Driving Economic Growth: Digital Transformation for Local SMEs in Banda Aceh

Abstract

In today’s digital landscape, Small and Medium Enterprises (SMEs) face numerous opportunities and challenges. Digital transformation has become essential for these enterprises to enhance competitiveness, expand market reach, and foster innovation, especially in urban settings. This study examines how digital transformation can optimize economic potential for SMEs in Banda Aceh, Indonesia—a region with a vibrant yet digitally underserved SME sector. Despite contributing significantly to Indonesia’s Gross Domestic Product (GDP) and employment, digital adoption among local SMEs is hindered by infrastructural limitations, low digital literacy, and financial constraints. Employing a qualitative methodology, this research analyzes data from a stratified random sample of 100 SMEs across key sectors, including food, handicrafts, and textiles—core components of Banda Aceh’s local economy. Findings reveal that SMEs utilizing digital tools report sales increases of up to 60%, highlighting the substantial impact of digital integration on business performance. However, the study also identifies persistent barriers to digitalization, primarily involving inadequate infrastructure and skill gaps. To address these issues, the study offers evidence-based recommendations for enhancing digital infrastructure, expanding access to training, and fostering public-private partnerships aimed at accelerating digital transformation within Banda Aceh’s SME sector. By providing insights into the digitalization of urban SMEs, this research contributes to a broader understanding of how emerging economies can leverage digital transformation to drive sustainable growth. These findings have significant implications for policymakers, business leaders, and stakeholders seeking to build a more inclusive digital economy.