The mediating role of innovation capability and technological capability in the relationship between absorptive capacity and SMEs' business performance

This study aims to fill the research gap by empirically examining the effects of absorptive capacity on business performance within the scope of small- and medium-enterprises (SMEs), with a mediating role of innovation capability and technological capability in the global market. The study was performed quantitatively to investigate the research model with structural equation modeling (SEM). The data were collected using a purposive sampling technique from 321 global-market-oriented SMEs in Central Java and Yogyakarta, Indonesia. The results showed that all the proposed hypotheses were supported, indicating a positive and significant effect of absorptive capacity on innovation capability, absorptive capacity on technological capability, innovation capability on business performance, and technological capability on business performance. This study presents a solution to the concept of innovation and technological capability, confirming that these two concepts play a crucial role as mediators in the relationship between absorptive capacity and SMEs’ performance.