<![CDATA[Background: The development of the digital economy has driven significant transformation in Micro, Small, and Medium Enterprises (MSMEs), yet there remains a gap in the utilization of digital technologies that results in suboptimal business performance. Objective: This study aims to analyze the effect of digital transformation and dynamic capabilities on the business performance of digital-based MSMEs. Method: The research employs a quantitative approach using purposive sampling involving 150 MSME actors, with data analysis conducted through Structural Equation Modeling based on Partial Least Squares (SEM-PLS). Results: The findings indicate that digital transformation has a positive and significant effect on business performance, while dynamic capabilities have a stronger influence in enhancing MSME business performance. In addition, dynamic capabilities strengthen the relationship between digital transformation and business performance, suggesting that the success of digital transformation is not solely determined by technology adoption but also by the organization’s ability to adapt, innovate, and effectively manage resources. Therefore, the integration of digital transformation and dynamic capabilities becomes a key factor in improving the competitiveness and sustainability of MSMEs in the digital era.]]>
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