THE MEDIATING ROLE OF DIGITAL AND FINANCIAL LITERACY IN DIGITALISATION INTENSITY OF INDONESIAN SMES: INNOVATION, COMPLEXITY, NETWORKING

Abstract

To address the existing knowledge gap hindering companies in their pursuit of digital adoption, this study examines the interplay between digital literacy and financial literacy (FL) in influencing the digital transformation (DT) of Small and Medium-Sized Enterprises (SMEs) in Indonesia. Despite the challenges associated with digitalisation, Indonesian SMEs continue to serve as key contributors to national economic development. The study investigates how DT and organisational competitiveness are shaped by digital and financial capabilities, considering the mediating roles of business complexity, innovation, and networking. Furthermore, it assesses how owners' perceptions of digital innovation, business complexity, growth orientation, governmental support, and networking activities are affected by digital intensity, with both digital and financial literacy functioning as mediating variables influencing the perceived advantages of digital adoption. A quantitative analysis was conducted using structural equation modelling (SEM) on data collected from SMEs across various Indonesian regions. The findings reveal that when mediated by digital literacy (DL), owners' attitudes towards digital innovation significantly enhance the digital intensity of SMEs. In contrast, business complexity does not exhibit a meaningful influence through this mediating pathway. While government intervention does not demonstrate a significant effect, growth orientation emerges as a strong predictor of digital intensity, with DL again serving as a mediating factor. Similarly, DL positively mediates the relationship between business networking and digital intensity among SMEs. With respect to FL as a mediating factor, business complexity shows no substantial effect on SMEs' digital intensity. However, FL does positively mediate the relationships between digital intensity and three key elements: growth orientation, government intervention, and business networking, indicating their notable contribution to the perceived benefits of digitalisation.