The Influence of Digital Innovation on Enhancing the Competitive Capability of Small and Medium Enterprises (SMEs)

Abstract

This study aims to 1) To examine the level of digital innovation adoption among Small and Medium Enterprises (SMEs). 2) To assess the level of competitive advantage within Small and Medium Enterprises (SMEs). 3) To analyze the influence of digital innovation on the enhancement of competitive advantage in Small and Medium Enterprises. A quantitative research methodology was employed, utilizing path analysis to examine causal relationships based on data collected from SME employees. The research instrument was a structured questionnaire, whose content validity was verified by subject-matter experts using the Item-Objective Congruence (IOC) index. The reliability of the instrument was assessed through internal consistency analysis using Cronbach’s alpha coefficient.

The research findings indicate the following: 1) The respondents perceived the level of digital innovation implementation among SMEs to be high, both overall and across all individual dimensions. Ranking the dimensions by mean score in descending order yields: digital marketing, digital technology integration in management, digital product and service development, and information systems and data analytics. 2)‍ ‍The ‍measurement model for competitive advantage demonstrated a strong fit with both empirical data and theoretical frameworks. The standardized regression coefficients ranged from 0.592 to 0.880, while the coefficients of determination (R²) ranged from 0.350 to 0.774. These indices signify that the sub-constructs are highly appropriate and provide a robust, reliable measurement of the competitive advantage of SMEs. 3) Collectively, all digital innovation variables within the model explained 91% of the variance in the competitive advantage of SMEs (R² = 0.91). Digital innovation implementation-comprising digital technology integration in management, digital marketing, and information systems and data analytics-exerted a statistically significant, positive direct and indirect effect on the competitive advantage of SMEs. Ultimately, these findings demonstrate that digital innovation serves as a critical strategic factor. It acts as both a direct driver and an internal mediator that effectively enhances and elevates the competitive advantage of SMEs.