Small manufacturers supplying carmakers, chip producers and machinery businesses face different investment pressures as production changes, according to an OECD report that calls for industrial policies to account for smaller suppliers.
The report, published on October 2, examines manufacturing small and medium-sized enterprises in automotive, semiconductor and machinery supply chains, and policies in France, Germany, Japan, Korea and the United States.
Its central concern is the cost of adjustment. A large manufacturer may announce a new factory or product platform, but smaller suppliers must decide whether they can finance new equipment, train staff and win enough orders to justify the investment.
Car suppliers face an investment decision
Automotive supply chains have several tiers. Companies selling directly to a carmaker often assemble modules using specialized parts from smaller businesses further down the chain.
Suppliers focused on components for combustion engines may need new customers or capabilities as electric vehicles gain share in some markets. Batteries and electric motors require different parts, while manufacturers continue to sell gasoline, diesel and hybrid vehicles in many regions.
The OECD cites German evidence that automotive suppliers devoted 28% of their total investments to e-mobility in 2023 while it generated 10% of profits. Those figures describe a particular country and period, not the return every supplier will receive.
Timing is difficult. Investing too early can leave expensive equipment underused. Waiting too long can make it harder to qualify for a new customer’s specifications. The pace varies by product and market, so a single timetable will not fit every supplier.
Chip and machinery firms have different openings
Semiconductor manufacturing relies on specialist materials, equipment and services as well as large chip factories. The OECD identifies possible openings for smaller companies in areas such as specialized components, maintenance, chip design and packaging.
Entry can still require expensive equipment, highly trained staff and long customer qualification processes. A government incentive for a large fabrication plant does not automatically give nearby businesses the skills or contracts needed to participate.
In machinery, manufacturers increasingly combine physical equipment with sensors, software and maintenance services. Upgrading a machine may involve more than buying hardware: software integration, employee training and customer support add costs that can be difficult for a small supplier to absorb.
Our earlier article on supply-chain resilience and response speed examined how quickly alternative suppliers can be activated during a disruption. A new supplier relationship also takes time to qualify before it can provide reliable capacity.
Stockpiles and alternative suppliers have a price
The OECD cites French evidence that 31% of small and medium-sized firms experienced supply-chain disruptions during 2020 to 2024. Among those affected, 61% responded by increasing inventories or diversifying suppliers. The second percentage refers to the affected group, not all firms.
Extra stock can protect production when deliveries are late, but it ties up working capital and storage space. A second supplier may reduce dependence on one source while adding qualification, transport and management costs. Neither approach eliminates every disruption.
The OECD argues that smaller firms need access to financing, training, advice and networks alongside broader industrial initiatives. Its analysis is based on selected sectors and countries, so the examples should not be read as a universal estimate of all manufacturers’ readiness.
For a supplier evaluating an upgrade, the decision starts with a specific order or customer requirement: the expected volume, the duration of the contract, the cost of qualification and whether the same equipment can serve other buyers if demand changes.
