When Digitalization Becomes the Ticket to Orders: The Supply Chain Power Shift Behind the Transformation of Apparel SMEs

When Digitalization Becomes the Ticket to Order Eligibility: The Supply Chain Power Shift Behind the Transformation of Apparel SMEs

An Academic Study Exposes an Industry-Level Problem

Scientific Reports, Volume 15, 2025 (Article No. 20807), published an empirical study on the digitalization adoption intention of textile and apparel SMEs. Using UTAUT (Unified Theory of Acceptance and Use of Technology) as the framework, the researchers introduced six additional variables: trust and perceived risk at the internal enterprise level, competitive pressure and government support at the external level, and the impact of digitalization on enterprises' non-financial and financial performance, and conducted a questionnaire survey of textile and apparel SME owners.

The results merit attention from industry observers: the variables significantly affecting digitalization adoption intention are performance expectancy, effort expectancy, trust, government support, and competitive pressure; facilitating conditions and behavioral intention significantly affect actual use behavior, and further influence financial and non-financial performance. Notably, perceived risk did not appear in the list of factors reported as significant.

What does this mean? Small and medium-sized manufacturing enterprise owners are not scared off by risk; they are stuck on three things: whether the returns are certain, whether the tools are easy to use, and whether the promoters are trustworthy. Digitalization is not determined by technical feasibility, but by commercial certainty and external pressure.

The study also provides a broader context: in Indonesia, SMEs make up 99.98% of all enterprises (2015 data), contribute about 57% of GDP, and absorb more than 97% of employment; by 2022, their contribution to GDP rose to 61.1%, while large enterprises, accounting for only 0.01% (5,550 companies), contributed the remaining 38.9%.

The value of this set of figures lies not in Indonesia itself, but in the globally common structure it outlines: the production capacity base of the textile and apparel industry chain is composed of tens of thousands of SMEs. The degree of digitalization of the industry ultimately depends on the degree of digitalization of this "long tail."

Why It Happens: The Driving Forces Are External, the Bottleneck Is Internal

The causal chain given by the study is: external pressure (competitive pressure, government support) → cognitive judgment (performance expectancy, effort expectancy, trust) → intention → actual use (affected by facilitating conditions) → performance.

The key lies in the sequence: external pressure comes first, internal conditions come later.

Placed in the real-world context of the apparel industry, this explains a long-standing phenomenon—why many small and medium-sized factories have bought equipment and installed systems but have not truly become digitalized. Because equipment and software belong to "facilitating conditions," and facilitating conditions only affect "actual use" and do not directly generate "intention." Intention comes from three other things: calculable returns, trustworthy promoters, and the pressure that one will be eliminated if one does not transform.In other words, the real bottleneck is not technology supply, but trust and capability. The study makes this point in its recommendations section: integrating digital technology requires specialized skills, and governments and industry associations should use training programs to enable workers to operate digital equipment and manage digital systems. This seemingly plain judgment actually points to the core of industrial policy—the marginal cost of digitalization ultimately falls on human capital.

Who Will Benefit: The Rise of the Middle Layer

If digitalization is the inevitable path for SMEs, then the real beneficiaries may not be the small and medium-sized factories themselves, but the middle layer built around them.

The first category is vertical SaaS and lightweight industrial software providers. SMEs cannot afford the deployment and maintenance costs of general-purpose ERP, but they are willing to pay for tools that “solve a single pain point, have a low barrier to entry, and can be paid per order.” The two factors revealed by the study—“effort expectancy” and “facilitating conditions”—are precisely the design targets of such products.

The second category is bundlers of equipment and software. If textile machinery manufacturers can package data interfaces, production traceability, and energy consumption monitoring into their equipment, they will occupy a position in customers’ production processes higher than that of merely selling hardware.

The third category is certification, auditing, and compliance service institutions. When digitalization shifts from an “efficiency tool” to “compliance evidence,” whoever controls the production and verification of evidence controls pricing power.

The fourth category is industrial parks and local governments. Parks with a high degree of digitalization are more likely to enter brands’ compliant supplier lists, thereby gaining bargaining power in investment promotion and order allocation.

