Dynamic Capabilities for Sustainable Competitiveness of Small and Medium Enterprises (SMEs): Mediating Role of Innovation Capabilities and Product Quality

Abstract

The role of internal capabilities in the competitiveness of Small and Medium Enterprise (SME) is not well documented in the literature from the perspective of an emerging economy, nor is the role of dynamic and innovation capabilities in their competitiveness conclusive. Therefore, this research examines the impact of dynamic and innovation capabilities, and product quality on SME competitiveness. Data were collected using a survey from 459 SMEs, operating in the manufacturing sector. Structural equation modeling was employed to analyze the proposed model's research hypotheses and path relationships. The result of the study revealed that a firm’s innovation capabilities, product quality, and competitiveness are significantly and positively affected by its dynamic capabilities. Moreover, the path between dynamic capabilities and competitiveness is partially mediated through innovation capabilities. However, product quality failed to mediate the path between dynamic and innovative capabilities and competitiveness. The research findings provide practical implications for policymakers in designing strategies that focus on internal capability developments. In addition, it draws some managerial attention to investing in internal capability focusing on continuous learning and internal and external resource integration to drive customer satisfaction for the sustainable competitiveness of SMEs