Unleashing the potential: Enhancing technology adoption and innovation for micro, small and medium-sized enterprises (MSMEs)

Mei Kay Loo; Sridar Ramachandran; Raja Nerina Raja Yusof Article Unleashing the potential: Enhancing technology adoption and innovation for micro, small and medium-sized enterprises (MSMEs) Cogent Economics & Finance Provided in Cooperation with: Taylor & Francis Group Suggested Citation: Mei Kay Loo; Sridar Ramachandran; Raja Nerina Raja Yusof (2023) : Unleashing the potential: Enhancing technology adoption and innovation for micro, small and medium-sized enterprises (MSMEs), Cogent Economics & Finance, ISSN 2332-2039, Taylor & Francis, Abingdon, Vol. 11, Iss. 2, pp. 1-32, https://doi.org/10.1080/23322039.2023.2267748 This Version is available at: https://hdl.handle.net/10419/304233 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Cogent Economics & Finance ISSN: (Print) (Online) Journal homepage: www.tandfonline.com/journals/oaef20 Unleashing the potential: Enhancing technology adoption and innovation for micro, small and medium-sized enterprises (MSMEs) Mei Kay Loo, Sridar Ramachandran & Raja Nerina Raja Yusof To cite this article: Mei Kay Loo, Sridar Ramachandran & Raja Nerina Raja Yusof (2023) Unleashing the potential: Enhancing technology adoption and innovation for micro, small and medium-sized enterprises (MSMEs), Cogent Economics & Finance, 11:2, 2267748, DOI: 10.1080/23322039.2023.2267748 To link to this article: https://doi.org/10.1080/23322039.2023.2267748 © 2023 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group. Published online: 11 Oct 2023. Submit your article to this journal Article views: 3625 View related articles View Crossmark data Citing articles: 3 View citing articles Full Terms & Conditions of access and use can be found at https://www.tandfonline.com/action/journalInformation?journalCode=oaef20 DEVELOPMENT ECONOMICS | RESEARCH ARTICLE Unleashing the potential: Enhancing technology adoption and innovation for micro, small and medium-sized enterprises (MSMEs) Mei Kay Loo 1 , Sridar Ramachandran 1 * and Raja Nerina Raja Yusof 1 Abstract: This study conducts a comprehensive systematic review to gain insights into the challenges of technology adoption and innovation for Malaysian Micro, Small and Medium-sized Enterprises (MSMEs), which play a crucial role in the country’s economy. These MSMEs face obstacles, including challenges in adopting technology and a lack of technical efficiency. To address these issues, the study explores prominent technology adoption theories (e.g. TAM, DOI) and organizational theories (e.g. RBV, ST). By addressing these challenges, policymakers can enhance MSMEs’ competitiveness through targeted strategies, fostering innovation and effective technology adoption, thus contributing to their growth and resilience in the Malaysian economy. Subjects: Information & Communication Technology (ICT); Communication Theory; ICT; Sustainable Development; Business, Management and Accounting Keywords: Msmes performance; technology adoption; innovation, theories and models ABOUT THE AUTHORS Loo Mei Kay (ORCID: 0000-0001-9715-488X) is a PhD student in the School of Business and Economics at Universiti Putra Malaysia ([email protected]/ [email protected]). Her primary interests are social media adoption, technology adoption, MSMEs, and business performance. Sridar Ramachandran (ORCID: 0000-0002-4054- 7794) is a professor in the School of Business and Economics at Universiti Putra Malaysia ([email protected]). His research interests focus on sustainable tourism, marketing, and research philosophy. Raja Nerina Raja Yusof (ORCID: 0000-0002- 6768-2865) is an Associate Professor in the School of Business and Economics at Universiti Putra Malaysia ([email protected]). Her research interests are international business management, SMEs, marketing and entrepreneurship. PUBLIC INTEREST STATEMENT This study delves into the challenges encountered by Malaysian micro, small, and medium enterprises (MSMEs) in adopting technology and fostering innovation. As crucial contributors to Malaysia’s economy, MSMEs drive employment and economic growth. However, they face hindrances such as challenges of adoption and lack of technical efficiency. By exploring theories of technology adoption and organizational management, this study offers valuable insights for policymakers to enhance MSMEs’ competitiveness. Emphasizing innovation and effective technology adoption can bolster these businesses, making them more resilient in the Malaysian economy. The study presents recommendations for future research and implications to support MSMEs in embracing technology and nurturing a culture of innovation. By implementing these measures, policymakers can pave the way for MSMEs’ success and advancement in the global market, benefiting the entire society. Loo et al., Cogent Economics & Finance (2023), 11: 2267748 https://doi.org/10.1080/23322039.2023.2267748 Page 1 of 32 Received: 27 May 2023 Accepted: 03 October 2023 *Corresponding author: Sridar Ramachandran, School of Business and Economics, Universiti Putra Malaysia, Selangor 43400, Malaysia E-mail: [email protected] Reviewing editor: Goodness Aye, Agricultural Economics, University Of Agriculture, Makurdi Benue State, Nigeria Additional information is available at the end of the article © 2023 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. The terms on which this article has been published allow the posting of the Accepted Manuscript in a repository by the author(s) or with their consent. 1. Introduction Malaysian MSMEs are a vital contributor to the national economy, playing a crucial role in employment creation, strengthen innovations, and driving economic growth (Abd Aziz et al., 2019, 2021, 2021). In recent years, there has been a noticeable trend of emerging Malaysian MSMEs, with their numbers increasing from 1,151,339 in 2020 to 1,204,987 in 2022 (Department of Statistic Malaysia, 2022). Malaysian MSMEs contributed significantly to the country’s economy in 2021, accounting for 37.4% of the Gross Domestic Product (GDP) and generating a value added of RM518.1 billion. They also played a crucial role in driving business growth, being responsible for 97.4% of the total growth and the share of employment in MSMEs was 47.8% in 2021 (DOSM, 2021). MSMEs in Malaysia also made a notable contribution to the country’s exports in 2021, accounting for 11.7% of the share export, the main export destinations were China, Singapore and Hong Kong (DOSM, 2021). Despite their hugely growing contribution to Malaysia’s economy, MSMEs have been severely affected by the COVID-19 health crisis (DOSM, 2021). In particular, the implementation of the nationwide Mobility Control Order (MCO) led to a decline in the performance of all sectors of the economy. Moreover, the insufficient emphasis on innovation among MSMEs in Malaysia has led to a lower rate of technology adoption than expected (Abdul Halim et al., 2018). Compared to other Asian countries, ranked 35 th in the Global Innovation Index (GII) clearly shows that Malaysia’s innovation performance is growing very slowly (MASTIC, 2019). One of the main reasons organizations fail to drive technology is the difficulty leaders have in considering the ideas of others (Hanifah et al., 2019). Therefore, developing a culture of innovation over the long term is crucial for leaders to achieve success. To be successful, leaders must cultivate a sustainable