Digital Technology Adoption and Its Impact on the Performance of Micro and Small Enterprises in Developing Countries: Special Reference to India

Digital Technology Adoption and Its Impact on the Performance of Micro and Small Enterprises in Developing Countries: Special Reference to India

Dr. Shilpi Kavita

Assistant Professor, Department of Economics Xaviers University, Patna, India

Shreja Shekhar

Department of Information Technology Manipal University Jaipur, Jaipur, India

Abstract – The rapid expansion of the digital economy has transformed business practices across the globe, presenting both opportunities and challenges for micro and small enterprises (MSEs) in developing countries. In India, digital technologies have become increasingly integral to enterprise operations, driven by widespread Internet access, mobile connectivity, and policy initiatives such as Digital India and Startup India. Despite this progress, digital adoption among MSEs remains uneven due to persistent infrastructural, financial, and skill-related constraints. This paper examines the adoption of digital technologies and their impact on the performance of micro and small enterprises in developing economies, with special reference to India. Using a descriptive and exploratory research design based on an extensive review of existing literature and selected empirical evidence, the study analyses key determinants of digital adoption, performance outcomes, and structural barriers faced by MSEs. The findings suggest that digital technology adoption enhances productivity, market access, operational efficiency, and competitiveness, while also reshaping business models and customer engagement strate- gies. However, disparities in digital literacy, access to finance, and institutional support limit the transformative potential of digitalization for many MSEs. The paper concludes by highlight- ing the need for targeted policy interventions, capacity-building initiatives, and supportive digital ecosystems to enable inclusive and sustainable digital transformation among MSEs in India and other developing economies.

Keywords: Digital technology, Micro and small enter- prises, Digital economy-commerce

1. INTRODUCTION

   The global economy has increasingly embraced digitaliza- tion, with international trade gradually shifting toward digital platforms due to the efficiency of e-commerce transactions (UNCTAD, 2019). India has emerged as one of the fastest- growing digital economies, driven by rapid Internet pene- tration, widespread smartphone usage, and policy initiatives such as Digital India, Startup India, and Make in India. Digital technology (DT) has significantly transformed business operations in India, reshaping how firms communicate and interact with customers, distributors, and suppliers. Through e- commerce platforms and digital marketing tools, businesses now promote and sell products, manage supply chains, and

   procure raw materials more efficiently. Digital marketing has become a dominant strategy for targeting both existing and potential customers, especially as social media platforms such as Instagram, Facebook, and WhatsApp play a crucial role in influencing consumer behaviour in the Indian market. With increasing affordability of smartphones and data services, daily Internet access through mobile devices has become common across urban and semi-urban India. Social media has emerged as a powerful marketing channel, enabling businesses to engage customers directly and build brand visibility. In- stagram, in particular, has witnessed rapid growth in India, especially among young consumers and small entrepreneurs, making it an attractive platform for digital promotion and customer engagement (Balakrishnan Boorstin, 2017). Indias digital economy has expanded rapidly, supported by the large- scale adoption of information and communication technologies (ICT), including mobile Internet, cloud computing, digital payment systems, Big Data analytics, and the Internet of Things. The widespread adoption of digital payment plat- forms such as UPI has further accelerated the integration of digital technologies into everyday business activities. These developments indicate Indias strong potential for a digitally driven and innovation-led economic future. However, despite the extensive diffusion of ICT, significant digital divides persist within the Indian economy. These disparities are evident not only in terms of access to Internet infrastructureparticularly between urban and rural areasbut also in digital literacy, motivation, and effective usage of DT. As a result, the benefits of the digital economy remain unevenly distributed. Micro and small enterprises (MSEs), which form the backbone of the Indian economy and contribute substantially to employ- ment generation and GDP, often face challenges in adopting DT. Many MSEs continue to rely on traditional business practices, such as offline marketing, manual record-keeping, and conventional communication methods, due to limited awareness, skills, and financial resources. Furthermore, MSEs that are not familiar with basic digital tools are unlikely to adopt more advanced technologies. This reluctance poses a

   significant concern, given the critical role of MSEs in Indias inclusive growth and regional development. Nevertheless, in an increasingly competitive and digitalized market environment, MSEs have little choice but to adopt DT to remain viable. Over time, enterprises that fail to integrate digital technologies and modern business practices risk losing market relevance, competitiveness, and customer trust (Ahmada et al., 2015; Ocha, 2011; Azam Quaddus, 2009a, b; Barry Milner, 2002).

