Navigating the Digital Divide: Barriers to Digital Innovation Adoption among Rural MSMEs in Sabah, Malaysia

Abstract

Despite the growing emphasis on digital transformation in national development agendas, rural micro, small, and medium-sized enterprises (MSMEs) in Malaysia continue to lag in adopting digital innovations. This study investigates the multifaceted barriers to digital innovation adoption among rural MSMEs in Sabah, using a quantitative exploratory approach. Drawing on responses from 103 firms across various rural districts, the study evaluates six key categories of barriers: socio-cultural, technical, economic, regulatory-institutional, policy-related, and innovation environment. Descriptive analysis reveals uniformly high barrier perceptions, with innovation environment (M = 4.79) and economic constraints (M = 4.79) rated as the most significant. Comparative analysis across firm age groups highlights that startup firms experience the highest innovation-related constraints, while growth-stage firms encounter intensified economic and policy-related barriers. Contrary to earlier infrastructure-centric literature, findings suggest that behavioral inertia, institutional misalignment, and capability deficits are now the dominant inhibitors of digital adoption. Grounded in the Diffusion of Innovations and Unified Theory of Acceptance and Use of Technology (UTAUT) frameworks, the study underscores the need for policy interventions that are context-sensitive, age-specific, and ecosystem-oriented. It concludes that bridging the rural digital divide requires not only technological provisioning but also robust strategies to cultivate innovation mindsets, restructure financing mechanisms, and align multi-level policies.