Sustainable success in Ethiopian SMEs: harnessing dynamic capabilities, innovation capabilities and product quality

Purpose This research aims to examine the impact of dynamic capabilities on the competitiveness of small- and medium-sized enterprises (SMEs) and the mediation role of innovation capabilities and product quality on the relationship between dynamic capabilities and competitiveness. Design/methodology/approach A framework was developed to illustrate the relationship between dynamic capabilities and the sustainable competitiveness of SMEs, grounded in the theory of dynamic capabilities. Data were collected through a survey from 459 SMEs operating in the manufacturing sector. Structural equation modeling (SEM) was used to analyze the research hypothesis and the path relationships based on the model developed. Findings The study's results showed that a firm's innovation capabilities, product quality and competitiveness are significantly and positively influenced by its dynamic capabilities. Furthermore, the relationship between dynamic capabilities and competitiveness is partially mediated through innovation capabilities. However, product quality did not mediate the impact of dynamic capabilities on competitiveness. Research limitations/implications Managerial and policy implications: the research finding provides practical implications for policymakers to design strategies on internal capability development. Furthermore, draws managerial attention to investing in internal capability focusing on continuous learning and internal and external resource integration to drive customer satisfaction, and monitoring the innovation landscape to ensure the firms remain at the forefront for their sustainable competitiveness. Originality/value The significance of SMEs in Ethiopian economic development is notable. However, most new ventures experience very low growth and high failure rates, which raises questions for both researchers and policymakers. Therefore, to the best of the authors' knowledge, this research paper is the first to analyze the influence of dynamic capabilities, innovation capabilities and product quality on the competitiveness of Ethiopian SMEs in the manufacturing sector.