2. LITERATURE REVIEW

   A substantial body of literature focuses on the determinants of digital technology adoption among MSEs. Early studies emphasized firm-specific characteristics such as enterprise size, sector, ownership structure, and managerial orientation as critical factors influencing Internet and e-commerce adop- tion (Fallon Moran, 2000; Matlay, 2000; Riquelme, 2002). Subsequent research expanded this perspective by incorporat- ing technological, organizational, and environmental factors, including perceived relative advantage, compatibility with ex- isting systems, managerial vision, innovation orientation, and competitive pressure (Poon Swatman, 2005; Chong Pervan, 2007; Shih, 2008). Financial constraints and limited access to digital infrastructure have consistently been identified as major barriers to digital adoption among MSEs in developing coun- tries. Studies by Migiro (2006), Jones et al. (2011), and Zaied (2012) highlight that inadequate capital, lack of technical expertise, and concerns regarding cybersecurity significantly restrict the use of Internet-based applications. Similarly, orga- nizational culture, trust, trialability, and observability of digital benefits play a decisive role in shaping adoption decisions (Neale et al., 2006; Saffu et al., 2008; Azam Quaddus, 2009b; Poorangi et al., 2013). Another important strand of literature examines the impact of digital technology adoption on MSE performance. Empirical studies consistently demonstrate that the use of digital technologies enhances operational efficiency, productivity, and competitiveness. Daniel et al. (2002), Hunaiti et al. (2009), Standing et al. (2010), and Savrula et al. (2014) find that Internet usage and e-marketing enable enterprises to reduce transaction costs, streamline business processes, expand market reach, and introduce new products and services. Digital platforms also improve communication with suppliers, distributors, customers, and other stakeholders, facilitating faster information exchange and better decision-making. Evi- dence from developing conomies underscores the contextual nature of digital adoption. Xiong et al. (2013) show that perceived usefulness, ease of use, and facilitating conditions significantly influence ICT adoption among small enterprises in China. Looi (2005) reports that lack of knowledge and trust inhibit e-commerce adoption among MSMEs in Brunei, while government support and competitive pressure act as motivating factors. Tambunan (2019), in a large-scale survey of MSEs in Indonesia, reveals that nearly 37 percent of enterprises did not use the Internet, primarily due to perceptions of irrelevance to their business model and limited digital skills

   among owners. Recent literature has also begun to examine the broader ecosystem supporting MSE digitalization. Abou-Foul et al. (2020) highlight that digitalization and servitization positively affect firm performance when supported by ap- propriate organizational capabilities. Siregar and Sudarmanto (2023) emphasize the role of digital skills training, financial inclusion, mentoring, and institutional support in enabling MSEs to overcome adoption barriers and pursue sustainable growth. These findings point to the importance of coordinated efforts involving governments, financial institutions, technol- ogy providers, and industry associations.

3. OBJECTIVES OF THE STUDY

   • To examine the extent and nature of digital technology adoption among micro and small enterprises (MSEs) in developing economies, with special reference to India.

   • To analyse the impact of digital technology adoption on the performance of MSEs, particularly in terms of productivity, market access, operational efficiency, com- petitiveness, and business model transformation.

   • To assess the structural and operational barriers that constrain effective digital adoption and limit the benefits of digitalization for MSEs.

4. RESEARCH METHODOLOGY

   The present study adopts a descriptive and exploratory research design to examine the adoption of digital technologies and their impact on the performance of micro and small enterprises (MSEs) in developing economies, with special reference to India. This design is appropriate as the study seeks to describe existing patterns of digital adoption while ex- ploring key determinants, outcomes, and constraints associated with digitalization among MSEs. The study is analytical and conceptual in nature, supported by empirical insights drawn from existing studies. It focuses on understanding trends, relationships, and challenges related to digital technology adoption rather than testing causal hypotheses.

5. FINDINGS AND DISCUSSION

   The research landscape on micro and small enterprises (MSEs) and the digital economy (DE) has been evolving rapidly as digital transformation increasingly reshapes the business environment. Contemporary scholarship reflects a growing emphasis on interdisciplinary approaches, integrating perspectives from economics, sociology, management, and technology studies. Such approaches enable a more compre- hensive understanding of the complex relationship between MSEs and digital technologies (DT), encompassing not only technological adoption but also social, cultural, institutional, and behavioural dimensions.

