Divergent Paths of SME Digitalization: A Latent Class Approach to Regional Modernization in the European Union

Small and medium-sized enterprises (SMEs) constitute the backbone of the EU economy, yet their uneven digital transformation raises challenges for competitiveness and territorial cohesion. This article examines the organizational and spatial aspects of SME digitalization across the European Union using Flash Eurobarometer 486 data and latent class analysis (LCA) combined with Bayesian multilevel multinomial regression. The results reveal four SME digitalization profiles—Digitally Conservative Backbone; Partially Digital and Upgrading; Digitally Advanced and Diversified; and Focused Digital Integrators—reflecting diverse adoption patterns of key technologies such as AI, big data and cloud computing. Digitalization is shaped by organizational factors (firm size, value chain integration, digital barriers) and territorial factors (urbanity, border proximity, national digital infrastructure as measured by the Digital Economy and Society Index, DESI). Contrary to linear modernization assumptions, digital adoption follows geographically embedded trajectories, with sectoral uptake occurring even in low-DESI or non-urban regions. These results challenge core–periphery models and highlight the significance of place-based innovation networks. The study contributes to modernization theory and regional innovation systems by showing that digital inequalities exist not only between countries but also within regions and among adoption profiles, emphasizing the need for nuanced, multi-level digital policy approaches across Europe.