Understanding AI-Driven Innovation and Sustainable Competitive Advantage in Indian SMEs

This study examines small and medium-sized enterprises (SMEs) operating in India, one of the world’s largest emerging economies, to understand how artificial intelligence (AI) value perceptions influence innovation capabilities and sustainable competitive advantage. Drawing on the Value Adoption Model (VAM) and Resource-Based View (RBV), the research investigates the role of functional benefits, efficiency gains, technical complexity, and perceived costs in shaping innovation outcomes. Using a mixed-method approach and PLS-SEM analysis on data from SME managers, the findings reveal that functional and efficiency benefits significantly enhance both perceived innovation capabilities (PIC) and sustained competitive advantage (SCA). While technical complexity contributes indirectly through capability development, perceived costs act as strategic investments rather than barriers. Innovation capabilities further mediate these relationships, reinforcing their importance as strategic assets. Regulatory support plays a nuanced moderating role, strengthening or constraining competitive outcomes depending on its intensity. The study contributes to information systems literature by integrating value perception and capability-based perspectives to explain AI-driven competitiveness in emerging economies, although the empirical evidence is derived exclusively from India.