Effect of Resource Management, Market Adaptation, and Digital Transformation Drive on the SME Market Expansion in a Small Island Economy of Zanzibar

Abstract

Small and medium-sized enterprises (SMEs) in small island economies face constrained domestic markets, limited physical reach, and resource pressures that make expansion into new markets essential for sustainable growth. This study examines how financial and resource management, market adaptation strategy, and digital transformation influence SME market expansion in Zanzibar, with particular attention to the relative strength of each practice. A quantitative cross-sectional survey was conducted among 350 SME owners and managers operating in the tourism, trade, and agriculture sectors. The data were analysed using partial least squares structural equation modelling (PLS-SEM) with 5,000 bootstrap resamples to assess the hypothesised relationships. The results show that all three strategic practices have positive and statistically significant effects on market expansion. Digital transformation emerged as the strongest predictor (β = 0.721, p <.001), while financial and resource management (β = 0.161, p <.001) and market adaptation strategy (β = 0.160, p <.001) made smaller but significant contributions. Together, the three practices explained 56.7% of the variance in SME market expansion (R 2 = 0.567). The study concludes that digital transformation is the principal driver of market expansion among Zanzibar SMEs, but its effectiveness is reinforced by sound financial and resource management and the capacity to adapt to changing market conditions. SME owners, policymakers, and business-support institutions should therefore prioritise digital capability while simultaneously strengthening financial discipline and market adaptability to support sustainable expansion beyond constrained local markets.