Dynamic Capabilities and Sustainable Competitive Advantage in SMEs: The Roles of Innovation and Organizational Learning

Abstract

This study examines how dynamic capabilities contribute to sustainable competitive advantage in small and medium-sized enterprises (SMEs), with a particular emphasis on long-term organizational sustainability in dynamic and uncertain environments. Drawing on Dynamic Capabilities Theory, the research investigates innovation as a mediating mechanism and organizational learning capability (OLC) as a moderating factor that strengthens the relationship between dynamic capabilities, innovation, and sustainable competitive advantage. Using data collected from 250 SME managers and decision-makers in Saudi Arabia, the proposed model was empirically tested through a quantitative approach employing Structural Equation Modeling (SEM). The findings reveal that innovation significantly mediates the relationship between dynamic capabilities and sustainable competitive advantage. Moreover, SMEs with higher organizational learning capability demonstrate stronger innovation outcomes, enhancing their ability to adapt, renew resources, and maintain competitiveness over time. By highlighting the role of internal capabilities in fostering innovation, adaptability, and learning, this study contributes to the sustainability literature by demonstrating how SMEs can achieve economically sustainable performance and long-term resilience. The study advances dynamic capabilities theory by empirically demonstrating how innovation operates as a key transmission mechanism and how organizational learning capability conditions this process in SME contexts. The results also provide practical insights for SME leaders and policymakers seeking to promote sustainable business development in emerging economies.