culture of innovation that encourages collaboration, autonomy, research initiatives, thoughtfulness, trust, and employee recognition (Kaasa, 2016). Combining a culture of innovation approach with advanced technology can have a greater impact on a company’s performance (Camisón & Villar-López, 2014). Despite the recognition of innovation as a long-term success factor, many MSMEs managers are unsuccessful in bringing new goods or services to market (Terziovski, 2010). Lee et al. (2016) suggests that the reason behind the inability of many SME managers to bring new products or services to the market is their lack of understanding of the management practices required for leading innovation. Exploring and utilizing the characteristics of creativity, risk-taking, and idea generation can lead to the improvement and modification of existing systems and processes (Tian et al., 2020). Furthermore, most research on innovation and technology tends to focus on large firms and developed countries (Hanifah et al., 2019). In the current circumstances, the sustainability of the MSME sector and developing countries depends heavily on the adoption of technology. Moreover, technology adoption theories and models are commonly used in various fields to comprehend and forecast user behaviour. However, the application of theories and models of technology adoption in the contexts of MSMEs is relatively limited. Therefore, the research objectives are: (1) To provide a comprehensive overview of the performance of MSMEs in Malaysia. (2) To explore the theories related to technology adoption. (3) To explore the theories related to organizational. (4) To explore the challenges encountered by micro and small businesses in adopting different types of technology. (5) To provide recommendations and future research for enhancing technology adoption and improving the performance of MSMEs in Malaysia. This research paper represents a systematic review-domain based review, aiming to provide a comprehensive understanding of the challenges and opportunities faced by Malaysian MSMEs Loo et al., Cogent Economics & Finance (2023), 11: 2267748 https://doi.org/10.1080/23322039.2023.2267748 Page 2 of 32 in technology adoption and innovation. The significance and usefulness of this research lie in its potential to promote the growth and development of MSMEs in Malaysia and other countries. By addressing the unique contextual issues faced by micro and small businesses, this study can offer valuable insights and policy recommendations to enhance technology adoption and foster a culture of innovation among MSMEs, contributing to the resilience and success of these businesses in the Malaysian economy. The research delves into exploring theories related to technology adoption and organizational management in the specific context of Malaysian MSMEs. By linking theoretical discussions to the realities and challenges faced by MSMEs, this study bridges the gap between theory and practice, providing practical implications for MSME owners and managers to lead innovation and successfully adopt technology to drive their businesses forward. 2. Literature review 2.1. Definition of MSMEs in Malaysia MSMEs in Malaysia are classified according to the total annual turnover and number of employees and generated in two sectors: manufacturing sector and services and other sectors (SME Corp Malaysia, 2021). A detailed classification is shown in Figure 1. 2.2. Overview the Malaysian MSMEs performance In order to sustain competitiveness in the business world, performance is the major objective of any MSME (Efrat et al., 2018). Performance is defined as the ability of a unit, organization, group or individual to achieve a specific goal through a set of activities (Kumar, 2018; Laitinen, 2002). Performance is also conceptualized as an organization’s ability to attain its objectives through work behaviour and performance in executing tasks (Gomez-Mejia et al., 2021). In particular, business performance can be measured both financially and non-financially. According to Chen et al. (2009), financial performance measures are more effective in indicating a competitive advantage compared to other performance measures. With Malaysian MSMEs constituting a significant proportion of the country’s business landscape, it becomes vital to understand and enhance their performance as Figure 2. Accounting for 97.4% of total businesses in 2021, these MSMEs play a critical role in the nation’s economy. The service sector emerges as the dominant player, representing 83.8% of the total MSMEs, while the construction and manufacturing sectors contribute 8% and 5.8%, respectively. This diverse distribution underscores the importance of addressing the unique challenges faced by MSMEs in different industries. By evaluating and improving their performance, these businesses can secure their competitiveness and contribute to the overall economic growth of Malaysia. In Malaysia, it is worth emphasizing that local MSMEs made a significant contribution to Malaysia’s economy in 2021. They accounted for 37.4% of the country’s GDP, 11.7% of its total exports, 47.8% of the job opportunities and 0.1% of its total productivity as Figure 3. Figure 1. Definition of MSMEs by category “SME Corp Malaysia (2021)”. Loo et al., Cogent Economics & Finance (2023), 11: 2267748 https://doi.org/10.1080/23322039.2023.2267748 Page 3 of 32 In 2021, Malaysia’s MSMEs’ GDP witnessed a growth of 1.0%, which was lower compared to the overall GDP growth rate. This trend was consistent with the previous year, as indicated by the timeseries data of GDP Malaysia and MSMEs, as illustrated in Figure 4. Specifically, in 2020, MSMEs experienced a decline in GDP of 7.3%, highlighting the challenges faced by this sector in the face of economic uncertainties. In 2021, the performance of MSMEs in contributing to Malaysia’s GDP decreased by 37.4%, amounting to RM518.1 billion in value added. This decline was observed compared to the previous year when MSMEs contributed 38.1%, as illustrated in Figure 5. The manufacturing and services sectors continued to play a significant role in MSMEs’ GDP activities, collectively accounting for over 80.0% of total MSMEs’ GDP. Moreover, MSMEs’ GDP in nominal terms reached RM572.6 billion in 2020, indicating growth from the previous year’s value of RM547.3 billion. The MSMEs manufacturing sector experienced a notable rebound in value added, recording a growth rate of 8.5%. This rebound followed a decline of 2.9% in 2020, as indicated in Figure 6. Figure 2. Msmes performance in 2021 “SME Corp Malaysia (2021)”. Figure 3. Contribution of MSMEs Malaysia 2021 “DOSM (2021)”. Loo et al., Cogent Economics & Finance (2023), 11: 2267748 https://doi.org/10.1080/23322039.2023.2267748 Page 4 of 32 Figure 4. GDP, Malaysia, MSMEs and non-MSMEs 2001–2021 at constant prices- Annual percentage change “DOSM (2021)”. Figure 5. Value added and contribution of MSMEs’ GDP to Malaysia GDP 2015–2021 at constant 2015 prices “DOSM (2021). Figure 6. Annual percentage change of MSMEs’ GDP by kind of economic activity for 2019– 2021 at constant 2015 prices “Department of Statistics Malaysia (2021)”. Loo et al., Cogent Economics & Finance (2023), 11: 2267748 https://doi.org/10.1080/23322039.2023.2267748 Page 5 of 32 The excellent performance in the manufacturing sector can be attributed to positive growth across all sub-sectors. Particularly, the petroleum, chemical, rubber, and plastic products sub-sector