Article: Government support and digital strategy driving MSME performance: the mediating role of digital transformation Journal: International Journal of Business Innovation and Research (IJBIR) 2026 Vol.40 No.13 pp.1 - 20 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. Inderscience Publishers - linking academia, business and industry through research

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

Authors: Grace Theresia Pontoh; Yohanis Rura; Abdul Rahman; Audrey Michelle Wenny Yolanda; Sulistya Rusgianto; Charles Tandilino; Rizky Khaerany

Addresses: Faculty of Economics and Business, Hasanuddin University, Makassar, Indonesia ' Faculty of Economics and Business, Hasanuddin University, Makassar, Indonesia ' Faculty of Economics and Business, Hasanuddin University, Makassar, Indonesia ' Faculty of Economics and Business, Hasanuddin University, Makassar, Indonesia ' Faculty of Economics and Business, Airlangga University, Surabaya, Indonesia ' Ministry of Finance of the Republic of Indonesia, Jakarta, Indonesia ' Ministry of Finance of the Republic of Indonesia, Jakarta, Indonesia

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.

Keywords: performance; digital transformation; government support; digital strategy; micro, small, and medium enterprises; MSMEs.

DOI: 10.1504/IJBIR.2026.155959

International Journal of Business Innovation and Research, 2026 Vol.40 No.13, pp.1 - 20

Received: 07 Jan 2026
Accepted: 23 May 2026
Published online: 27 Aug 2026 *

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

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