Activating Resources for Sustainable Advantage: Green Innovation, AI Adoption and Institutional Support in Construction SMEs of an Emerging Economy

Abstract

In the face of escalating climate pressures and accelerating digital transformation, construction small and medium-sized enterprises (SMEs) in emerging economies confront the dual challenge of advancing sustainability while maintaining competitiveness. This study investigates how financial resources, green product innovation, artificial intelligence (AI) adoption and institutional support interact to shape sustainable competitive advantage (SCA) in Pakistan’s construction sector. Guided by an integrated framework, the resource-based view and natural resource-based view explain the role of resources and environmental capabilities; Dynamic Capabilities Theory (DCT) captures adaptive innovation processes; Socio-Technical Systems theory frames the human–technology interface in AI adoption; and Institutional Theory situates these dynamics within policy and regulatory contexts. Using survey data from 228 construction SMEs and analysing results through partial least squares structural equation modelling, the study finds that green product innovation fully mediates the relationship between financial resources and SCA. AI adoption, particularly in project design and logistics, strengthens this pathway, with greater effects in technology-mature SMEs. Institutional support significantly enhances the resource-to-innovation link, with regulatory clarity proving more influential than financial incentives alone. The findings highlight that sustainable advantage arises not from isolated capabilities but from their coordinated activation through innovation, targeted digital adoption and supportive institutional environments. This research offers a context-specific, theoretically integrated model and practical guidance for SME leaders and policymakers seeking to accelerate sustainability transitions in construction.