demonstrated significant increases, surging by 14.4%. Additionally, the food, beverages, and tobacco sub-sector also experienced stronger growth, reaching 4.6%, an increase from 2020 growth rate of 1.9%. In the agriculture sector, MSMEs experienced an expansion in value added, with a growth rate of 1.9% compared to a negative growth rate of 0.7% in 2020. This positive growth was primarily driven by the livestock, rubber, oil palm and other agriculture sub-sector, which flourished with a growth rate of 2.5% in 2021. However, the fishing sub-sector remained negative this year. On the other hand, the mining & quarrying sector witnessed a contraction in value added for MSMEs, with a decline of 3.1%. Similarly, the construction sector narrowed its decline to 4.6% from a negative growth rate of 15.4% in 2020. The MSMEs services sector reported a lower decline of 1.2% in 2021. The decrease was affected by a 5.8% decline in the real estate, insurance, finance and business services sub-sector. However, this was offset by the rebound in performance of the food and beverages, accommodation, wholesale and retail trade sub-sector, which grew by 0.5%. Additionally, the information and communication and transportation and storage sub-sector grew by 2.9%. The services sector remained the dominant contributor to MSMEs activities, accounting for 60.8%, followed by manufacturing at 22.3% as illustrated in Figure 7. Agriculture sector contributed 10.5% to MSME GDP. While construction sector and mining and quarrying sector contributed 4.8% and 0.5% respectively. Figure 7. Percentage share of Malaysia and MSMEs’ GDP for 2021 at constant 2015 prices “DOSM (2021)”. Loo et al., Cogent Economics & Finance (2023), 11: 2267748 https://doi.org/10.1080/23322039.2023.2267748 Page 6 of 32 2.3. National entrepreneurship policy On 11 July 2019, the Prime Minister of Malaysia, YAB Tun Dr. Mahathir Mohamad, launched National Entrepreneurship Policy (DKN 2030). The purpose of DKN 2030 is to develop policies that foster the growth of an entrepreneurial community that is inclusive and competitive, with a particular focus on the SME sector. The aim is to enable these enterprises to compete effectively in global markets and contribute towards the sustainable development of the social entrepreneurs and B40 group. DKN 2030 is specifically designed to cultivate an entrepreneurial ecosystem in Malaysia, with the goal of enhancing the country’s competitiveness in the global economy. This initiative recognizes the increasing competition and challenges posed by Industry 4.0 and aims to address them effectively. Furthermore, DKN 2030 seeks to foster an entrepreneurial culture within Malaysian society. The policy document outlines five key objectives: (1) Fostering a conducive environment for entrepreneurship: DKN 2030 aims to create a supportive environment that encourages entrepreneurship by implementing policies and initiatives that facilitate business growth, reduce regulatory burdens, and promote innovation and creativity. (2) Enhancing the competitiveness of MSMEs: The policy places a strong emphasis on improving the competitiveness of MSMEs by providing them with access to financing, markets, technology, and capacity-building programs. This objective aims to empower MSMEs to thrive in the global marketplace. (3) Developing high-growth and innovative enterprises: DKN 2030 recognizes the importance of nurturing high-growth and innovative enterprises to drive economic growth. The policy aims to provide these enterprises with the necessary support, including funding, mentorship, and access to research and development facilities, to accelerate their growth and success. (4) Empowering the B40 group and social entrepreneurs: The policy places a strong emphasis on inclusivity, aiming to empower the B40 group (bottom 40% income group) and social entrepreneurs. DKN 2030 seeks to create opportunities for these marginalized groups by providing them with access to financing, capacity-building programs, and market access, enabling them to participate actively in economic activities. (5) Strengthening entrepreneurship education and research: Recognizing the importance of education and research in fostering entrepreneurship, DKN 2030 aims to enhance entrepreneurship education at all levels and promote research and development activities related to entrepreneurship. This objective seeks to build a knowledgeable and skilled workforce that is equipped to contribute to the entrepreneurial ecosystem in Malaysia. Overall, DKN 2030 sets out a comprehensive framework to develop Malaysia’s entrepreneurial ecosystem, enhance the competitiveness of MSMEs, empower marginalized groups and social entrepreneurs, and promote entrepreneurship education and research. Therefore, it is crucial to continue striving towards the target of achieving a 25% contribution by MSMEs to Malaysia’s overall exports by 2025, as outlined in the 12th Malaysia Plan and the DKN (Malaysian Green Technology and Climate Change Corporation, 2023). With the advancement of technology, it is crucial for Malaysian MSMEs to adopt digital technologies in order to enhance their global competitiveness (MGTC, 2023). In 2021, the MGTC reported that the gross value added of technology reached RM201.1 billion, indicating a significant increase of RM37.2 billion compared to the previous year, with a growth rate of 22.7%. The next section will elaborate on the models and theories of technology adoption. Loo et al., Cogent Economics & Finance (2023), 11: 2267748 https://doi.org/10.1080/23322039.2023.2267748 Page 7 of 32 directional manner to predict and understand both individual and group behaviour. Observing a model can also serve as a stimulus for the viewer to perform behaviour that they have already learned (Bandura, 1986, 2008). 4. The models and theories of organizational Firm performance theory encompasses the study of a company’s performance and outcomes across various dimensions. Several theoretical frameworks have been developed to explain firm performance and provide guidance on how to enhance it. 4.1. Resource-Based View (RBV) RBV aims to explain and predict how firms can achieve a sustainable competitive advantage by acquiring and managing valuable, rare, inimitable, and non-substitutable resources (Barney, 1991; Peteraf, 1993). These resources can be tangible or intangible assets that play a crucial role in the production and delivery of products and services (Grant, 1991). RBV provides valuable insights for management at the individual business level by helping to distinguish between resources that contribute to a firm’s competitive advantage and those that are of lesser value (Barney, 1991). It also highlights the distinction between resources that can be obtained through factor markets and those that are internally developed within the firm. For a resource to confer a competitive advantage, it must be unique to the firm, difficult for competitors to replicate, and positively impact firm performance (Barney, 1991). 