Digital Marketing Capability and Green Innovation Effects on SME Performance: Market Orientation Mediation and Environmental Dynamism Moderation

Abstract

This study investigates relationships between digital marketing capability, green innovation, and small and medium enterprise (SME) performance, examining market orientation as mediating mechanism and environmental dynamism as moderating factor. Using stratified random sampling, data were collected from 150 SME owner-managers across manufacturing and service sectors in Deli Serdang, North Sumatera, Indonesia. Cross-sectional quantitative design tested through PLS-SEM using SmartPLS 4.0, incorporating mediation and moderation analyses. Findings: Digital marketing capability (β = 0.335, t = 3.970, p = 0.001) and green innovation (β = 0.270, t = 3.004, p = 0.003) significantly enhance SME performance. Market orientation partially mediates these relationships (indirect effects: 0.175 and 0.170 respectively, both p = 0.045 and p = 0.048). Environmental dynamism moderates green innovation-performance relationship (β = 0.122, t = 2.573, p = 0.010) but not digital marketing capability-performance link. The model explains 85.9% of performance variance. SMEs should simultaneously develop digital marketing and green innovation capabilities while fostering market orientation. In dynamic environments, green innovation benefits amplify, suggesting context-dependent strategic priorities. Research extends dynamic capabilities theory demonstrating how digital and environmental capabilities create value through market-sensing mechanisms. Reveals market orientation's mediating role and environmental dynamism's boundary conditions in emerging market SMEs.