   Empirical research in this domain has primarily focused on examining the impact of the DE on MSE performance and identifying strategies that enable these enterprises to survive and grow in digitally driven markets. By analysing the extent

   of digital transformation among MSEs, identifying adoption barriers and enabling factors, and documenting successful case studies, scholars provide valuable insights and practical recommendations for enterprises navigating digital transitions.

   This growing body of research also contributes to the develop- ment of evidence-based policy interventions that support the integration of DT into MSE operations and growth strategies (Abou-Foul et al., 2020). A significant stream of research has examined DT adoption and utilization by MSEs, with particular attention to factors influencing adoption decisions. These factors include financial constraints, availability of digital infrastructure, digital literacy and skills, organizational readiness, and institutional support (Shih, 2008; Xiong et al., 2013; Poorangi Khin, 2013; Ahmada et al., 2015; Rahayu Day, 2015; Tambunan, 2019). Another important area of inquiry focuses on the impact of DT on MSE performance and competitiveness, highlighting improvements in productivity, operational efficiency, market reach, and customer engagement resulting from digital adoption (Hunaiti et al., 2009; Standing et al., 2010; Farhad et al., 2011; Savrula et al., 2014).

   Recent studies have also explored how digitalization en- hances market access for MSEs. With the increasing preva- lence of e-commerce platforms and digital marketing tools, researchers have analysed how MSEs can leverage these tech- nologies to access broader markets and compete with larger firms. In parallel, there is growing interest in understanding how DT reshapes MSE business models by enabling new revenue streams, cost efficiencies, and flexible operational structures (Bakos Brynjolfsson, 2000; Barry Milner, 2002; Triandini et al., 2013; Esmaeilpour et al., 2016; Balakrish- nan Boorstin, 2017; OECD, 2019; Chelliah et al., 2021; Yuniarto, 2022). Empirical evidence further highlights the role of supportive ecosystems in facilitating MSE digitalization. Studies such as Siregar and Sudarmanto (2023) emphasize the importance of access to digital skills training, financial resources, mentoring, and institutional support in enabling MSEs to overcome digital adoption challenges and pursue sustainable growth. These findings underscore the significance of coordinated efforts involving governments, financial insti- tutions, technology providers, and industry associations.

   Earlier research has established that firm-specific character- isticssuch as sector, size, organizational structure, and own- ershipplay a decisive role in Internet and e-commerce adop- tion (Fallon Moran, 2000; Matlay, 2000; Riquelme, 2002). Subsequent studies expanded this understanding by identify- ing a wide range of influencing factors, including perceived relative advantage, organizational compatibility, managerial vision, innovation orientation, digital skills of owners and managers, business planning, regulatory frameworks, availabil- ity of skilled labour, and competitive pressure (Poon Swatman, 2005; Chong Pervan, 2007; Shih, 2008; Poorangi Khin,

   2013; Ahmada et al., 2015; Rahayu Day, 2015). Additional research highlights the importance of organizational culture,

   trialability, observability, and trust in shaping e-commerce adoption decisions among small enterprises (Neale et al., 2006; Saffu et al., 2008; Azam Quaddus, 2009b; Poorangi et al., 2013). Resource availabilityparticularly access to capital, technical expertise, and cybersecurity assurancehas also been identified as a critical determinant of Internet use and online transaction adoption (Migiro, 2006; Jones et al., 2011; Zaied, 2012).

   Studies from developing economies provide further insights into contextual differences in DT adoption. For instance, Xiong et al. (2013) found that attitudes toward technology, per- ceived usefulness, ease of use, and facilitating conditions were key determinants of ICT adoption among small businesses in China. Similarly, Looi (2005) demonstrated that owner-related factors such as lack of knowledge, perceived benefits, and trust inhibited e-commerce adoption among MSMEs in Brunei, while environmental factors such as government support and competitive pressure acted as motivators. In 2019 Tambunan (2019) surveyed 482 randomly selected MSE owners in vari- ous cities, including Jakarta, Gresik, Depok, Tangerang, Ban- dung, Bekasi, Cibubur, Serang, Indramayu, Cilegon, Cikarang, Purbalingga, and Bagor,from various types of businesses, such as shops, restaurants, cafes, catering, entertainment services, rental services, beauty salons, industry motorbike and car manufacturing and repair workshops.First, they feel that Internet use is not necessary (60.8%), and this is related to their type of business and market reach. Such as food stalls, small shops, and motorbike repair shops that only serve local markets or local communities that do not require internet use. Second, limited knowledge of business owners (25.13%). Many of them admit that they dont know how to make purchases online, or how to apply e-commerce in marketing

