Digital literacy and business transformation: social-cognitive learning perspectives in small business enterprises

Technological disruption and the COVID-19 pandemic have challenged SMEs to adapt to digital consumer behaviour, necessitating digital transformation. This study examines the impact of digital literacy on digital transformation, exploring the antecedent factors shaping digital literacy and the government’s role in providing IT infrastructure. A survey method was undertaken for this study with a total sample of 293 small businesses in East Java, Indonesia. This study employed structural equation modeling through PLS-SEM for the data analysis. The research results show that locus of control, need for achievement, and social capital significantly and positively influence digital literacy. Digital literacy has been proven to significantly and positively impact digital business transformation. IT infrastructure does not significantly affect the moderation between digital literacy and digital transformation. The findings of this research will assist in overcoming technology usage challenges faced by SMEs in East Java, particularly those exacerbated by the COVID-19 pandemic. Business actors can leverage the Indonesian government’s efforts in business incubation and facilitating access to technology and the internet to enhance their social capital. SMEs should consider joining sectoral organisations or associations to build relationships with other business actors and engage in training and capacity-building initiatives.