Digital Transformation of MSMEs in Southwest Nigeria: The Interactive Effects of Infrastructure, Digital Skills, and Policy Environment on Adoption and Firm Performance

Purpose: This study explored the digital transformation of Micro, Small and Medium Enterprises (MSMEs) in Southwest Nigeria by investigating the effects of digital infrastructure, digital skills, policy environment, and their interaction on digital adoption and firm performance. The study addressed a gap in the literature by evaluating the possibility of the determinants working independently or in complement to each other in influencing the MSME digital transformation. Methodology: The mixed method research design was used by collecting quantitative data from 240 MSMEs in Lagos, Ogun, Oyo and Ekiti States, while qualitative data was gathered through key informant interviews and focus group discussions. Descriptive statistics, Pearson correlations and Generalized Linear Models (GLM) were used for analyzing quantitative data, and thematic analysis of NVivo software was used for analyzing qualitative data. Findings: The results show that digital infrastructure is the strongest determinant of digital adoption, followed by digital skills and policy environment. The interaction effects of digital infrastructure and digital skills, digital skills and policy environment, and digital infrastructure and policy environment were statistically significant, showing that these factors are complementary and mutually reinforcing. Furthermore, digital adoption, digital infrastructure, digital skills, and policy environment significantly improve MSME performance. These findings suggest that coordinated investments across all three areas yield greater returns than isolated interventions. The study reveals that digital transformation in MSMES in Southwest Nigeria is attributed to the synergistic effect of digital infrastructure, digital capabilities and policy interventions. Originality: This study contributes to the empirical evidence of the complete interaction between digital infrastructure, digital skills and policy environment in a single econometric specification, showing that all the three factors are complementary and reinforcing as determinants of digital adoption and firm performance among MSMES in Southwest Nigeria. The results broaden the Technology–Organization–Environment (TOE) approach and provide empirical support for policy recommendations for coordinated policy interventions