   Whereas, from the perspective of the benefit of using DT or

   the Internet including adopting e marketing, such as Daniel et al. (2002), Migiro (2006), Lai (2007), Azam and Quaddus (2009a), Hunaiti et al. (2009), Standing et al. (2010), Farhad, et al. (2011), and Savrula et al. (2014), using the Internet provides benefits for companies in various forms such as im- proves productivity, efficiency, and competitiveness; increases the ability to operate in international markets; provides a tool for providing cost-effective ways to market their products and launch new products; streamlining of business processes; market expansion; and creates value-added, new services and new business models. By using the Internet, a company also improves or accelerates its communications with suppliers, distributors, trading partners, consumers, creditors, and others. It also gathers information and identifies potential business partners, new suppliers, and new customers easier and faster. Additionally, others such as Neale et al. (2006), and Poorangi et al. (2013) found that Internet use also provides integration of internal and external processes; forges closer relationships with customers, suppliers, trading partners, and other important stakeholders; and improves skills for business growth and development

   In the Indian context, although research on MSMEs and dig- italization is growing, comprehensive empirical studies remain relatively limited compared to advanced economies. Existing studies indicate that while awareness of digital benefits is increasing, actual adoption levels remain uneven due to skill gaps, infrastructural limitations, and resistance to change. These findings highlight the need for further India-specific research that integrates firm-level, institutional, and policy perspectives to better understand the digital transformation of MSEs and its implications for inclusive economic growth.

6. IDENTIFYING KEY RESEARCH GAPS IN MICRO AND SMALL ENTERPRISES

   Despite significant progress in understanding the relation- ship between micro and small enterprises (MSEs) and the dig- ital economy (DE), several critical research gaps remain that warrant systematic investigation. One prominent gap concerns the long-term sustainability and resilience of MSEs in the context of rapid digital transformation. While existing studies largely focus on short-term adoption outcomes and immediate performance effects of digital technology (DT), limited atten- tion has been given to the sustained and longitudinal impacts of digitalization on MSE growth, adaptability, and survival over time (Nadkarni Pru¨gl, 2020). Another important research gap relates to the role of digital platforms and ecosystems in supporting MSE development. Although recent studies acknowledge the growing importance of digital platforms in enabling market access and operational efficiency, there is insufficient empirical evidence on how MSEs effectively lever- age platform-based ecosystems for collaboration, knowledge sharing, resource mobilization, and strategic partnerships. A deeper understanding of how MSEs navigate platform depen- dencies, governance structures, and competitive dynamics is essential for enhancing their long-term competitiveness in the DE (Li, 2018). The interaction between regulatory frameworks and digital innovation also remains underexplored, particularly from the perspective of MSEs. As digital regulations related to data protection, cybersecurity, taxation, and digital payments continue to evolve, MSEs often face compliance challenges due to limited resources and technical capabilities. Research examining the adaptive capacity of MSEs to align with reg- ulatory requirements while simultaneously harnessing digital innovation can provide valuable insights into the evolving policybusiness interface in the digital era. Furthermore, there is a notable gap in research concerning the development of digital skills and capabilities within MSEs. While digital tools are increasingly accessible, disparities in digital literacy and managerial capabilities significantly influence the effective utilization of DT. Empirical studies investigating how skill development initiatives, training programs, and learning-by- doing processes affect digital adoption outcomes remain lim- ited. Closely related to this is the emerging need to examine financial inclusion in the digital economy, particularly the role

   of digital financial services in improving access to credit, payments, and formal financial systems for MSEs (Siregar Sudarmanto, 2023). Finally, although existing empirical re- search provides valuable insights into MSE digitalization within specific industries or geographic regions, there is a lack of comparative and cross-contextual studies. Comparative research across sectors, regions, and levels of digital maturity can help identify contextual factors – such as institutional sup-

   port, infrastructure quality, and socio-cultural conditionsthat shape digital readiness and performance outcomes of MSEs. Addressing these gaps will contribute to a more nuanced and policy-relevant understanding of MSE participation in the digital economy.

