Smart Factory Adoption and Firm Performance: The Strategic Value of Digital Transformation in Manufacturing SMEs

Purpose: This study investigates how digital transformation and internal capabilities influence the business performance of manufacturing SMEs adopting smart factories, and examines whether industry characteristics and competitive strategy types moderate these relationships.Methods: Using microdata from the 2023 Korean Venture Business Survey, the study performs multiple regression analysis on 3,000 manufacturing SMEs and ventures. Firm performance is measured through sales and operating profit, while digital transformation is captured via smart-factory adoption. Internal capabilities, industry characteristics, and competitive strategies serve as key explanatory and moderating variables.Results: Digital transformation via the adoption of smart factory significantly enhances sales but shows no direct effect on operating profit, likely due to initial investment and transition costs. Internal capabilities positively affect both sales and operating profit, confirming their role as core strategic resources. Industry characteristics do not exhibit moderating effects, suggesting that the performance impact of digital transformation is relatively consistent across sectors.Conclusion: Digital transformation and internal capabilities are essential drivers of performance for manufacturing SMEs. Differentiation strategy amplifies digital transformation outcomes, while industry context plays a limited moderating role. These findings highlight the need for strategic digital alignment and capability development to maximize performance benefits.