4.2. Control Theory (CT) The Performance Management system plays a crucial role in aligning individual performance with organizational goals. It involves the continuous process of identifying, measuring, and developing performance within an organization, ensuring that each individual’s objectives are linked to the overall mission and goals (Aguinis, 2011). Various strategies and approaches are utilized to simplify and enhance the performance management process. One notable approach is CT, which focuses on establishing control mechanisms between the organization and its systems. According to CT, all system actions should be in harmony with the organization’s goals and objectives (Barrows & Neely, 2012). This helps sustain an effective performance management system within the organization. CT emphasizes the implementation of control mechanisms throughout an organization. These mechanisms can take various forms to achieve desired results, including: (1) Organizational structure: The design and arrangement of roles, responsibilities, and reporting lines within the organization. (2) Behavioural controls: Norms and policies that guide employee behaviour and actions within the organization. (3) Performance measurement mechanisms: Tools and systems used to evaluate and monitor individual and organizational performance. Figure 17. SCT “Bandura (1986)”. Loo et al., Cogent Economics & Finance (2023), 11: 2267748 https://doi.org/10.1080/23322039.2023.2267748 Page 14 of 32 These control mechanisms work together to ensure that the organization’s operations align with its goals and objectives, enabling effective performance management and achieving desired outcomes. 4.3. Agency Theory (AT) AT, a longstanding theory in finance, explains the principal-agent relationship and has found application in various areas of corporate finance and management. It has been particularly relevant in understanding the relationship between ownership, risk, and firm performance, especially in the banking sector. Numerous empirical studies have tested and validated the theory’s applicability in different contexts, including within the Gulf Cooperation Council Countries. The theory highlights the separation of ownership and management in firms, with shareholders playing a controlling and funding role. It addresses agency problems that arise when there is dispersed ownership and limited incentives for shareholders with small stakes to monitor managers. AT has shed light on the inner workings of firms, exploring the contractual relationships among different factors of production, each motivated by self-interest (Jensen & Meckling, 1976). Additionally, AT has been extended to explain corporate behaviour, ownership structure, and management practices. It revolves around a contractual relationship between owners (principals) and managers (agents), where decision-making authority is delegated. The primary objective is to provide ongoing monitoring to mitigate agency problems that arise from the interplay between owners and managers. 4.4. Institutional Theory (IT) According to Lincoln, IT focuses on how company structures and processes derive meaning and achieve stability, rather than solely emphasizing their effectiveness and efficiency in achieving desired outcomes, such as aligning with the company’s vision and mission. IT encompasses two main variants: the sociological variant driven by legitimacy and the economic variant. Institutions exert three types of isomorphic pressures on organizations: coercive pressures (organizations depend on the resources of others), normative pressures (organizations conform to professional standards and practices), and mimetic pressures (organizations imitate successful counterparts when uncertain about appropriate actions). IT has been employed to explain that companies engaged in social and green initiatives are motivated not only by monetary gains but also by considerations of legitimacy and brand image (Brønn & Vidaver-Cohen, 2009). This implies that organizations consciously or unconsciously adopt successful managerial practices from other companies (Huang et al., 2010) when facing uncertainty about their future business strategies. In essence, IT highlights the influence of motivations beyond financial factors and the tendency for organizations to imitate successful practices to navigate uncertain business landscapes. 4.5. Stakeholder Theory (ST) ST is a comprehensive theory in organizational management and business ethics that considers the impact of various constituents affected by business entities, including employees, suppliers, local communities, creditors, and others. It addresses moral and value-related aspects of managing an organization, such as corporate social responsibility, market economy, and social contract theory (Lin, 2018). The stakeholder view of strategy combines elements from the RBV and market-based view while incorporating a socio-political dimension. One common version of stakeholder theory aims to identify the specific stakeholders of a company (normative theory of stakeholder identification) and examines the factors that influence how managers treat these stakeholders (descriptive theory of stakeholder salience) (Phillips, 2003). Loo et al., Cogent Economics & Finance (2023), 11: 2267748 https://doi.org/10.1080/23322039.2023.2267748 Page 15 of 32 ST has challenged conventional frameworks in areas like law, management, and human resources by proposing that stakeholders’ needs should be prioritized at the forefront of decisionmaking processes (Harrison & Colle, 2010). Some scholars, such as Geoffroy Murat, have even explored the application of stakeholder theory to unconventional contexts like irregular warfare (Connelley & Tripodi, 2012). The essence of ST lies in organizations emphasizing a broader set of interests beyond solely pursuing shareholder wealth. It calls for considering social and environmental performance alongside financial performance. Freeman and McVea (2001) emphasize that the stakeholder approach involves managing the business environment, nurturing relationships, and promoting shared interests as essential for long-term survival. Freeman (2004) highlights the importance of alignment between organizational values, stakeholder expectations, and societal issues in determining a firm’s ability to effectively market its products. Additionally, Freeman (1984) suggests that satisfying stakeholders’ interests can ultimately enhance firm performance. 4.6. Resource Dependency Theory (RDT) RDT focuses on how board directors play a crucial role in providing necessary resources for the firm (Awotundun et al., 2011). These resources can be obtained from insiders, experts, support specialists, and influential individuals in the community. Directors leverage their expertise in specific areas to contribute specific resources such as legal advice, skills, and information. In strategic decision-making, firms apply RDT to ensure the provision and security of essential resources by establishing external networks. Effective resource management is vital for organizational functioning, performance, and survival. RDT emphasizes the importance of managing resources effectively and efficiently as a key determinant of organizational success (Van Ness et al., 2013). Furthermore, beyond directors’ expertise, the ability to access external networks is essential. This enables the company to tap into new markets, secure sources of finance, and gain reputation benefits. Additionally, the diversity of corporate board members is a critical factor that broadens corporate networks and improves financial performance (Pfeffer, 1972). RDT is also utilized by firms to reduce dependency and uncertainty through changes in organizational interdependence. Mergers and acquisitions are commonly employed strategies to minimize dependency levels (Pfeffer, 1987). These actions help firms reduce competition, exchange operations and expertise, and align objectives and goals in a collective manner. 