7. FUTURE RESEARCH DIRECTIONS

   Future research must address the dynamic and evolving nature of the digital economy (DE) and its multifaceted impli- cations for micro and small enterprises (MSEs). By examining the intersection of digital technologies (DT), policy frame- works, and entrepreneurial behavior, scholars can generate valuable insights for policymakers, industry practitioners, and MSE owners seeking to harness digital opportunities while mitigating associated risks and constraints. As digital transfor- mation continues to reshape business environments, a forward- looking and adaptive research agenda is essential. Building on the existing literature, future studies should adopt longitudinal research designs to assess the sustained and long-term effects of digitalization on MSE performance, resilience, and survival. While much of the current research focuses on short-term adoption outcomes, understanding how DT influences MSE business models, competitiveness, and operational efficiency over time remains limited. Longitudinal analyses can offer deeper insights into how digitalization reshapes enterprise strategies and outcomes in the long run (Nadkarni Pru¨gl, 2020; Reuver et al., 2018; Haohan Beinan, 2023). Another promising avenue for future research lies in exploring the coevolution of digital platforms and MSE strategies within evolving regulatory environments. Digital platforms increas- ingly function as critical ecosystems that shape market access, collaboration, and innovation. Research examining how MSEs engage with platform governance structures, regulatory re- quirements, and ecosystem dynamics can contribute to a more comprehensive understanding of platform-based entrepreneur- ship in the DE (Miao, 2020). Future studies should also focus on developing conceptual frameworks and diagnostic tools to assess the digital readiness of MSEs. Identifying the technological, financial, organizational, and human-capital factors that enable or hinder successful digital transformation will provide practical guidance for targeted interventions and capacity-building initiatives. Closely related to this is the need to examine the role of digital skills and literacy among MSE owners and employee, as these capabilities critically influence the effective adoption and utilization of DT (Neumeyer et al., 2021). Comparative and cross-contextual research repre-

   sents another significant direction for future inquiry. Studies spanning diverse industries, regions, and institutional envi- ronments can uncover contextual factors that shape digital readiness, adoption trajectories, and performance outcomes of MSEs. Such comparative analyses will contribute to a more nuanced understanding of how MSEs navigate digital transformation across varying socio-economic and regulatory contexts. Emerging technologies such as artificial intelligence, blockchain, and the Internet of Things also present new opportunities for future research, offering insights into how

   MSEs can leverage advanced DT for innovation, efficiency, and scalability. Additionally, interdisciplinary research that integrates perspectives from economics, sociology, information systems, data science, humancomputer interaction, and sus- tainable business studies can enrich theoretical understanding and address ethical, social, and environmental dimensions of digital transformation (North et al., 2019; Calle et al., 2021). Overall, future research on MSEs and the DE should adopt an interdisciplinary, comparative, and longitudinal ori- entation to capture the complexity of digital transformation processes. Such research will not only strengthen the theo- retical foundations of the field but also generate actionable insights and policy-relevant recommendations. By remaining responsive to technological advancements and evolving market conditions, future studies can play a crucial role in enhancing the resilience, inclusiveness, and competitiveness of MSEs in the rapidly changing digital business landscape (Siregar Sudarmanto, 2023).

8. CONCLUSION

This study is expected to generate meaningful insights into the current state of digital transformation among micro and small enterprises (MSEs). The findings are anticipated to contribute significantly to both theoretical and practical knowledge by enhancing understanding of the challenges, opportunities, and broader implications associated with the adoption and use of digital technologies (DT) by MSEs. In particular, the research seeks to examine the role of digital platforms, e-commerce, and digital marketing strategies in ex- panding market reach and strengthening customer engagement. By analysing the key factors influencing DT adoptionsuch as organizational culture, managerial orientation, digital ca- pabilities, and external support mechanismsthe study aims to provide practical and policy-relevant recommendations to help MSEs overcome barriers to digital transformation. These insights are expected to be valuable for enterprise owners, policymakers, and industry stakeholders involved in design- ing and implementing digital support initiatives. Overall, the anticipated outcomes of this research will deepen academic understanding of the interaction between MSEs and the digital economy (DE), while also offering actionable guidance for enhancing digital inclusion and competitiveness within the MSE sector. By bridging theory and practice, the study aspires

to inform policy frameworks, guide industry strategies, and empower MSE owners and entrepreneurs to navigate the digital landscape effectively and sustainably. In an increasingly digitalized business environment, such a comprehensive under- standing of digital transformation will play a critical role in supporting the long-term growth, resilience, and development of micro and small enterprises.

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