The integrated model of capabilities affecting performance in SME context

Abstract

Under the heavy global competition, Small Medium Enterprises (SMEs) are undergoing difficulty to survive and grow because of their intrinsic disadvantages. One of the major problems that SMEs have is how to allocate resources well to yield better performance. As functions of firms affect each other, it is not easy to find optimized resource combinations. Another problem that SMEs face is justification of emphasis on marketing, as marketing is harder to conduct successfully and costly in terms of SMEs. Thus, this study examines the reason why SMEs have to nurture marketing capability and relationships between marketing and other capabilities: innovation and production. In addition, we provide the unified model including three capabilities known as key drivers of firm performance to clarify relationships among capabilities and firm performance. We found marketing capability (measured by customer orientation) has significant impacts on innovation capabilities (measured by cooperative R&D and internal R&D) and production capability. Cooperative R&D and production capability affect product innovation and firm performance in order. The results provide evidence that SMEs have to focus more on marketing activities and bearing product innovation based on combinations of capabilities to lead to better firm performance. Also, successful R&D activity is cooperative R&D rather than internal R&D. This study may help SMEs to understand how they arrange resources and academic researchers to precede further researches.

Keywords: Resource Based View (RBV), Customer Orientation (CO), Production capability, Cooperative R&D, Internal R&D, Product Innovation