5. Research methodology Systematic literature reviews can be classified into different categories: domain-based, theorybased, method-based, and meta-analytical reviews. Domain-based reviews cover a wide range of subject areas, including business-related disciplines like management, marketing, finance, accounting, entrepreneurship, as well as non-business-related fields. Meta-analytical reviews are increasingly popular across various subjects (Paul & Feliciano-Cestero, 2020). In this research, the focus is on conducting a domain-based review specifically related to the challenges faced by MSMEs in technology adoption. The researchers have utilized a longitudinal approach, reviewing a series of research papers on the subject. The methodology involves conducting a structured review by making tables. The researchers have searched for relevant papers from databases such as ScienceDirect, Scopus and Google Scholar, covering the past decade of literature. This comprehensive review aims to identify common challenges encountered by MSMEs in adopting technology as Table 1. By integrating the findings from the literature review and analysis, this research seeks to provide a robust foundation for understanding technology adoption in the context of micro and small businesses. Loo et al., Cogent Economics & Finance (2023), 11: 2267748 https://doi.org/10.1080/23322039.2023.2267748 Page 16 of 32 Table 1. The challenges of technology adoption among small business in 2013–2023 No. Authors Challenges 1 Shemi and Procter (2013) SMEs face various challenges in adopting e-commerce applications, including technical, administrative, ecological, and executional challenges. These obstacles hinder the successful integration and utilization of e-commerce technologies within SMEs operations. 2 Lewandowski et al. (2013) When it comes to implementing and utilizing efficient Enterprise Resource Planning Software as a Service (ERP SAAS), SMEs commonly encounter challenges in terms of functionality, consistency, compatibility, and serviceability. These challenges can impact the successful implementation and ongoing usage of ERP SAAS systems by SMEs. 3 Mba and Cletus (2014) SMEs in Port-Harcourt City, Nigeria faces several challenges that hinder their day-to-day operations and hinder their overall performance. These challenges include inadequate funding, limited social infrastructure, insufficient administrative skills, and high taxation. Addressing these issues comprehensively is crucial to enabling the outstanding performance of SMEs in Port-Harcourt City. 4 Dahnil et al. (2014) Compared to large enterprises, SMEs often face challenges related to a lack of capital, human resources, and technological resources, which can make the adoption, implementation, and execution of IT in their business processes costly and difficult. In Malaysia, one of the fundamental problems faced by SMEs is a lack of expertise in effectively utilizing social media marketing practices. 5 Bharathi and Mandal (2015) The adoption of ERP services in SMEs presents various challenges, including implementation cost, organizational cost, security cost, and organizational functionality factors. To prioritize and address these challenges, the Analytic Hierarchy Process (AHP) can be utilized. AHP helps identify the most critical aspects of cloud ERP that contribute to the justifiable business performance of SMEs. By using AHP, SMEs can make informed decisions and allocate resources effectively to enhance their ERP adoption and overall business performance. 6 Awa et al. (2015) SMEs face significant challenges when implementing e-commerce, including the lack of supportive infrastructure, facilitative conditions, organizational size, employees’ attitude towards e-commerce applications, and perceived service quality. These challenges can hinder the successful adoption and utilization of e-commerce platforms by SMEs. Overcoming these obstacles requires addressing infrastructure gaps, creating an enabling environment, fostering a positive attitude towards e-commerce, and ensuring high-quality service provision to enhance the e-commerce implementation process for SMEs. 7 Chatzoglou and Chatzoudes (2016) The author has identified key factors that significantly impact the implementation of e-business by SMEs. These factors include IT support, technical skills, organizational size, administrator expertise, implementation cost, government and supplier support, competitive pressure, consumer willingness, and perceived acceptance. 8 Coleman et al. (2016) SMEs in Europe face multiple challenges in adopting big data analytics. These challenges include a lack of understanding of new business trends, limited awareness of the potential benefits, resistance to adopting advanced practices, a shortage of expertise in data analytics and skilled analysts, limited access to consultancy services, concerns about data security, and financial constraints. 9 Shah et al. (2017) SMEs face significant challenges when adopting and implementing big data. These challenges can be categorized as technical, economic, and managerial. Technical challenges involve issues related to data infrastructure, integration, and analysis. Economic challenges include the cost of acquiring and managing big data technologies. Managerial challenges encompass issues such as data governance, talent management, and decision-making processes. (Continued) Loo et al., Cogent Economics & Finance (2023), 11: 2267748 https://doi.org/10.1080/23322039.2023.2267748 Page 17 of 32 Table 1. (Continued) No. Authors Challenges 10 Kabanda and Brown (2017) Successful ICT adoption and effective implementation in Tanzanian SMEs are hindered by several challenges. These challenges include inadequate utilization of websites for marketing purposes, limited usage of mobile technology for transactions, and difficulties in collaborating with technical service providers to address technical issues. These factors contribute to the obstacles faced by Tanzanian SMEs in adopting and leveraging ICT for their business operations. 11 Kumar and Ayedee (2018) SMEs face various challenges that affect their financial performance and brand image. These challenges include a lack of funds, unskilled labor, lower quality standards, limited financial resources, and an unhealthy work culture. Due to these factors, SMEs often struggle to prioritize quality and establish a strong brand image, which ultimately impacts their monetary flow and competitiveness compared to larger enterprises. 12 AlSharji et al. (2018) The most significant challenge faced by SMEs in the UAE regarding social media adoption is the alignment of Technological Setting, Organizational Framework, and Environmental Situation. 13 Salleh et al. (2018) The most common challenges faced by SMEs in adopting cloud computing are related to data safety and secrecy concerns, difficulties in switching vendors due to costs, internet connectivity and speed issues, and network availability. Additionally, SMEs may also encounter challenges in handling market fluctuations and changing customer preferences. 14 Jaganathan et al. (2018) The article explores challenges faced by MSMEs in adopting and implementing ICT. These challenges include limited managerial abilities, poor project management, lack of technical resources, knowledge, and support, inadequate infrastructure, resistance to change, high implementation costs, cultural and legal issues, and difficulty obtaining funding for ICT implementation. It emphasizes the significance of innovative strategies and effective ICT deployment to enhance survival and growth in the dynamic business environment. 