Background: Artificial intelligence is transforming small and medium-sized enterprises by enabling digital innovation and strategic value creation. Managers serve as key drivers of this transformation, with their digital literacy shaping their firm’s ability to adopt and integrate AI technologies effectively. However, institutional environments, marked by differing regulatory frameworks and cultural norms, present varying opportunities and constraints. Countries like the U.S. and China are rapidly advancing AI integration, while Europe is finding it hard to keep up with the pace. Understanding how SMEs navigate these national contexts is crucial for identifying strategic responses and fostering global competitiveness in an AI-driven economy. 

Research Purpose: This study aims to fill a gap in the current understanding about the influence of cultural and institutional factors on managerial digital literacy within SMEs. Additionally, it seeks to understand how these contextual elements affect the relationship between managerial digital literacy and the adoption of digital technologies, particularly in the context of artificial intelligence.

Research Question: How does the managerial digital literacy in small and medium sized enterprises influence artificial intelligence orientation and artificial intelligence implementation in different cultural and institutional environments?   

Research Method: This is a qualitative study that mainly followed an abductive approach to gain an in-depth understanding of the gathered data which was collected through conducting interviews and the gathering of archival data. The conceptual framework provided a holistic overview of the collected data which was analysed with a thematic analysis. Furthermore, critical realism was used to explore experiences, identify patterns and most importantly underlying mechanisms. 

Conclusion: The main contribution of this paper is that it highlights underlying formal and informal mechanisms of different institutional environments which impacts managerial digital literacy’s influence on AI adoption with the help of a conceptual framework. The institutional context in which a firm operates was shown to significantly moderate the impact managerial digital literacy had on AI adoption. We have determined that the regional differences highlights the role of regulatory environments, cultural attitudes and digital maturity in shaping AI adoption strategies. Furthermore, underlining the need for context-specific approaches to AI adoption.  

Acknowledgement: To begin, we would like to show our appreciation to our supervisor Imran Ilya. His thoughtful feedback and clear direction were instrumental in shaping our work. Furthermore, we would like to extend our heartfelt thanks to our seminar group for their invaluable guidance throughout this research journey.  

Thank You!

Bogdan Hannanov & Kevin Kronqvist