Can digital transformation enable distressed manufacturing SMEs turnaround? The mediating role of supply chain resilience
DOI:
https://doi.org/10.47989/ir31iConf64230Keywords:
Digital transformation, Financial distress, Manufacturing SMEs, Supply chain resilienceAbstract
Introduction. This study examines how digital transformation affects the turnaround performance of manufacturing small and medium-sized enterprises (SMEs) under financial distress. While digital transformation is widely regarded as a critical driver of competitiveness, its role in the recovery of distressed firms remains insufficiently understood.
Method. We draw on data from financially distressed manufacturing SMEs and develop an empirical framework to assess the relationship between digital transformation, supply chain resilience, and turnaround performance.
Analysis. A quantitative analysis was conducted on a dataset comprising 436 manufacturing SMEs in financial distress. Using Stata, we tested the nonlinear effects of digital transformation and examined the mediating role of supply chain resilience.
Results. The findings reveal an inverted U-shaped relationship between digital transformation and turnaround performance. Specifically, moderate levels of digital transformation enhance supply chain resilience, which in turn facilitates effective turnaround, whereas excessive transformation reduces resilience and impedes recovery.
Conclusion(s). This study contributes to digital transformation and crisis management research by demonstrating its dual impact on SMEs’ turnaround. It identifies supply chain resilience as the key mechanism linking digital transformation to recovery and offers insights for managers to balance digital investment with organisational adaptability.
References
Altman, E. I., Iwanicz‐Drozdowska, M., Laitinen, E. K., & Suvas, A. (2017). Financial distress prediction in an international context: A review and empirical analysis of Altman's Z‐score model. Journal of International Financial Management & Accounting, 28(2), 131-171. https://doi.org/10.1111/jifm.12053
Aghazadeh, H., Zandi, F., Amoozad Mahdiraji, H., & Sadraei, R. (2024). Digital transformation and SME internationalisation: unravelling the moderated-mediation role of digital capabilities, digital resilience and digital maturity. Journal of Enterprise Information Management, 37(5), 1499-1526. https://doi.org/10.1108/JEIM-02-2023-0092
Appelbaum, S. H. (1997). Socio‐technical systems theory: an intervention strategy for organisational development. Management decision, 35(6), 452-463.
Autio, E., Nambisan, S., Thomas, L. D., & Wright, M. (2018). Digital affordances, spatial affordances, and the genesis of entrepreneurial ecosystems. Strategic Entrepreneurship Journal, 12(1), 72-95. https://doi.org/10.1002/sej.1266
Battistoni, E., Gitto, S., Murgia, G., & Campisi, D. (2023). Adoption paths of digital transformation in manufacturing SME. International Journal of Production Economics, 255, 108675. https://doi.org/10.1016/j.ijpe.2022.108675
Brynjolfsson, E., Benzell, S., & Rock, D. (2020). Understanding and addressing the modern productivity paradox. Massachussetts Institute of Technology. Available online: https://workofthefuture. mit. edu/research-post/understanding-and-addressingthe-modern-productivity-paradox/ (accessed on 9 May 2022).
Canhoto, A. I., Quinton, S., Pera, R., Molinillo, S., & Simkin, L. (2021). Digital strategy aligning in SMEs: A dynamic capabilities perspective. The Journal of Strategic Information Systems, 30(3), 101682.https://doi.org/10.1016/j.jsis.2021.101682
Eller, R., Alford, P., Kallmünzer, A., & Peters, M. (2020). Antecedents, consequences, and challenges of small and medium-sized enterprise digitalisation. Journal of Business Research, 112, 119-127. https://doi.org/10.1016/j.jbusres.2020.03.004
Guo, X., Li, M., Wang, Y., & Mardani, A. (2023). Does digital transformation improve the firm’s performance? From the perspective of digitalisation paradox and managerial myopia. Journal of Business Research, 163, 113868. https://doi.org/10.1016/j.jbusres.2023.113868
Hu, J., & Lu, Y. (2024). A spatial perspective on the impact of digital financial inclusion on the employment structure of the labour force: Evidence from Chinese cities. The Economic and Labour Relations Review, 1-20. https://doi.org/10.1017/elr.2024.19
Hu, Y., Pan, Y., Yu, M., & Chen, P. (2024). Navigating digital transformation and knowledge structures: Insights for small and medium-sized enterprises. Journal of the Knowledge Economy, 1-34. https://doi.org/10.1007/s13132-024-01754-x
Huang, C., & Lin, B. (2024). Digital economy solutions towards carbon neutrality: The critical role of energy efficiency and energy structure transformation. Energy, 306, 132524. https://doi.org/10.1016/j.energy.2024.132524
Jia, L., & Li, J. (2024). How does digital collaboration impact supply chain resilience. Finance Research Letters, 105684. https://doi.org/10.1016/j.frl.2024.105684
Jiang, Z., & Wang, Z. (2024). Impel or impede? Revealing the effect of the integration into innovation ecosystems on the development of SMEs. Technological Forecasting and Social Change, 199, 123064. https://doi.org/10.1016/j.techfore.2023.123064
Kamalahmadi, M., & Parast, M. M. (2016). A review of the literature on the principles of enterprise and supply chain resilience: Major findings and directions for future research. International journal of production economics, 171, 116-133. https://doi.org/10.1016/j.ijpe.2015.10.023
Kmetz, J. L. (2018). The Information Processing Theory of Organisation: Managing technology accession in complex systems. Routledge.
