TRANSFORMING SMES THROUGH AI: A NEW ERA OF ENTREPRENEURIAL INNOVATION

Abstract

The advent of artificial intelligence (AI) is fundamentally reshaping the competitive landscape for small and medium enterprises (SMEs), heralding a new era of innovation-driven entrepreneurship. This transformative revolution is democratizing access to sophisticated capabilities, enabling SMEs to overcome traditional constraints of capital, scalability, and innovation capacity that have long favored larger corporations. This study employs a robust mixed-methods approach to investigate the multifaceted impact of AI integration on SME transformation. Data was collected from a survey of 287 SMEs across diverse sectors and analyzed using advanced Structural Equation Modeling (SEM) with Smart PLS to validate a comprehensive theoretical framework. The research model examines the relationships between AI adoption readiness, technology integration, organizational transformation, innovation performance, and ultimate business outcomes.

The empirical results provide compelling evidence of AI's transformative potential. The measurement model demonstrated strong reliability and validity (Composite Reliability > 0.9, AVE > 0.7). Path analysis confirmed all eight hypothesized relationships are statistically significant (p < 0.01), revealing that AI adoption readiness has strong positive effects on both technology integration (β = 0.623) and organizational transformation (β = 0.587). These factors, in turn, significantly drive innovation performance and positive business outcomes, with the model explaining a substantial portion of the variance (R² = 0.698 for Business Outcomes). The study further identifies and quantifies critical success factors, such as leadership commitment, and significant adoption barriers, including cost constraints and skills shortages.

Beyond firm-level impacts, the research discusses the broader implications for regional economic development, arguing that AI-augmented SMEs can address productivity challenges and stimulate prosperity. The findings offer a validated, strategic roadmap for SME leaders navigating digital transformation and provide policymakers with evidence-based insights for designing effective support ecosystems. This study contributes significantly to both academic knowledge and practical implementation by offering a empirically grounded framework for understanding and harnessing the power of AI in the SME sector.