Sustainable development of micro firms: examining the effects of cooperation on handicraft firm's performance through innovation capability

Purpose - Despite their economic and cultural significance, the growth of handicraft micro firms is vulnerable, given their small size and resource limitations. By examining the impact of cooperation on firm performance via innovation capability, this study shows how micro firms can address constraints and achieve sustainable development by acquiring and utilizing external resources, complemented by innovation capability, through internal development. Design/methodology/approach - Data were collected from 164 handicraft micro firms in Pakistan via a questionnaire. Structural equation modeling was employed to estimate interrelations of various constructs simultaneously and control measurement errors. Findings - The impact of cooperation with customers and suppliers on firm performance via innovation capability was positive and significant. Contrarily, competitor cooperation did not significantly affect innovation capability. Furthermore, there was a positive and significant interaction effect of customer and competitor cooperation on innovation capability. Thus, micro firms must reinforce their customer and supplier relationships through innovation capability and internal transformation for sustainable development. Moreover, a balance must exist between cooperation and competition to achieve optimal innovation returns for the sustainable development of firms. Originality/value - This study emphasized that micro firms must strengthen their customer and supplier relationships via innovation capability and internal development to achieve higher performance. Moreover, the study introduced a new dimension for measuring firm performance.