Leippold, M. (2023). Sentiment spin: Attacking financial sentiment with GPT-3. Finance Research Letters, 55, 103957. https://doi.org/10.1016/j.frl.2023.103957
Leung, T. Y., & Sharma, P. (2021). Differences in the impact of R&D intensity and R&D internationalisation on firm performance–Mediating role of innovation performance. Journal of Business Research, 131, 81-91. https://doi.org/10.1016/j.jbusres.2021.03.060
Li, G., Xue, J., Li, N., & Ivanov, D. (2022). Blockchain-supported business model design, supply chain resilience, and firm performance. Transportation Research Part E: Logistics and Transportation Review, 163, 102773. https://doi.org/10.1016/j.tre.2022.102773
Li, L., Su, F., Zhang, W., & Mao, J. Y. (2018). Digital transformation by SME entrepreneurs: A capability perspective. Information Systems Journal, 28(6), 1129-1157. https://doi.org/10.1111/isj.12153
Lu, Q., Jiang, Y., & Wang, Y. (2024). The effects of supply chain governance on supply chain resilience based on information processing theory. Industrial Management & Data Systems, 124(1), 291-318. https://doi.org/10.1108/IMDS-01-2023-0007
Mandviwalla, M., & Flanagan, R. (2021). Small business digital transformation in the context of the pandemic. European Journal of Information Systems, 30(4), 359-375. https://doi.org/10.1080/0960085X.2021.1891004
Miklian, J., & Hoelscher, K. (2022). SMEs and exogenous shocks: A conceptual literature review and forward research agenda. International Small Business Journal, 40(2), 178-204 https://doi.org/10.1177/02662426211050796
Müller, R., Schischke, D., Graf, B., & Antoni, C. H. (2023). How can we avoid information overload and techno-frustration as a virtual team? The effect of shared mental models of information and communication technology on information overload and techno-frustration. Computers in Human Behavior, 138, 107438. https://doi.org/10.1016/j.chb.2022.107438
Münch, C., Marx, E., Benz, L., Hartmann, E., & Matzner, M. (2022). Capabilities of digital servitisation: Evidence from the socio-technical systems theory. Technological Forecasting and Social Change, 176, 121361. https://doi.org/10.1016/j.techfore.2021.121361
Munir, M. A., Hussain, A., Farooq, M., Rehman, A. U., & Masood, T. (2024). Building resilient supply chains: Empirical evidence on the contributions of ambidexterity, risk management, and analytics capability. Technological Forecasting and Social Change, 200, 123146. https://doi.org/10.1016/j.techfore.2023.123146
Nudurupati, S. S., Tebboune, S., Garengo, P., Daley, R., & Hardman, J. (2024). Performance measurement in data intensive organisations: resources and capabilities for decision-making process. Production Planning & Control, 35(4), 373-393. https://doi.org/10.1080/09537287.2022.2084468
Núñez-Merino, M., Maqueira-Marín, J. M., Moyano-Fuentes, J., & Martínez-Jurado, P. J. (2020). Information and digital technologies of Industry 4.0 and Lean supply chain management: a systematic literature review. International Journal of Production Research, 58(16), 5034-5061. https://doi.org/10.1080/00207543.2020.1743896
Oliveira Saraiva, G., Ferreira, J. J., & Alves, M. C. (2024). Turnaround, Decline, and Strategic Posture of SME: Empirical Evidence. Journal of the Knowledge Economy, 1-31. https://doi.org/10.1007/s13132-024-01734-1
Parker, C., Bingley, S., & Burgess, S. (2023). The nature of small business digital responses during crises. Information and Organisation, 33(4), 100487. https://doi.org/10.1016/j.infoandorg.2023.100487
Peng, H. U. O., & Luxin, W. A. N. G. (2022). Digital economy and business investment efficiency: Inhibiting or facilitating? Research in International Business and Finance, 63, 101797. https://doi.org/10.1016/j.ribaf.2022.101797
