Strengthening government guidance and policy support is an important path to promote digital transformation in various countries and enhance their core competitiveness in the digital era. This paper explores the differentiated feedback of enterprises with varying transformation costs in developing countries, using China as an example, towards government digital transformation policies. It finds that enterprises with low digital transformation costs provide positive feedback to government policies, while those with high costs exhibit limited and strategic feedback, resulting in differences in policy performance — specifically, innovation output. The analysis of mechanism indicates that lowering the costs of connectivity, integration, and financing for digital transformation will improve enterprises’ feedback on government-led policies and accelerate their own digital transformation processes. The capability to connect to the outside world, adapt to change, and mitigate financing constraints constructed by enterprises in the process of cost reduction will contribute to the development of their innovation activities, resulting in better innovation performance. The above logic is further verified empirically based on the quasi-experiment of Internet Plus promoted by the State Council of China in 2015. Therefore, to enhance the effectiveness of digital policies in developing countries, enterprises need to improve their dynamic adaptability and effectively reduce the costs of digital transformation. More importantly, the governments of developing countries should learn from developed countries in formulating digital transformation strategies and policies. They should create digital roadmaps suitable for their national development, forming targeted support policies for various types of enterprises, thereby providing real assistance for enterprises to break through and move forward.
Research on corporate innovation behavior has a long-standing scholarly tradition. Early studies focused on internal firm-specific factors, including organizational characteristics (technological capabilities, human capital endowment, firm size, strategic orientation) and entrepreneurial attributes (founder background, risk propensity, age), to drive innovation (Barker and Mueller, 2002; Laforet, 2008). Recently, the rapid advancement of digital technologies has led to the emergence of research focused on innovation drivers from the perspectives of digital technology adoption and digital transformation, creating a vibrant and prolific field of study (Gao et al., 2022; Torre and Iván, 2025).
Digital transformation is the process by which businesses adapt to a changing environment by integrating digital technology to optimize resources, reorganize production methods, and enhance business models and culture for improved efficiency. (Heiferman et al., 2020). The booming development of digital technology driving the accelerated development of enterprise digital transformation practices. Many studies have found that digital transformation not only creates profound changes in society and industries at the macro level (Majchrzak et al., 2016), but more importantly at the micro level. On the one hand, digital technologies enhance corporate production management and supply chain optimization, not only improving operational efficiency but also creating significant competitive advantages and profit growth potential. Research indicates that technologies such as Radio Frequency Identification (RFID) and flexible production systems enable precise production scheduling, efficient logistics management, and optimal resource allocation, thereby substantially boosting productivity (Guchhait et al., 2024; Guchhait and Sarkar, 2024). Meanwhile, blockchain and Industrial Internet of Things (BIIoT) technologies strengthen supply chain coordination capabilities and elevate end-consumer experiences (Guchhait and Sarkar, 2024; Amankou et al., 2024). On the other hand, digital transformation has also induced organizational transformation, value discovery, and performance enhancement of enterprises (Nadkarni and Prügl, 2020; Clohessy et al., 2017). The reason is that the extensive use of digital technologies enhances the structural efficiency (Byun et al., 2018) and operational efficiency (Vial, 2019) of the enterprise’s organizational model while influencing the scale and convergence of information flows. It enables more effective innovations within the enterprise and promoting data as a new advantage feature. These studies provide valuable insights for systematically understanding how digital transformation is emerging as a pivotal force driving systemic organizational change and technological capabilities leapfrogging from an internal management perspective.
In essence, the systemic nature of corporate innovation reveals that innovation is not confined to internal firm factors — external elements such as institutional environments are equally critical (Shi and Wu, 2017). Particularly, governmental policies (Aschhoff, 2009) and other external environmental factors have emerged as significant forces shaping corporate innovation activities. Consequently, it is imperative to adopt a macro-level policy environment perspective to examine how government-led initiatives — including prioritizing enterprise digital transformation and implementing digital strategies — exert profound influences on micro-level corporate innovation behaviors.
