Leveraging digital transformation and absorptive capacity for competitive advantage: Empirical insights from the automotive components sector

Abstract

This study examines how Indonesian automotive component firms leverage digital transformation capabilities and absorptive capacity to enhance innovation performance within the "Making Indonesia 4.0" initiative.  By analyzing survey data from 100 senior executives—CEOs, Directors, and Owners—of automotive component companies, the research identifies a significant relationship between digital transformation and the improvement of absorptive capacity, which is essential for achieving superior innovation outcomes. The findings emphasize that digital transformation capability significantly strengthens absorptive capacity, which is crucial for achieving superior innovation outcomes. This highlights absorptive capacity as a key mechanism for translating digital investments into competitive advantage. Building upon existing research on dynamic capabilities, the study underscores the strategic importance of simultaneously developing absorptive capacity and digital technologies to promote sustained innovation. Firms are encouraged to cultivate absorptive capacity alongside their digital technologies in order to effectively translate these digital investments into long-term competitive benefits.