin Kim

Korea’s experience points in the same direction: A 2021 survey by the Ministry of SMEs and Startups found that many Korean SMEs using online platforms report that at least half their sales come through those platforms. A majority said platform use was essential for survival and more than 70 percent began using platforms from the start of their business. This suggests that for a considerable share of SMEs, real “SME policy” isn’t subsidies — it’s access to digital marketplaces.

A Korea Institute for International Economic Policy study titled “Digital Platforms and SME Internationalization: Impacts and Policy Implications” supports this view. Its analysis of Korean SMEs using digital platforms found that digital marketplaces reduce the cost of entering foreign markets, increase visibility and allow smaller firms to reach overseas buyers they cannot target through conventional channels. While the degree varies by sector, the trend is clear: Platforms expand the market size SMEs can realistically serve.

Digital tools also reshape operations inside the firm. Search and social platforms allow targeted marketing and real-time measurement. ITIF notes that AI-enabled advertising systems and content-generation tools now let small teams run campaigns that once required a full marketing department, from automated ad bidding to generating basic images and copy. Customer-relationship tools help SMEs manage leads, follow up with buyers and retain customers more efficiently.

On the operations side, cloud-based accounting and human resources systems automate payroll, onboarding, scheduling and compliance — critical tasks for firms that cannot afford specialized staff. International reviews of SME cloud adoption consistently find broad efficiency gains and significant cost reductions, though results differ across countries and industries. For a small Korean manufacturer or online retailer, these margins often determine whether a business simply stays afloat or begins to scale.

Korea is not starting from zero. Across many OECD countries, including Korea, SMEs have increasingly adopted digital technologies, suggesting that Korean firms are well positioned to leverage widespread broadband, e-commerce platforms and cloud services. The challenge is that policy has not fully caught up. Too often, the SME conversation revolves around subsidies and other aid to small firms on the one hand, and constraining large firms through measures such as the proposed Online Platform Fairness Act or regulations on large retailers’ operating hours on the other, while the real bottleneck is whether firms can easily test, adopt and integrate the digital tools already available.

A more effective SME digital strategy for Korea would have three components.

First, lower the cost of experimenting with digital tools. Governments can partner with major cloud and AI providers to offer time-limited credits, starter kits and SME-friendly automation packages that bundle essential functions like email, storage, accounting and customer relationship management. This as a practical way to help firms explore automation without committing their full budget to a single system.

Second, invest in digital skills and security where SMEs actually work. OECD surveys consistently show that skills shortages — especially in IT, data and cybersecurity — are among the biggest barriers to SME digital adoption. Korea could expand local training hubs that teach practical skills: basic data analytics, safe cloud usage, online marketing and platform management. Cybersecurity support should be integrated into these programs, as a single breach can severely damage trust for firms that rely on platform reviews.

Third, make sure that competition policy doesn’t kill the golden goose for SME growth. Evidence from Korea and abroad shows that digital platforms have become essential infrastructure for small firms, from rural Taobao vendors in China to Korean exporters on global business-to-business marketplaces. A broad push for ex ante platform rules that treat scale as inherently problematic may feel tough on “Big Tech,” but risks narrowing the digital channels SMEs depend on. While the exact economic impact of regulatory overreach varies across studies, many economists warn that excessive rigidity in digital infrastructure rules can reduce productivity growth and impose large long-term costs on smaller firms that lack alternatives.

None of this means regulators should overlook genuine abuses. But Korean law already gives regulators like Korea Fair Trade Commission the ability to do that. It does mean the baseline question for digital policy should stay simple: Are we making it easier or harder for a typical Korean SME to use technology to reach customers, operate efficiently and ultimately pay better wages? Adopting European Union-styled antitrust policy makes the answer to that question a negative.

Korea has no shortage of capable entrepreneurs, strong platforms and digitally savvy consumers. If policy keeps these elements aligned, digital services can do more than help individual firms survive — they can raise SME productivity, expand markets for Korean products and services and support the next wave of national growth.

Dr. Robert D. Atkinson (@RobAtkinsonITIF) is the president of the Information Technology and Innovation Foundation, an independent, nonpartisan research and educational institute focusing on the intersection of technological innovation and public policy. Sejin Kim is a tech policy analyst for ITIF's Center for Korean Innovation and Competitiveness. The views expressed in the article are those of the authors.