Digital transformation has drawn so much attention as an opportunity to grow. Small and medium-sized enterprises(SMEs), however, can expect to be rather disadvantaged in this stream of change. For example, the overall status in the global value chain and online platforms adversely affects small and medium-sized businesses. As a result, digitalization gaps among businesses and industries have diverged, causing policy concerns. Therefore, this researchaims to examine the current situation of SMEs’ digital transformation to study the effect of digital transformation on the growth paradigm of SMEs in South Korea.

In this study, we first review the concept of digital transformation and its implication for SMEs. Next, we explore the current situation of SMEs’ digital transformation, categorize them with the level of transformation and the types of business model. In the survey and interview we conducted, we find that 1) the overall digitalization level of small and medium-sized enterprises is lowin South Korea, 2) there is a broad spectrum of digital technology usage and level of digital transformation among SMEs, and 3) there is a variety of policy demand regarding digital transformation depending on their current technology adoption capabilities and the business models. Also, we review the relevant policies across the world to promote the digital transformation of SMEs.

Based on the findings in this research, we propose some policy suggestions to promote and support SMEs' digital transformation in South Korea. First, the government should conduct a periodic and structural survey to create a systematic feedback loop for the digital transformation policies. Second, it is essential to share the ideal goal of digital transformation and the expected benefit from potential investment with small business owners to encourage SMEs to invest in digital transformation. To achieve this goal, it is useful to develop and share the model for digital transformation designed for SMEs specifically. Third, the government should expand the support to increase the use of digital technology and devices of small business workforce. By reflecting the need for digital technology skills of SMEs, the government can improve the digital technology usability. Fourth, the government should devise demand-based policies and support programs for SMEs considering a broad spectrum of digital transformation levels and the heterogeneity in this particular group of businesses. Based on SMEspecific digital transformation index, demand for digital transformation should be faithfully reflected in the smart factory stage classification system. Fifth, the government should spread “win-win model” and invest in digital infrastructure to enhance ecosystemperspectives in its digital transformation policies. Lastly, the competition policies can be used to support SMEs' broader use of platforms. By guaranteeing the openness and fairness of the platform economy, the benefit of participation in the platform economy of small and micro-business owners can be increased.