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The Inter-Relationship between Innovation Capability and SME Performance: The Moderating Role of the External Environment

Author

Listed:
  • Qinghua Fu

    (Economics and Management School, Wuhan University, Wuhan 430072, China)

  • Muhammad Safdar Sial

    (Department of Management Sciences, COMSATS University Islamabad (CUI), Islamabad 44000, Pakistan)

  • Muhammad Zulqarnain Arshad

    (Department of Management Sciences, Lahore Garrison University, Lahore 54000, Pakistan)

  • Ubaldo Comite

    (Department of Business Sciences, University Giustino Fortunato, 82100 Benevento, Italy)

  • Phung Anh Thu

    (Faculty of Finance and Accounting, Nguyen Tat Thanh University, 300A Nguyen Tat Thanh Street, District 4, Ho Chi Minh City 70000, Vietnam)

  • József Popp

    (Institute of Economic Sciences, Hungarian University of Agriculture and Life Sciences, 2100 Gödöllő, Hungary)

Abstract

Small and Medium-Sized Enterprises (SMEs) play a crucial part in a country’s economic growth and sustainable development. The purpose of this study is to investigate the relationship between innovation and the performance of SMEs. An external environmental factor acts as a moderating variable between the exogenous and endogenous variables. Data were collected from 350 textile SMEs operating in Pakistan using a cross-sectional study design through self-administered questionnaires. Of these, only 335 surveys were valid for further analysis. The structural equational modeling technique was used for analyzing the data and testing the hypotheses that innovation and the external environment affect an SME’s performance. The results indicate a significant association between innovation and SME performance, and the external environment has a moderating impact on innovation and SME performance. This paper offers valuable recommendations to senior managers and owners of SMEs to consider the innovation and external environment as crucial factors when assessing their SME’s performance. This study contributes towards the body of knowledge on this subject and can help practitioners and researchers explore the effects of innovation and the external environment on the performance of SMEs.

Suggested Citation

  • Qinghua Fu & Muhammad Safdar Sial & Muhammad Zulqarnain Arshad & Ubaldo Comite & Phung Anh Thu & József Popp, 2021. "The Inter-Relationship between Innovation Capability and SME Performance: The Moderating Role of the External Environment," Sustainability, MDPI, vol. 13(16), pages 1-14, August.
    • Handle: RePEc:gam:jsusta:v:13:y:2021:i:16:p:9132-:d:614753
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