Editorials: 2025 Vol: 31 Issue: 3S
DIGITAL TRANSFORMATION AND ITS ECONOMIC IMPACT ON SMES
Tomasz Estrin, Keele University, UK
ABSTRACT Fiscal policy government decisions on taxation, spending, and borrowing—plays a pivotal role in shaping the economic landscape in which businesses operate. It influences aggregate demand, investment climate, consumer behavior, and overall market stability. In both developed and emerging economies, fiscal policy serves as a strategic tool to stimulate growth, manage inflation, and support employment. This article examines how fiscal policy affects business environments, highlighting its mechanisms, impacts, and implications for long-term economic development.
INTRODUCTION
Digital transformation refers to the integration of digital technologies into all areas of a business, fundamentally changing how it operates and delivers value to customers. It goes beyond simply adopting new tools—it involves rethinking business models, processes, and customer engagement strategies. These technologies enable SMEs to compete with larger firms by leveling the playing field in terms of access to markets, customer insights, and operational capabilities. Digital tools streamline operations, reduce manual tasks, and improve workflow. For example, cloud-based accounting software automates financial reporting, saving time and reducing errors. According to a report by the International Trade Centre (ITC), SMEs that adopt digital solutions experience up to 30% improvement in productivity. Digital platforms allow SMEs to reach customers beyond their local markets. E-commerce, social media, and digital advertising enable even the smallest businesses to sell globally. The World Bank notes that SMEs engaged in digital trade grow faster and are more resilient to economic shocks (Grant et al., 2021).
Automation and cloud services reduce the need for physical infrastructure and manual labor. SMEs can scale operations without proportionally increasing costs. This flexibility is especially valuable during economic downturns or periods of uncertainty. Digital transformation fosters a culture of innovation. SMEs can quickly test new products, gather feedback, and iterate. Agile methodologies supported by digital tools allow for rapid adaptation to changing market conditions. Digital channels offer personalized, responsive, and convenient customer interactions. CRM systems, chatbots, and mobile apps enhance engagement and loyalty. A study by Deloitte found that digitally mature SMEs are twice as likely to report high customer satisfaction. Investing in digital infrastructure can be costly. Many SMEs struggle to allocate funds for technology upgrades, training, and cybersecurity (Gale et al., 2024).
A lack of digital literacy among employees and leadership can hinder adoption. SMEs often lack access to specialized talent needed to implement and manage digital systems. As SMEs go digital, they become vulnerable to cyber threats. Without robust security measures, they risk data breaches and financial loss. Cultural inertia and fear of disruption can slow transformation. Leadership must champion change and foster a digital mindset across the organization. Governments play a crucial role in enabling SME digital transformation. Initiatives such as India’s “Digital MSME Scheme” and the EU’s “Digital Europe Programme” provide funding, training, and infrastructure support. These programs aim to bridge the digital divide and ensure inclusive economic growth (Furceri et al., 2022).
Public-private partnerships are also vital. Collaborations between tech companies, financial institutions, and educational bodies can offer SMEs access to affordable tools, mentorship, and digital literacy programs. India’s SME sector, which contributes nearly 30% to the country’s GDP, has seen a surge in digital adoption. Platforms like Udaan and Meesho have empowered small retailers to sell online, while fintech solutions like Razorpay and Paytm have simplified digital payments. The government’s push for digital inclusion through Aadhaar and UPI has further accelerated transformation (Fetzer et al., 2021).
According to a NASSCOM report, digitally enabled Indian SMEs are 1.5 times more likely to grow revenue and 2 times more likely to expand their customer base compared to non-digital peers. Digital transformation is not a one-time event—it’s a continuous journey. SMEs must adopt a strategic approach that aligns technology with business goals. This includes: As digital ecosystems evolve, SMEs that embrace transformation will be better positioned to innovate, compete, and thrive in the new economic order (Artuc et al., 2021).
CONCLUSION
Digital transformation is a powerful economic catalyst for SMEs. It enhances productivity, expands markets, reduces costs, and fosters innovation. While challenges remain, the benefits far outweigh the risks. With the right support, mindset, and strategy, SMEs can harness digital technologies to drive sustainable growth and resilience in an increasingly digital world.
Aouadi, A., & Marsat, S. (2018). Do ESG controversies matter for firm value? Evidence from international data. Journal of business ethics, 151, 1027-1047.
Indexed at, Google Scholar, Cross Ref
Badia, G., Cortez, M. C., & Ferruz, L. (2020). Socially responsible investing worldwide: Do markets value corporate social responsibility?. Corporate Social Responsibility and Environmental Management, 27(6), 2751-2764.
Indexed at, Google Scholar, Cross Ref
Cornell, B., & Damodaran, A. (2020). Valuing ESG: Doing good or sounding good?. NYU Stern School of Business.
Indexed at, Google Scholar, Cross Ref
Cornell, B., & Shapiro, A. C. (2021). Corporate stakeholders, corporate valuation and ESG. European Financial Management, 27(2), 196-207.
Indexed at, Google Scholar, Cross Ref
Derrien, F., Krueger, P., Landier, A., & Yao, T. (2022). ESG news, future cash flows, and firm value. Swiss finance institute research paper, (21-84).
Giese, G., Lee, L. E., Melas, D., Nagy, Z., & Nishikawa, L. (2019). Foundations of ESG investing: How ESG affects equity valuation, risk, and performance. Journal of portfolio management, 45(5), 69-83.
Indexed at, Google Scholar, Cross Ref
Glavas, D. (2023). Valuation and Sustainability: A Guide to Include Environmental, Social, and Governance Data in Business Valuation. Springer Nature.
Indexed at, Google Scholar, Cross Ref
Li, Y., Gong, M., Zhang, X. Y., & Koh, L. (2018). The impact of environmental, social, and governance disclosure on firm value: The role of CEO power. The British accounting review, 50(1), 60-75.
Indexed at, Google Scholar, Cross Ref
Narula, R., Rao, P., & Rao, A. A. (2023). Impact of ESG on firm value: a conceptual review of the literature. Journal of Social and Economic Development, 25(Suppl 1), 162-179.
Indexed at, Google Scholar, Cross Ref
Quintiliani, A. (2022). ESG and firm value. Accounting and Finance Research, 11(4), 37.
Indexed at, Google Scholar, Cross Ref
Received: 1-Jun-2025, Manuscript No. jiacs-25-15815; Editor assigned: 01-Apr-2025, PreQC No. jiacs-25-15815(PQ); Reviewed: 14-Apr-2025, QC No. jiacs-25-15815; Revised: 19-Apr-2025, Manuscript No. jiacs-25-15815(R); Published: 26-Jun-2025