The Role of SMEs' Dynamic Capabilities on their Entrepreneurial Capabilities and Competitiveness

Abstract

The empirical evidence regarding the mediating role of dynamic capabilities in the relationship between entrepreneurial capabilities and SMEs' competitiveness from an emerging economy perspective is limited. This research aims to examine the impact of entrepreneurial capabilities on SMEs' competitiveness and the mediating role of dynamic capabilities in this relationship. Structural equation modeling was utilized to test the hypotheses on a sample of 459 manufacturing SMEs in Tigray, Ethiopia based on data collected through a structured questionnaire. Proportional stratified sampling was used to ensure a representation of SMEs from each city, followed by simple random sampling to select SMEs for inclusion in the sample. The empirical results of the study reveal that both entrepreneurial and dynamic capabilities have a positive and significant influence on SMEs' competitiveness. Furthermore, entrepreneurial capabilities can positively and significantly impact SMEs' competitiveness when mediated by dynamic capabilities. The R2 value for SMEs' competitiveness is 0.686 (68.6%), indicating that 68.6% of the variations in SMEs' sustainable competitiveness can be explained by entrepreneurial and dynamic capabilities. Similarly, the R2 value for dynamic capabilities is 0.498 (49.8%), suggesting that entrepreneurial capabilities can explain over 49.8 % of the variation in SMEs' dynamic capabilities. This research contributes theoretically by integrating four entrepreneurial capabilities (autonomy, risk-taking, pro-activeness, and innovativeness) into a single framework based on the dynamic resource-based view of competitiveness (asset, process, and performance). The findings address a research gap by providing empirical evidence of the mediating role of dynamic capabilities in the relationship between entrepreneurial resources and SMEs' competitiveness from an emerging economy perspective. The study can help SME managers/owners and decision-makers enhance the utilization of entrepreneurial and dynamic capabilities to achieve greater competitiveness.