Digital transformation has become an important hand for countries to enhance competitiveness, cultivate new kinetic energy, and improve innovation. Accordingly, in an effort to secure a leading position in industrial digitalization and digital technology innovation, many developed countries have proactively introduced relevant policies at an early stage. These policies are formulated in accordance with their respective factor endowments and industrial structures, aiming to facilitate the digital transformation of the manufacturing sector and foster the advancement of digital technology innovation: The United States focuses on cutting-edge technologies and high-end manufacturing industries, and has successively introduced the National Strategy for Advanced Manufacturing, the United States Government National Standards Strategy for Critical and Emerging Technology, and other plans. It provides multi-dimensional and long-cycle financial support and builds a nationwide innovation network to help enterprises leapfrog over the valley of death. The EU is constantly refining its strategic deployment of digital transformation. A new Industrial Strategy for a globally competitive, green and digital Europe explicitly proposes the creation of an open and collaborative innovation system and the cultivation of innovative enterprises as a path to ensure that the EU is a global leader in the industrial digital transformation. Japan proposed the development model of connected industry in 2017. Combined with its own characteristics, Japan has adopted diversified means to promote the implementation and promotion of connected industry. It strengthens funding for basic research and application of new-generation information technology and provides guidance for the development of key areas of the digital industry. In addition to developed countries, developing countries represented by Association of Southeast Asian Nations (ASEAN) had also observed the opportunities brought by the new technological revolution to their development. And it had also promoted the implementation of digital transformation programs based on their own national conditions, increased the level of R&D investment in key areas, and created a favorable innovation ecosystem.
For many developed countries, the primary objective of digitalization policies is to enhance their competitiveness at the technological frontier. The core of these efforts is the pursuit of rule-setting power to sustain technological leadership. In promoting the enterprises’ digital transformation, these countries often maintain their traditional roles, primarily acting as regulators and ecosystem builders within the digital economy (Zahorodnia et al., 2021). Meanwhile, owing to their higher level of digital maturity, developed countries possess greater experience in formulating a clear strategic vision for national digital transformation. This includes the establishment of well-defined priorities and objectives, measurable targets, adequate financial and human resources, and comprehensive monitoring and evaluation mechanisms. Consequently, their digital economy policies tend to exhibit clearer orientation and more robust institutional frameworks. Under the clear strategic guidance of the government, enterprises respond to market demands by continuously learning, experimenting, and innovating throughout the process of digital transformation. The extent to which enterprises align with governmental strategic objectives significantly influences the effectiveness of their technological transformation: Higher alignment tends to amplify the benefits derived from digitalization (Hong, 2024).
Government dominance is a relatively prominent feature in the development processes of developing countries (Adelman, 1999). Similarly, in the context of digital transformation, governments in developing countries often assume a direct and leading role. This is largely attributable to constraints such as limited resources, underdeveloped market mechanisms, and insufficient capabilities within the private sector. As a result, governments frequently undertake critical functions, including strategic planning, public investment, and regulatory oversight. Heeks (2010), in his analysis of the impact of ICT on developing countries, highlighted the necessity of government leadership in resource allocation and policy formulation. Echoing this perspective, the World Bank (2016) emphasized that “Without good governance, technological progress will be difficult to be transformed into productivity,” thereby underscoring the government’s role in digital infrastructure development and addressing the digital divide. Similarly, the Pathways for Prosperity Commission (2019) asserted that governments in developing countries must lead digital technology governance and steer market behavior by bridging digital inequalities. This view is further reinforced by the consensus in the literature that governments in developing countries are pivotal actors in driving digital infrastructure and institutional design (Avgerou, 2008), particularly in ensuring infrastructure development and universal connectivity (ITU, 2023). In practice, several empirical cases highlight the pivotal role of governments in developing countries as both institutional builders and market facilitators in the process of digital transformation (UNCTAD, 2019). For instance, the WoredaNet project in Ethiopia, initiated and led by the national government, has enabled the implementation of local-level digital governance by establishing a government communication infrastructure (Senshaw and Twinomurinzi, 2022). In Ghana, despite resource constraints, the government has actively promoted the development of financial technology (fintech), contributing to improved financial inclusion and innovation in digital payment systems (Senyo et al., 2024). Similarly, the Ugandan government played a foundational role in developing a national digital identity system, which laid the groundwork for broader participation in the digital economy during its formative stages (Iyer, 2021). These examples underscore the critical function of state leadership in shaping digital institutions and guiding market dynamics in resource-limited settings.