15 Afifah et al. (2018) The article highlights various challenges confronted by MSMEs in embracing digital marketing. These challenges encompass a lack of awareness and comprehension regarding the advantages of ICT, apprehensions about security and privacy, scarcity of skilled workers, limited integration of computer technology in business operations, cultural barriers, and financial constraints. The research also discovered that the government’s training efforts resulted in minimal success, with less than 10% of MSMEs continuing to adopt e-commerce. The primary reason cited for this reluctance was the perceived difficulty in fully adopting digital marketing practices. 16 Prause (2019) The challenges in the adoption of Industry 4.0 in Japan can be summarized as a combination of overall and specific technological factors, administrative hurdles, and environmental considerations. 17 Singh et al. (2019) The Indian food sector faces challenges related to financial issues, lack of technical assistance, scarcity of skilled labor, outdated technologies, and governance issues. 18 Kumar and Ayedee (2019a) The main hurdles in technology implementation are the lack of professional training and switch-over cost. 19 Matias and Hernandez (2019) MSMEs in the Philippines encounter several challenges in adopting cloud computing, including worries about IT capability, a scarcity of professionals with cloud computing skills, and the necessity for training. 20 Kumar et al. (2020) During the COVID-19 pandemic, technology adoption by SMEs is hindered by unskilled employees. SMEs face significant challenges related to the cost of traditional marketing channels and finding it expensive to hire marketers. Additionally, achieving CSR goals becomes challenging when trying to address environmental concerns. 21 Kumar et al. (2020) The main challenge faced by SMEs in adopting Industry 4.0 applications is the lack of enthusiasm and support from business partners and clients. Moreover, the fear of failure associated with Industry 4.0 technology impacts the overall group performance. (Continued) Loo et al., Cogent Economics & Finance (2023), 11: 2267748 https://doi.org/10.1080/23322039.2023.2267748 Page 18 of 32 No. Authors Challenges 22 Azman et al. (2020) The most significant challenge faced by MSMEs, particularly microentrepreneurs, is the shortage of capital or limited access to finance. 23 Mohanty and Mishra (2020) These challenges include a lack of technical knowledge and skills, perceptions of the cost of implementing unaffordable technologies, the need for human resources with adequate technological capabilities, and internet network problems. 24 Chang and M (2021) The adoption of Industry 4.0 technologies is profoundly impacted by technical aspects, including readiness to adopt, technological infrastructure, and integration. Additionally, the adoption is also influenced by organizational factors such as financial obligations, lack of top management support, competitive pressure, and environmental uncertainty. These factors play a significant role in determining the successful implementation of Industry 4.0 technologies. 25 Kumar and Ayedee (2021) During COVID-19, SMEs encountered various challenges in their operations. These challenges included deficiencies in ICT infrastructure, lack of standards, concerns about data security, high investment requirements, shortages in skilled workforce, and the absence of a monitoring framework. These hurdles placed unwanted strain on SMEs as they navigated through the pandemic. 26 Maisiri (2021) In sub-Saharan African developing countries, sustainable adoption of Industry 4.0 faces explicit inhibitors. These inhibitors include lagging industrial development, insufficient innovation systems, slow and deliberate adoption, restricted access to Industry 4.0 technology, limited internet supply, and a scarcity of critical skills. These challenges impede the widespread implementation of Industry 4.0 practices in the region. 27 Turkyilmaz (2021) Kazakhstan enterprises encounter critical challenges in adopting Industry 4.0. These challenges include a deficiency of skilled personnel in SMEs and a lack of acute strategy. Additionally, data safety issues at the current ICT level and overall structure of Kazakhstan are also significant concerns. These obstacles hinder the smooth adoption and implementation of Industry 4.0 practices in the country. 28 Ali (2021) The successful adoption of effective social media platforms by SMEs faces key challenges related to the organizational construct. These challenges encompass internal characteristics of firms, employees’ size, organizations’ turnover, administrative structure, restricted resources, correlated issues, economic uncertainty, trading partner pressure, and competition enforcement. These factors collectively influence the adoption and implementation of Social Media strategies in SMEs, making it essential for businesses to address these challenges to leverage the full potential of social media platforms. 29 Viswanathan and Telukdarie (2021) The World Economic Forum survey identifies the lack of professional skills training at academic institutes as a significant obstacle limiting entrepreneurship potential. In the current scenario, the market is volatile with increasing demand, particularly in customer-oriented service industries. To navigate these challenges, robust supply chain management and vigorous adoption of technology are crucial for businesses. 30 Nasution (2021) The effective implementation of e-commerce by SMEs in North Sumatera is influenced by various factors. These factors include the innovativeness and proactiveness of Entrepreneur Orientation (EO), risk-taking and proactiveness of EO, knowledge management process, future uncertainty, primitiveness of EO, and dynamic capability (DC). These aspects play a vital role in shaping the successful adoption and utilization of e-commerce among SMEs in the region. 31 Elissa et al. (2022) The challenges include low levels of financial literacy among MSMEs in Indonesia, limited access to external funding sources, over-reliance on internally generated funds, challenges in adopting new technologies, and the need for more research on the effectiveness of government financial support for MSMEs during a crisis. The main challenge of the study is to identify the most effective strategies to support MSMEs during a crisis, given the complex and dynamic nature of such situations. (Continued) Loo et al., Cogent Economics & Finance (2023), 11: 2267748 https://doi.org/10.1080/23322039.2023.2267748 Page 19 of 32 Table 1. (Continued) No. Authors Challenges 32 Gandhi et al. (2021) MSMEs in Indonesia face numerous challenges in obtaining product certification. These challenges encompass various aspects, including financial constraints, limited resources to cover certification costs, low technological capabilities, inadequate technical production capacity, weak management and organizational capacity, and a shortage of qualified human resources to implement and maintain the certification. Additionally, MSMEs encounter typical hurdles seen across the sector, such as technical obstacles, institutional barriers to market access, financial difficulties in adopting suitable technologies to meet certification standards, compliance challenges with regulations, documentation concerns, and the overall cost and organizational implications of certification processes. 