Abstract: Industrial upgrading and transformation are hot topics of concern. And attention should be paid especially to the clusters of small and medium-sized enterprises, whose transformation and upgrading may face many difficulties. Taking Zhili Town in Huzhou City, Zhejiang Province as an example, based on the field interviews and questionnaire surveys of small and medium-sized enterprises’ entrepreneurs and migrant workers, this paper talks about the difficulties and paths of industry transformation and upgrading. This paper believes that: Zhili Town, Huzhou City is now in the stage of directly facing transformation and upgrading, as well as the "breaking" of comparative advantage and industrial hollow. Problems such as difficulties in attracting talents and some social problems are also welling up. To complete the transformation and upgrading of the children's clothing industry in Zhili Town, we need to actively respond to the challenges, and make efforts in policy guidance, planning and construction of the town, the establishment of a good atmosphere, the construction of infrastructure and supporting facilities, and the attraction of talents, so that we can get out of the predicament.