Government support and digital strategy driving MSME performance: the mediating role of digital transformation

Abstract

Digital transformation has emerged as a pivotal element for micro, small, and medium enterprises (MSMEs) in developing nations to bolster their competitiveness and business performance.This study examines the impact of government support and digital strategy on MSME performance, with digital transformation serving as a mediating variable.A quantitative survey was conducted among 260 culinary business owners in Indonesia.The data were analysed using partial least squares structural equation modelling (PLS-SEM).Based on dynamic capability theory (DCT), the results indicate that government support and digital strategy positively influence MSME performance, both directly and indirectly through digital transformation.Digital transformation functions as a strategic capability that enables MSMEs to internalise policy support and align it with internal strategic initiatives.This study contributes to the business innovation literature by clarifying the mediating role of digital transformation in emerging economy contexts and provides practical insights for policymakers seeking to enhance MSME digital readiness.

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