TO WHAT EXTENT DOES ARTIFICIAL INTELLIGENCE IMPROVE THE PRODUCTIVITY AND COMPETITIVE ADVANTAGE OF SMALL AND MEDIUM-SIZED ENTERPRISES (SMES)

Abstract

Artificial intelligence (AI) has emerged as a transformative technology capable of reshaping business operations, particularly for small and medium-sized enterprises (SMEs) seeking to overcome resource limitations and strengthen their market position. Despite growing interest in AI adoption, limited empirical evidence explains the extent to which AI contributes simultaneously to SME productivity improvement and competitive advantage. This study examines the impact of artificial intelligence adoption on SME productivity and competitive advantage by developing and testing an integrated research model. Drawing on the Resource-Based View (RBV) and Technology-Organisation-Environment (TOE) frameworks, the study investigates whether AI capabilities function as strategic resources that enhance operational efficiency and strengthen competitive positioning. A quantitative research design was employed using survey data collected from 400 SME respondents. The data were analysed through reliability analysis, descriptive statistics, Pearson correlation, and regression analysis. The findings reveal that artificial intelligence adoption has a significant positive effect on productivity improvement and competitive advantage. Furthermore, productivity improvement contributes significantly to competitive advantage, demonstrating its mediating role in translating AI capabilities into superior business outcomes. The results indicate that SMEs adopting AI-driven automation, analytics, and intelligent decision-support systems achieve improved operational efficiency, innovation capability, and market responsiveness. This study contributes to the emerging AI and SME literature by demonstrating that AI is not merely an operational tool but a strategic capability that enables SMEs to develop sustainable competitive advantages. The findings provide important implications for SME managers and policymakers by highlighting the importance of digital readiness, employee capabilities, and strategic AI integration.

Keywords- Artificial Intelligence Adoption; Small and Medium-Sized Enterprises; Productivity Improvement; Competitive Advantage; Digital Transformation; Business Performance.