How digital transformation and ESG practices shape competitive efficiency in manufacturing firms?

Purpose This study investigates the determinants of firm competitiveness and financial performance in the Asian manufacturing sector by integrating environmental, social and governance (ESG) practices and artificial intelligence (AI) adoption into behavioral competition models. Design/methodology/approach Drawing on panel data from 4,028 manufacturing firms across Asia between 2014 and 2024, we apply both the Boone indicator and return on equity (ROE) as core measures. Methodologically, we employ static multi-way fixed effects panel with Driscoll–Kraay standard errors (MWFE-DR) and dynamic two-step system GMM estimators to ensure robust results. Findings The findings reveal that liquidity, efficiency, firm size, AI-related imports and environmentally related tax revenues significantly enhance competitiveness and performance, while ESG variables strengthen explanatory power and improve model robustness. Originality/value Theoretically, the study develops and empirically validates a digital sustainability competitiveness framework (DSCF), extending the New Empirical Industrial Organization (NEIO) and resource-based view (RBV) traditions by demonstrating that digitalization and sustainability are central behavioral drivers of competition. Practically, the results provide actionable insights for policymakers, investors and industry leaders seeking to foster sustainable competitiveness and long-term financial resilience in emerging economies.