In recent years, China has intensified its focus on achieving breakthroughs in key core technologies across strategic domains. However, there are still gaps in existing research. First, prior studies predominantly concentrate on large enterprises, overlooking the specialized expertise, operational flexibility, and efficiency advantages inherent to small and medium-sized enterprises (SMEs). This oversight obscures the unique role of SMEs in accomplishing significant technological advancements despite their smaller scale. In practice, many SMEs specialize in niche segments of industrial chains, accumulating technical expertise and innovative capabilities over time. Their focused positioning often enables them to outperform larger firms in breakthroughs related to critical materials, components, and manufacturing processes within specific supply chain nodes. Moreover, large enterprises’ efforts to overcome key technological bottlenecks frequently depend on collaborative support from specialized SMEs. Second, while SMEs universally face innovation constraints—including limited R&D resources, insufficient technological collaboration, and narrow innovation search scopes—digital technologies, as a novel factor of production, hold potential to mitigate these barriers and propel critical technological breakthroughs. Existing scholarship has explored pathways, outcomes, and influencing factors of SMEs’ technological advancements but pays inadequate attention to the role of digital technologies. Third, the development of “first-of-a-kind” and “first of batch”, a distinctive policy-driven innovation practice in China, represents a critical yet unexplored frontier for core technology breakthroughs, warranting deeper scholarly investigation.

To address these gaps, this study examines how digital technologies influence SMEs’ breakthroughs in key core technologies and identifies boundary conditions shaping this relationship. Utilizing a sample of SMEs in Hangzhou, Zhejiang Province, and situating the analysis within their engagement in “first-of-a-kind” and w“first of batch” innovation initiatives—a national policy context aimed at accelerating the commercialization of pioneering technologies, we investigate the mechanisms through which digital technologies facilitate of breakthroughs of key core technologies of SMEs. We further analyze the moderating roles of absorptive capacity, organizational scale, and market power.

Our empirical findings demonstrate that digital technologies significantly enhance SMEs’ capacity to achieve breakthroughs of key core technologies, but these effects are contingent on firm-specific characteristics: absorptive capacity and market power amplify the benefits of digital adoption, whereas larger organizational scale paradoxically diminishes its efficacy. This moderating effect of scale suggests that while digital tools democratize access to innovation resources, organizational growth may introduce bureaucratic rigidity that erodes the agility central to SMEs’ competitive advantage.

Our findings enrich theoretical understanding of antecedents and contextual factors in SMEs’ pursuit of key core technology breakthroughs. By challenging conventional scale-centric innovation paradigms, the study reveals how digital technologies can accelerate innovation dynamics to favor specialized, agile firms. Practically, it provides policymakers with evidence-based insights to design targeted intervention, such as enhancing digital infrastructure accessibility, fostering SME-centric innovation ecosystems, and optimizing fiscal incentives for collaborative R&D—that leverage digitalization to amplify SMEs’ disruptive potential. For SMEs, the findings emphasize strategic imperatives: cultivating dynamic capabilities to harness digital resources while maintaining organizational flexibility to avoid scale-induced inefficiencies. By bridging the digital divide and rebalancing innovation ecosystems, this research contributes to strategies that harness SMEs’s technological vitality to drive high-quality industrial development, ultimately advancing strategic goals of technological self-reliance of China.