33 Wahyuni et al. (2021) The article does not provide information specifically about the challenges facing MSMEs in Bandung city in using blockchain technology. However, it does discuss the challenges faced by MSMEs in Indonesia in terms of technology adoption, such as a lack of technical knowledge and skills, perceptions of high costs, and a need for human resources with adequate technological capabilities. These challenges may also apply to MSMEs in Bandung city when it comes to adopting blockchain technology. 34 Shanmugam and Shanmugam (2021) Technology adoption in the manufacturing industry is shallow, and its application is limited due to a scarcity of available sources. 35 Hasbolah et al. (2021) The article addresses various challenges encountered by MSMEs, such as financial assistance, insufficient training of staff, lack of experience, low commitment to technology implementation, and high-cost maintenance. The complexity of technology use can be particularly challenging for smallscale entrepreneurs, especially those from rural backgrounds, to grasp quickly. 36 Islami et al. (2021) The article highlights various challenges encountered by MSMEs, such as inadequate managerial management practices, missed opportunities in the digital era, and a lack of effort in seeking information to enhance product quality and business growth. Furthermore, some MSMEs disregard or overlook competitors. 37 Barroga et al. (2021) The article identifies challenges faced by MSMEs in the Philippines regarding the adoption of smart manufacturing technologies. These challenges include high technology costs, inadequate infrastructure, a shortage of skilled employees, and lack of knowledge. Knowledge and financial constraints are cited as the primary barriers to the adoption of cutting-edge technologies. 38 Kurniawati et al. (2021) The article addresses challenges faced by MSMEs in Indonesia when adopting digital technologies, such as the lack of knowledge and skills among employers and workers in online methods, poor telecommunication infrastructure, consumers’ limited understanding of technology, and the unreadiness of MSME human resources for online business. Additionally, the adaptation process to new technologies, like e-commerce, can be complicated for MSMEs. These challenges underscore the need for improving human resource quality and educating on digitalization strategies. 39 Kumar et al. (2022) The challenges include identifying the factors that influence Indian MSMEs to adopt ICT during and following the COVID-19 crisis, checking whether ICT applications in MSMEs can deliver benefits, analyzing the impact of the pandemic on people, economy, and environment. 40 Yeong et al. (2022) The challenges faced by women-owned small and medium-sized enterprises (WOSMEs) in Malaysia when it comes to adopting e-business practices. These challenges are related to the digital gender gap between men and women, which continues to expand in developing countries, and the potential for greater gender inequalities between WOSMEs and SMEs owned by men as a result of digital transformation. (Continued) Loo et al., Cogent Economics & Finance (2023), 11: 2267748 https://doi.org/10.1080/23322039.2023.2267748 Page 20 of 32 No. Authors Challenges 41 Wulandari and Koe (2022) MSMEs are facing a downturn amid the COVID-19 pandemic, and a significant contributing factor to this slump is their unpreparedness to embrace digital buying and selling transactions. The article emphasizes the importance of adopting digital marketing strategies to enhance business flexibility and efficiency. However, it acknowledges that many MSMEs are still in the early stages of digital adoption and need further support to fully embrace digital marketing practices. 42 Nurqamarani et al. (2022) The challenges facing MSMEs related to the COVID-19 pandemic include vulnerability due to size, scale of business, and availability of financial resources. Additionally, challenges in adopting new technologies include lack of technical knowledge and skills, perceptions of cost, and obstacles faced due to social mobility restrictions. The article suggests that the adoption of ICT, specifically social media, can help MSMEs overcome these challenges. 43 Rashida et al. (2022) The article examines multiple challenges faced by MSMEs, encompassing the necessity for innovation to bolster market position and performance, the struggle for long-term sustainability, funding limitations, high initial capital costs, and expertise gaps in sustainability initiatives. Moreover, it delves into the impact of the COVID-19 pandemic on MSMEs and explores the roles of Islamic crowdfunding, financial literacy, and technology adoption in addressing these challenges. 44 Jalil et al. (2022) The article identifies challenges in MSMEs’ technology adoption, such as financial constraints, limited resources, and insufficient technical expertise among employees. Furthermore, the COVID-19 pandemic has notably impacted MSMEs, especially in developing countries, leading to shifts in entrepreneurial businesses. 45 Jamalut et al. (2022) MSMEs in the agrofood sector encounter numerous challenges, such as slow and limited adoption of modern innovation technology, lack of awareness and understanding of IoT technology, and underutilization of high-tech machinery. 46 Salim et al. (2022) MSMEs in Indonesia and Malaysia face multiple challenges, including difficulties in accessing sufficient capital resources, limited effectiveness of investment programs for human resource development, marketing capabilities, financing, technology access, and creating a favorable policy environment. Moreover, they encounter limited awareness of ICT’s potential, security concerns, and expensive ICT expenses. Additionally, MSMEs lack knowledge and expertise in technology, particularly online payment technology. 47 Tupamahu (2022) MSMEs in Indonesia confront several challenges, including limited competitiveness attributed to quality and technological constraints. To maintain competitiveness, resolving issues of economy of scale becomes crucial. Additionally, enhancing business capabilities is essential for MSMEs to increase their income and welfare. 48 Fauzi and Sheng (2022) MSMEs encounter significant obstacles, including limited financial access, unskilled management, restricted access to the latest technology, and unprofitable relationships with big companies. 49 Charoennan et al. (2022) The COVID-19 pandemic posed significant challenges to MSMEs in Thailand, making them more vulnerable than ever. Containment measures led to temporary halting or permanent closure of businesses due to reduced consumer purchasing power. This sudden revenue reduction affected their cash flow and viability. Moreover, MSMEs in Thailand faced obstacles in technology adoption and innovation due to high risks, costs, resource limitations, organizational culture, and added workload brought about by change. 