Who Will Bear the Pressure: Opaque Capacity and Low-Skill Segments

Pressure will fall on three types of entities.

First, small contract manufacturers that can neither provide data evidence nor afford system costs. They will not disappear immediately, but will gradually degrade from first-tier suppliers to second- and third-tier suppliers, and their profit margins will be further compressed.

Second, traditional trading intermediaries. When order information, capacity information, and quality information can flow transparently within systems, the segments that profit from information asymmetry will be continuously squeezed.

Third, low-skilled labor. The study clearly points out that digital integration requires specialized skills, which means the distributional effects of digitalization are not neutral: it raises the relative value of workers who can operate digital systems while weakening the bargaining power of purely manual processes.

North American Perspective: Compliance Visibility Is Changing Order Flows

The sample of this study is in Indonesia, but the mechanism it describes also holds in North American supply chains, and the pressure is even stronger.

The core change in North American apparel and textile procurement systems in recent years has been a shift from “price and delivery time” to “price, delivery time, and provable compliance.” Forced labor reviews at the import stage and brands’ own supply chain due diligence requirements are both turning traceability into an access condition. The strict rules of origin for textiles under the USMCA framework also objectively require all links in the supply chain to have recordable evidence of transfer.This brings two consequences. First, orders concentrate toward two types of capacity: capacity that can provide digital evidence, and capacity that is geographically closer to North America. Second, local textile and apparel SMEs in North America—including small factories trying to take on reshored orders—face exactly the same constraints as their Indonesian counterparts: trust, skills, and facilitating conditions, not equipment itself.

In other words, one of the real variables in North American supply chain restructuring is not the tariff rate, but the digital visibility of small and medium-sized suppliers. A factory that cannot be seen by the system is equivalent to nonexistent in procurement decisions.

What it means for investors: Bet on being adopted, not on technological sophistication

The implications of this study for investment judgment are counterintuitive.

First, in the SME market, technological sophistication is not a moat; being adopted is. The three significant variables—performance expectancy, effort expectancy, and trust—point to product design and delivery methods, not algorithmic capability.

Second, government support is one of the significant drivers of adoption. This means that in the SME digitalization track, policy channels and compliance qualifications are themselves commercial assets, and service providers capable of connecting with public services have a structural advantage.

Third, industry associations and training institutions may be systematically undervalued. When skills become a bottleneck, training is not charitable spending but necessary infrastructure for digitalization, with the potential to be converted into paid services.

The next 3–5 years: The stratification effect of digitalization

First, traceability will shift from a plus to a default. Brands and regulatory requirements will continue to make digital records a precondition for orders.

Second, there will be clear stratification among SMEs. Enterprises that can connect to digital systems will be incorporated into formal supply chains and steadily receive orders; those unable to connect will retreat to secondary markets or shift to extremely low-value-added contract manufacturing.

Third, the focus of government support will shift from subsidizing equipment to subsidizing skills and data infrastructure. This is because equipment is a facilitating condition, whereas skills and trust determine willingness.

Fourth, the key variable in regional competition will shift from labor costs to response speed and compliance visibility. For North American nearshore manufacturing, Southeast Asian industrial clusters, and local small and medium-sized factories in North America, this is the same test.

Key observations

1. The real drivers of digital adoption are external (competitive pressure, government support), but the conversion bottleneck is internal (trust, skills). 2. Perceived risk did not become a significant obstacle, indicating that the problem for SME owners is not fear, but being unable to calculate clearly, put it to use, or trust it. 3. The beneficiaries are more the intermediary layer—vertical software, equipment bundlers, compliance and certification bodies, and industrial parks; those under pressure are capacity with opaque information and low-skilled jobs. 4. In the context of North American supply chains, digital visibility is becoming an order access condition as important as tariffs. 5. The focus of policy tools should shift from equipment subsidies to human capital and data infrastructure.

Sources- Scientific Reports, Factors influencing the intention of textile and garment SMEs to adopt digital technologies and its impact on performance, volume 15, Article number: 20807 (2025). Original link: https://www.nature.com/articles/s41598-025-94625-7