TOWARDS A SUSTAINABILITY PERFORMANCE OF SMES IN PAKISTAN: THE ROLES OF ARTIFICIAL INTELLIGENCE (AI), SOCIAL MEDIA ADOPTION, AND DIGITAL COMPETENCIES

Abstract

Pakistan's small and medium enterprises (SMEs) contribute roughly 30% of national GDP and employ the large majority of the non-agricultural workforce, yet most operate with limited digital and technological readiness. This study examines the influence of artificial intelligence (AI) adoption and social media adoption on the sustainable performance of Pakistani SMEs, with a specific focus on the mediating role of digital competencies. A quantitative, cross-sectional survey was conducted among 296 SME owners and managers operating in Karachi, Lahore, Islamabad, Faisalabad, and Rawalpindi, selected via purposive sampling. Data were analyzed using Structural Equation Modeling (SEM) with a two-step approach: confirmatory factor analysis (CFA) followed by structural model and bootstrapped mediation testing. The results show a significant direct relationship between AI adoption, social media adoption, digital competencies, and sustainable performance. Digital competencies partially mediate the relationship between AI adoption, social media adoption, and SMEs' sustainable performance, indicating that Pakistani SMEs realize the sustainability benefits of digital and AI tools more fully when their owners and staff possess adequate digital skills. This study extends an emerging line of Southeast and South Asian SME research by providing Pakistan-specific evidence on how AI adoption, social media adoption, and digital competencies jointly shape sustainable performance, in a resource-constrained emerging-market setting where digital readiness remains uneven across firms.