Impact of Generative AI on Small and Medium Enterprises' Revenue Growth: The Moderating Role of Human, Technological, and Market Factors

Abstract

Background: The generative artificial intelligence (AI) technologies have become strategic tools for small businesses seeking maintain competitive advantage. The usefulness of of these technologies are well-recognized in SMEs, yet it is becoming important to explore how other factors might affect the degree to which these benefits are realized. The present study emerges from this necessity, aiming to provide a quantitative assessment of how generative AI adoption affects SME revenue growth and to what degree this effect relies on human capital, technological infrastructure, and market competition.
Objectives: The aim of this research is to empirically examine not only the direct effects generative AI on revenue growth but also how this relationship is shaped by several moderating factors such as human, technological, and market factors. These factors can either amplify or diminish the potential gains from generative AI adoption.
Data and Methods: To understand the relationships, data from 331 SMEs were analyzed using 3 Regularization regression methods, namely, Ridge, Lesso, and Elastic Net Regression methods.
Findings: The results indicates that companies benefit from adopting generative AI technologies. The moderating effects of human capital indicates that businesses not only benefit from adopting generative AI but do so especially when they have highly educated employees. This implies that human capital can enhance or is complementary to the advantages provided by the generative AI, possibly through more effective utilization. The moderating effects of existing firm’s infrastructure also has a positive effect, suggesting that the benefits of generative AI are amplified when a business has good existing technological infrastructure. This means that businesses with modern or advanced tech facilities can leverage AI technology more effectively than those with outdated or less capable infrastructure. The moderating effects of market competition showed a negative result indicating that the advantage gained from generative AI adoption may decrease as market competition intensifies. This suggests that in highly competitive markets, the edge provided by AI is less distinct, perhaps because competitors are also likely to adopt similar technologies, negating the competitive advantage.
Conclusion: The findings suggest that simply deploying generative AI will not suffice; instead, it should be part of a broader strategy that considers market dynamics, skilled human capital to operate, and improving existing technological infrastructure.