Digital Transformation and Artificial Intelligence Adoption in Indonesian MSMEs in the Era of Industry 4.0

Abstract

This study explores the digital transformation of Indonesian small and medium-sized enterprises (SMEs) in the context of the Fourth Industrial Revolution (Industry 4.0), with a particular focus on the adoption of artificial intelligence (AI). Using a qualitative descriptive method, data were collected from scholarly articles, journals, books, and credible official sources. The findings reveal that digitalization and AI adoption provide significant benefits for SMEs, including improved operational efficiency, enhanced customer data analysis, demand forecasting, and expanded market reach. However, the study also identifies key challenges such as limited financial resources, low levels of digital literacy among business actors, inadequate infrastructure, and risks related to data privacy and security. The Covid-19 pandemic served as a catalyst for accelerated digital adoption, but it also highlighted the digital divide between urban and rural SMEs. This research emphasizes that successful digital transformation requires not only technological availability but also strong human resource capacity and supportive ecosystems. The study concludes that collaborative strategies involving government policies, private sector partnerships, and improved digital literacy are essential for enabling SMEs to harness the opportunities of Industry 4.0.