Abstract
This developmental paper outlines the research motivation, design, and future plan to investigate the crucial role of AI-driven transformations in Chinese SMEs. The study aims to explore how SMEs can enhance their competitive advantage through the dynamic capabilities framework (sensing, seizing, transforming) and VRIO criteria. Using an inductive approach and case studies, the research examines the motivations, processes, and challenges of AI integration. Findings will offer insights into how AI capabilities can address SMEs' limitations and foster competitive positioning. This approach provides actionable recommendations for Chinese SMEs to leverage AI effectively, contributing to sustained business success and innovation.