Effect of AI Adoption on Competitive Advantage of Small and Medium Enterprises in Europe
Abstract
Artificial intelligence adoption plays a vital role in enhancing competitive advantage, especially for Small and Medium Enterprises operating in increasingly digitalized European markets. This study investigated the effect of AI adoption on competitive advantage of European SMEs through a comprehensive systematic literature review analyzing multiple empirical studies across diverse European contexts. The research found that AI adoption significantly enhances competitive advantage in European SMEs by improving operational efficiency, decision-making capabilities, and market positioning. Literature analysis revealed that European SMEs demonstrated superior performance outcomes, with 87% reporting increased productivity, 86% experiencing improved effectiveness, and 86% achieving business growth when AI technologies were successfully implemented. The study also established that digital capabilities and innovation competencies serve as primary drivers of AI adoption success, while leadership commitment and organizational readiness play crucial moderating roles in determining competitive outcomes. Moreover, the study found that when European SMEs combined AI adoption with complementary digital technologies such as IoT and Big Data Analytics, organizations observed enhanced revenue growth and sustainable competitive positioning. Companies using generative AI achieved average returns of $3.7 for every dollar invested, with top performers reaching $10.3 returns. The research also observed that strategic AI implementation helped mitigate resource constraints and technological limitations commonly faced by SMEs, thereby reinforcing their ability to compete with larger enterprises in digital markets. These findings support the Resource-Based View and Technology-Organization-Environment theoretical frameworks emphasizing the importance of internal capabilities and strategic alignment in determining AI adoption success and competitive advantage creation. The study concluded that AI adoption is a critical strategic determinant of competitive advantage for European SMEs, particularly when implementation is supported by adequate digital infrastructure, skilled human capital, and effective organizational learning processes. The study recommended that European SMEs develop comprehensive AI adoption strategies that address both technological and organizational readiness factors, while policymakers should design targeted support mechanisms to enhance SME access to AI technologies and promote digital skills development across the European business ecosystem.
Keywords: Artificial Intelligence, Competitive Advantage, Small and Medium Enterprises, Europe
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