Digital Transformation of MSMEs: The Relationship Between Digital Literacy, AI Adoption, And Business Growth

Background: MSMEs are central to Indonesia’s economy but face uneven digital capabilities, limited AI adoption, and persistent digital skills constraints. Despite their economic importance, many MSMEs continue to face limited digital capabilities, insufficient technology-oriented training, and uneven access to digital infrastructure, which can constrain the effective use of advanced technologies such as artificial intelligence (AI). Objective: This study examines the relationships among digital literacy, AI adoption, digital transformation, and MSME business performance in Bogor Regency. Methods: A mixed-methods sequential exploratory design was used, beginning with qualitative exploration and followed by a quantitative survey of 384 MSME respondents analyzed using partial least squares structural equation modeling (PLS-SEM). Results: Descriptive scores indicate relatively stronger digital transformation than AI adoption; however, the reported hypothesis-testing p-values for H1–H5 (0.313, 0.238, 0.138, 0.124, and 0.194) are all above 0.05 and therefore do not support claims of statistically significant direct effects at the conventional significance level. Conclusion: The findings highlight the need to distinguish descriptive digital readiness from statistically supported structural relationships and provide a basis for more rigorous model testing in MSME digitalization research.