Driving Industry 4.0 Readiness in MSMEs: The Role of Leadership and Digital Infrastructure

This study addresses a critical gap in understanding Industry 4.0 readiness among micro, small and medium enterprises (MSMEs) by examining how transformational leadership and digital infrastructure jointly influence readiness in Malaysian MSMEs within the manufacturing and service sectors. Drawing upon transformational leadership theory, dynamic capabilities theory, and upper echelons theory, we propose and empirically validate the Leadership-Infrastructure Readiness Model (LIRM), using structural equation modelling (SEM) with data collected from 500 MSMEs. The results indicate that transformational leadership significantly improves industry 4.0 readiness directly (β = 0.453, p < 0.001), as well as indirectly through digital infrastructure (mediating effect β = 0.180, p < 0.001). Digital infrastructure contributes strongly independently to readiness (β = 0.448, p < 0.001), emphasising its critical enabling role. Additionally, the findings reveal higher levels of manufacturing readiness than service MSMEs, highlighting sector-specific challenges and opportunities. Theoretically, this research advances understanding of how leadership and digital capabilities synergise to shape MSME readiness for Industry 4.0, offering straightforward theoretical integration of previously fragmented concepts. Practically, the study informs MSME managers and policymakers on strategically prioritising leadership development and targeted investments in digital infrastructure, which are crucial to enhancing competitiveness and sustainable growth in the Asia-Pacific region.