Relational capabilities and supply-chain-enabled differentiation in SMEs: evidence from an emerging economy

The purpose of this paper is to measure how customer relationship (CR) and strategic supplier partnership (SSP) is associated with the financial performance (FP) of small and medium-sized enterprises (SMEs) in the light of differentiation strategy (DFS) and competitive advantage (CA). Specifically, it examines DFS as a mediator between CR, SSP, and competitive advantage, and CA as a mediator between CR, SSP, DFS, and SMEs’ financial performance. To realise this study, we analysed the data from 155 manufacturing SMEs operating in Kosovo, using structural equation modelling (SEM). The findings show that DFS fully mediates CR – CA and SSP – CA relationships, while CA mediates the links between CR, SSP, and DFS with SMEs’ financial performance. This study provides valuable insights into how DFS and CA interact with supply chain practices, specifically customer and supplier relationships, and how this is linked to stronger SMEs’ financial performance. Thus, it provides practical implications for SME managers by showing that emphasising customer relationships, SSP, and differentiation strategy is associated with stronger financial performance, and contributes to the theoretical development of SCM and strategic management by integrating contingency theory with SC practices through the mediating role of DFS in achieving competitive advantage. We further discuss the implications of these findings and present directions for future research.