The Effects of Transformational Leadership and Dynamic Capabilities on MSMEs Performance: The Role of Digital Technology Adoption as Mediator | [Pakistan Journal of Life and Social Sciences • 2025]

Author(s):

1. Wan Marhaini Wan Omar: Faculty of Business and Management, Universiti Teknologi MARA Cawangan Kelantan Kampus Kota Bharu, Lembah Sireh 15050, Kota Bharu, Kelantan, Malaysia.

2. Hatinah Abu Bakar: Faculty of Business and Management, Universiti Teknologi MARA Cawangan Kelantan Kampus Kota Bharu, Lembah Sireh 15050, Kota Bharu, Kelantan, Malaysia.

3. Che Mohd Syaharuddin Che Kob: Faculty of Business and Management, Universiti Teknologi MARA Cawangan Kelantan Kampus Kota Bharu, Lembah Sireh 15050, Kota Bharu, Kelantan, Malaysia.

4. Mas Ayu Diana Mohd Fauzi: Faculty of Business and Management, Universiti Teknologi MARA Cawangan Kelantan Kampus Kota Bharu, Lembah Sireh 15050, Kota Bharu, Kelantan, Malaysia.

5. Nurul Indarti: Faculty of Economics and Business,Universitas Gadjah Mada, Jalan Sosio Humaniora, Bulaksumur, Yogyakarta 55281,Indonesia

Abstract:

Micro, Small, and Medium-sized Enterprises (MSMEs) are fundamental to the global economy. The COVID-19 pandemic has acted as a catalyst for the digital transformation of MSMEs and entire industries, such as retail, manufacturing, and services. In Malaysia, MSMEs represent 97% or 1.2 million of registered businesses. In Malaysia, MSMEs represent 97% of registered businesses. A 2021 World Bank report revealed that over 60% of Malaysian MSMEs frequently utilize online platforms and digital marketing, indicating a strong inclination towards leveraging digital technology to drive sales. Despite this, Malaysia's digital performance in comparison to other regions remains suboptimal. Hence, this study aims to achieve three primary objectives: (i) to investigate the impact of transformational leadership and dynamic capabilities on MSMEs' performance, (ii) to examine the mediating role of digital technology adoption, and (iii) to assess the direct effect of digital technology adoption on MSMEs' performance. Data were collected from 146 MSMEs in Kelantan, Malaysia, and analyzed using the PLS-SEM technique. The findings indicate that while there is no significant direct effect between transformational leadership and dynamic capabilities on MSMEs' performance, digital technology adoption significantly influences their performance. Moreover, the relationship between dynamic capabilities and MSMEs' performance is mediated by digital technology adoption. These results underscore the critical importance for MSMEs to integrate digital technology into their organizational strategies to thrive in dynamic markets.

Page(s): 6442-6454

DOI: 10.57239/PJLSS-2025-23.1.00502

Published: Journal: Pakistan Journal of Life and Social Sciences, Volume: 23, Issue: 1, Year: 2025

Keywords:

Transformational Leadership Dynamic Capabilities Digital Technology Adoption MSMES Business Performance

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