AI Adoption, Innovation and Competitiveness in SMEs: Evidence from Creative Industries in Yogyakarta

Iman Murtono Soenhadji, Lies Handrijaningsih, Ida Astuti, Anisah

Abstract

This study examines the role of artificial intelligence (AI) adoption in enhancing innovation and competitiveness among small and medium-sized enterprises (SMEs) operating in the creative industries of the Special Region of Yogyakarta, Indonesia. Despite the growing strategic importance of AI for SMEs, empirical evidence from developing economies remains limited, particularly regarding how institutional and organizational factors jointly shape AI-driven competitiveness. To address this gap, this study proposes an integrative model that positions government support, organizational capacity, and inter-firm collaboration as antecedents of AI adoption. Data were collected from creative industry SMEs through a structured questionnaire. The measurement instrument captured organizational capacity, collaboration, government support, AI adoption, innovation, and competitiveness. Data analysis was conducted using Partial Least Squares–Structural Equation Modeling (PLS-SEM). The results indicate that both organizational capacity and collaboration play critical roles in facilitating AI adoption among creative SMEs. Government support emerges as a key enabling factor by strengthening internal capabilities and fostering collaborative networks. Furthermore, AI adoption is found to significantly stimulate product and process innovation, which in turn enhances SME competitiveness. Innovation functions as an essential mechanism through which AI adoption translates into superior competitive outcomes rather than acting as an isolated technological investment. The study concludes that AI adoption should be understood as a strategic capability embedded within a broader ecosystem of organizational readiness, collaboration, and policy support. For creative SMEs, effective AI utilization requires coordinated efforts across technological, organizational, and institutional dimensions to generate sustainable innovation and long-term competitive advantage.

 

Keywords: Artificial Intelligence Adoption; Small and Medium-Sized Enterprises (SMEs); Creative Industries; Innovation Performance; Firm Competitiveness; Developing Economies.

 

DOI https://doi.org/10.55463/issn.1674-2974.53.4.3


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