AI-to-Capability Conversion in SMEs: The Mediating Role of Digital Sales Capability in Shaping Entrepreneurial Preparedness

This study develops and empirically validates an AI-Augmented Digital Sales Capability and Entrepreneurial Preparedness framework explaining how artificial intelligence translates into entrepreneurial readiness among SMEs. Contrary to the assumption that AI directly enhances preparedness, the findings show that AI functions primarily as an enabling resource whose impact is realized through Digital Sales Capability. Drawing on Dynamic Capabilities Theory, the study conceptualizes preparedness as a capability-driven outcome rather than a result of mere technology adoption. Using a quantitative design and PLS-SEM on 346 SME respondents in the Philippines, the results reveal that Digital Sales Capability is the strongest predictor of Entrepreneurial Preparedness, while AI Utilization exerts both direct and significantly stronger indirect effects through capability mediation. The model demonstrates strong reliability, validity, explanatory power, and predictive relevance, confirming its robustness in explaining digital entrepreneurial readiness. Findings further highlight a persistent digital execution gap, where SMEs possess AI tools but lack the capability to convert them into actionable sales intelligence and market responsiveness. This study contributes to entrepreneurship literature by reconceptualizing AI as a resource trigger within a capability transformation process, extending Dynamic Capabilities Theory into AI-augmented contexts. It offers a validated explanatory model for understanding how SMEs evolve into future-ready ventures in digitally intensive environments.