50 Kilay et al. (2022) The article discusses challenges faced by MSMEs in Indonesia regarding the implementation of e-payment and e-commerce services in the supply chain. These challenges include limited competence and human resource capabilities for analyzing changes in organizations, business partners, and customers. MSMEs also face difficulties in creating e-commerce service systems that align with required business processes and capabilities. (Continued) Loo et al., Cogent Economics & Finance (2023), 11: 2267748 https://doi.org/10.1080/23322039.2023.2267748 Page 21 of 32 Table 1. (Continued) No. Authors Challenges 51 Parvand and Rasiah (2022) The article highlights that MSMEs mills encounter notable challenges in adopting innovative and complex milling technologies. Their size often leads to a lack of financial resources, making it difficult for them to absorb the risks associated with technology adoption. 52 Amornkitvikai et al. (2022) The article addresses challenges faced by Thai MSMEs in adopting e-commerce technology, such as outdated tools, limited access to necessary technology, a digital gap between large and small firms, and a lack of marketing knowledge and experience. Additionally, older MSMEs may find it challenging to adopt IT solutions. 53 Shetty and Panda (2022) The article addresses challenges encountered by SMEs in adopting cloud technology. These challenges include the high cost of maintaining a monolithic IT infrastructure and unresolved issues, such as savings not materializing, vendor lock-ins, service level agreements, and migration interfaces. Additionally, technology-business dynamics can impact small enterprises’ business processes, and the financial implications for cloud operational expenditure, such as internet access, business process migration, cloud administration, and training, are significantly high. 54 Anggadini et al. (2023) The challenges facing MSMEs in the article include low levels of financial literacy among Indonesian entrepreneurs compared to other ASEAN countries, which can hinder their ability to understand different financing provisions and navigate complex loan application procedures. This low level of financial literacy also results in SMEs having minimal access to external funding sources, limiting their role in economic development. Additionally, the COVID-19 pandemic has put many small businesses at risk of running out of money due to their over-reliance on internally generated funds to leverage their operations, and their difficulty accessing financial services from formal financial institutions. The adoption of new technologies, such as those needed for business digital transformation, can also be challenging for MSMEs due to a lack of technical knowledge and skills, perceptions of the cost of implementing unaffordable technologies, and internet network problems. 55 Aligarh, Sutopo and Widarjo (2023) The article points out that technology adoption in MSMEs is distinct from large companies due to their limited capital capabilities and lower technology acceptance. Moreover, cloud computing service providers must address high computer anxiety to instill confidence and comfort in their services. These challenges can hinder MSMEs from readily adopting new technologies like cloud computing. 56 Ananda et al. (2023) The article addresses two main challenges hindering the effective application of cashless systems among MSMEs. The first challenge is connectivity issues, encompassing compatibility problems with cashless payment terminals and the need for 4G network upgrades in urban areas, as well as slower internet data speeds in rural areas. The second challenge is practicality issues, especially for MSME owners belonging to the baby boomers’ generation and low-income earners, who face difficulties in effectively using cashless systems. 57 Lashitew (2023) The article discusses challenges faced by CEOs in adopting and utilizing digital technologies during the COVID-19 pandemic. These include the high investment risks, adaptability to change, and integrating new technologies into existing practices. The adoption of remote work and e-commerce necessitates virtual coordination and output-based assessment, which can be challenging for some managers. CEO attributes like gender and experience can influence technology adoption. For SMEs, challenges in adopting digital technologies during the pandemic include differences in IT capabilities and resources, both at firm and geographic levels, impacting technology’s marginal productivity and adjustment costs. Limited resources, such as financial constraints and lack of technical expertise, can hinder adoption. However, successful adoption and modernization can improve long-term competitiveness and resilience for SMEs. (Continued) Loo et al., Cogent Economics & Finance (2023), 11: 2267748 https://doi.org/10.1080/23322039.2023.2267748 Page 22 of 32 6. Results and discussion After conducting a thorough literature review spanning the past decade, numerous recurring challenges have been identified concerning MSMEs’ adoption of diverse technologies, encompassing technology 4.0, social media tools, e-commerce, m-commerce, and other technological solutions as Table 2. Based on the analysis of the challenges, the significant obstacles for micro and small businesses owners and managers are: 6.1. Challenges of adoption Adoption challenges in technology implementation are closely linked to employee attitudes, budget limitations, and internal organizational characteristics. Resistance to change, particularly among older employees who prefer routine practices, can hinder the adoption process. Lewin’s change management model has also highlighted the reluctance of employees towards new changes (Kumar & Ayedee, 2019a; Kumar et al., 2020). Financial constraints at the organizational level also pose challenges to adoption. Moreover, the willingness of internal executives to embrace new technology, encourage creativity, and foster innovation, as well as concerns about data secrecy, are additional factors that influence the technology adoption process. 6.2. Lack of technical and efficiency A significant challenge in technology adoption is the insufficient technical skills and efficiency of employees, managers, and owners. Many lack adequate knowledge and training in technology adoption, with some organizations even lagging behind in adopting basic technologies like social No. Authors Challenges 58 Soluk et al. (2023) The article explores challenges encountered by SMEs, such as limited financial and human resources, lack of skills and capabilities for digital technology adoption, and being located in deprived areas. These obstacles can hinder SMEs in developing dynamic capabilities and embracing digital technologies. 59 Lin et al. (2023) The article examines how information asymmetry poses challenges for SMEs in making informed decisions about innovation adoption. The study reveals that information asymmetry related to financial, business regulation, and court information reduces the likelihood of SMEs adopting product innovation. 60 Al-Azzama et al. (2023) SMEs encounter challenges in effectively handling and leveraging big data to gain a competitive edge. While big data analytics (BDA) offers advantages, SMEs are not able to fully harness its potential as efficiently as larger firms. The hesitance of SMEs to adopt BDA can pose a significant threat to their competitiveness. Furthermore, in cases where BDA has been introduced, implementation has been sluggish. 61 Martini et al. (2023) In the ever-changing business environment, all businesses, including micro and small enterprises (MSEs), must embrace technology to confront challenges and ensure survival. 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