This study examines the role of digital literacy in shaping work engagement among employees in Malaysian manufacturing small and medium-sized enterprises (SMEs) through the lens of Self-Determination Theory (SDT). Manufacturing SMEs play a vital role in Malaysia’s economy, yet many continue to face persistent challenges related to employee productivity, skills development, and digital transformation. Drawing on SDT, this paper conceptualizes digital literacy as an enabling resource that supports employees’ psychological needs for autonomy, competence, and relatedness, thereby fostering work engagement. Work engagement is operationalized as a positive work-related psychological state comprising vigor, dedication, and absorption. Through a comprehensive review of the literature, the study synthesizes evidence on how digital literacy influences engagement by shaping employees’ motivational experiences, while also considering structural barriers to digital transformation and the role of organizational resilience. The paper further discusses managerial implications for manufacturing SMEs, emphasizing capability development, supportive leadership, and inclusive digital upskilling initiatives. By integrating digital literacy, work engagement, and SDT, this study contributes a theoretically grounded framework for understanding how digital capabilities can enhance employee work engagement and productivity in resource-constrained manufacturing contexts.
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