In both developed and developing countries, competition in industrial digital transformation and digital innovation has intensified significantly. Governments have introduced a range of strategies and policies, all centered on enhancing state support and guidance for the development of next-generation information technologies and the transformation and upgrading of key industries. The fundamental objective is to accelerate industrial digital transformation and promote the acquisition and mastery of core digital technologies. However, in developing countries, several challenges hinder effective digital transformation. On the one hand, as late entrants in the digitalization process, governments often have significantly less experience in strategic planning and policy-making compared to their counterparts in developed economies. It can lead to issues such as overly idealized policy objectives and a disconnect between policy implementation and the actual needs of enterprises, ultimately resulting in a mismatch between policy measures and enterprises’ real-world demands. On the other hand, a more pronounced issue lies at the micro level: Enterprises in developing countries often differ significantly from those in developed economies. Many enterprises face substantial capacity constraints and short-term survival pressures, and the greater heterogeneity among these enterprises can limit their ability to respond effectively to policy measures.
Therefore, when examining the policy detachment surrounding digitalization in developing countries — specifically, the challenges enterprises face during digital transformation — it’s crucial to consider the differences in costs among enterprises. The enterprise heterogeneity has garnered widespread attention in the economics literature since the 1990s — beginning with Bernard et al. (1987), who demonstrated that enterprises with varying productivity levels make different decisions regarding exports and foreign investment. Melitz (2003) further advanced the field by developing a seminal model of heterogeneous enterprises in international trade. Notably, enterprise heterogeneity is even more pronounced in developing countries than in their developed counterparts. Therefore, analyzing the varying motivations and economic outcomes of digital transformation based on cost heterogeneity is particularly relevant in the context of developing economies.
Since enterprise digitalization constitutes a form of technological upgrading and innovation, its success fundamentally depends on the realization of innovation outcomes. This raises a critical question: Why do enterprises in developing countries, despite operating under the same government-led policy environment, exhibit significant differences in both the process and outcomes of digital transformation? In other words, how does the divergence in innovation performance arise, and what drives the misalignment between enterprise-level digital transformation behaviors and government policy objectives? China, as the largest developing country and a representative case, provides a compelling context for examining this issue.
Compared with most developing countries, China’s economic development benefits from its strong state capacity. China’s economic development also benefits from the tenacity and resilience of the party and state system when compared to other transitional economies. In the realm of digital economy development, a notable distinction has been identified between the technological innovation models of the United States and China, particularly in the semiconductor industry. The Chinese model is characterized by a government-centered approach, wherein the state plays a leading role in driving technological innovation by formulating and implementing policies that mobilize the participation of multiple innovation actors. As a result, this paper takes China as a representative case to examine the heterogeneous responses of enterprises to government-led digital transformation policies and the resulting variation in innovation outcomes. To identify the above issues, this paper expands on two aspects. First, at the theoretical level, it constructs a logical self-referential framework that explains how different feedback to government-guided policies arises from variations in the costs of enterprise digital transformation, which subsequently leads to differences in transformation effectiveness. Second, at the empirical level, a quasi-experiment of Internet Plus promoted by the State Council of China in 2015 is used to verify the above theory. So, this paper seeks to explore how governments in developing countries can more effectively design targeted and context-specific guiding policies. Specifically, it emphasizes that the success of digital transformation policies hinges on lowering the response costs for enterprises and improving the practical operability of policy measures. In doing so, the paper aims to offer valuable insights and guidance for policymakers, regulatory bodies, and other stakeholders engaged in digital strategy formulation in developing countries.
The rest of the paper is organized as follows. Section “Theoretical propositions” provides a framework. Based on cost heterogeneity, it explains a rationale and internal mechanism by which varied degrees of feedback from different enterprises about digital policies result in disparate policy outcomes. Section “Estimation strategy, variable descriptions and data” introduces the background of the policy, and illustrates econometric methods such as model setting and variable selection. Section “Empirical results” presents the analysis of the empirical results. Section “Conclusions” includes discussion of the study and the limitations.
