The Transformation of MSMEs in the Age of Artificial Intelligence: Opportunities, Challenges, and Strategies for Enhancing Competitiveness
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Abstract
Artificial Intelligence (AI) is increasingly transforming how micro, small, and medium enterprises (MSMEs) manage business activities, yet its strategic benefits depend on how effectively the technology is integrated into organizational processes. This study examines the opportunities, challenges, and transformation strategies associated with AI utilization in enhancing MSME competitiveness. A qualitative multiple-case study design was employed involving five MSMEs selected through purposive sampling. Data were collected through semi-structured interviews, observation, and supporting documentation, and analyzed using within-case analysis, cross-case analysis, and thematic analysis. The findings identify five main themes: efficiency and productivity, marketing and customer engagement, innovation and adaptation, readiness and implementation challenges, and AI transformation strategies. Cross-case analysis shows that AI use evolves from task-oriented applications toward more process-oriented and strategic utilization as organizational readiness increases. The study proposes a transformation model linking AI readiness, AI utilization, operational efficiency and market intelligence, innovation and business adaptation, and competitive advantage, supported by human oversight, AI governance, and digital capability. These findings highlight that AI creates strategic value when integrated with organizational capabilities rather than merely adopted as a technological tool
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