Pertheban, T. R., Thurasamy, R., Marimuthu, A., Venkatachalam, K. R., Annamalah, S., Paraman, P., & Hoo, W. C. (2023). The impact of proactive resilience strategies on organisational performance: Role of ambidextrous and dynamic capabilities of SMEs in manufacturing sector. Sustainability, 15(16), 12665. https://doi.org/10.3390/su151612665
Rico, M., Pandit, N. R., & Puig, F. (2021). SME insolvency, bankruptcy, and survival: an examination of retrenchment strategies. Small Business Economics, 57, 111-126. https://doi.org/10.1007/s11187-019-00293-z
Sadeghi, K., Ojha, D., Kaur, P., Mahto, R. V., & Dhir, A. (2024). Explainable artificial intelligence and agile decision-making in supply chain cyber resilience. Decision Support Systems, 180, 114194. https://doi.org/10.1016/j.dss.2024.114194
Safari, A., Balicevac Al Ismail, V., Parast, M., Gölgeci, I., & Pokharel, S. (2024). Supply chain risk and resilience in startups, SMEs, and large enterprises: a systematic review and directions for research. The International Journal of Logistics Management, 35(2), 680-709. https://doi.org/10.1108/IJLM-10-2022-0422
Schmitt, A., & Raisch, S. (2013). Corporate turnarounds: The duality of retrenchment and recovery. Journal of Management Studies, 50(7), 1216-1244. https://doi.org/10.1111/joms.12045
Shang, Y., Raza, S. A., Huo, Z., Shahzad, U., & Zhao, X. (2023). Does enterprise digital transformation contribute to the carbon emission reduction? Micro-level evidence from China. International Review of Economics & Finance, 86, 1-13. https://doi.org/10.1016/j.iref.2023.02.019
Skare, M., de Obesso, M. D. L. M., & Ribeiro-Navarrete, S. (2023). Digital transformation and European small and medium enterprises (SMEs): A comparative study using digital economy and society index data. International journal of information management, 68, 102594. https://doi.org/10.1016/j.ijinfomgt.2022.102594
Sony, M., & Naik, S. (2020). Industry 4.0 integration with socio-technical systems theory: A systematic review and proposed theoretical model. Technology in society, 61, 101248. https://doi.org/10.1016/j.techsoc.2020.101248
Vial, G. (2021). Understanding digital transformation: A review and a research agenda. In Managing Digital Transformation. Routledge. https://doi.org/10.1016/j.jsis.2019.01.003
Wang, J., & Bai, T. (2024). How digitalisation affects the effectiveness of turnaround actions for firms in decline. Long Range Planning, 57(1), 102140. https://doi.org/10.1016/j.lrp.2021.102140
Wang, Y., & Li, L. (2024). Digital economy, industrial structure upgrading, and residents' consumption: Empirical evidence from prefecture-level cities in China. International Review of Economics & Finance, 92, 1045-1058. https://doi.org/10.1016/j.iref.2024.02.069
Zhang, C., Zhou, B., & Tian, X. (2022). Political connections and green innovation: The role of a corporate entrepreneurship strategy in state-owned enterprises. Journal of Business Research, 146, 375-384. https://doi.org/10.1016/j.jbusres.2022.03.084
Zhang, H., Wang, X., & Akhtar, M. W. (2024). Digital transformation, supplier concentration, and CEO financial experience: Unveiling the dynamics of innovation performance in Chinese firms. Journal of Cleaner Production, 442, 140825. https://doi.org/10.1016/j.jclepro.2024.140825
Zhang Y., Li X. & Xing M. (2021). Enterprise Digital Transformation and Audit Pricing. Auditing Research, 3, 62–71.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2026 Feifei Yu , Peijuan Zhu , Yuwei Yang , Chao Lu
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
