From capability to sustainability: The role of innovation, collaboration, and knowledge management in the sustainability performance of SMEs in the food industry

Small and medium enterprises (SMEs) are pivotal to national growth and development; nonetheless, sustaining long-term performance remains particularly challenging in resource-constrained and rapidly evolving market environments. For SMEs in developing countries, the need to balance environmental and social obligations with competitiveness adds to the burden. Building on these considerations, this study examines the impact of innovation, collaboration, and knowledge management on the sustainability performance of SMEs in the food industry in Central Java, Indonesia. Drawing on the Resource-Based View (RBV) and Dynamic Capability Theory (DCT), the study proposes an integrated framework conceptualizing sustainability performance as an outcome of interrelated organizational capabilities. A quantitative research method was employed, and data were collected from 375 owners and managers of SMEs. Prior to hypothesis testing using Partial Least Squares Structural Equation Modelling (PLS-SEM), the data underwent preliminary data analysis, including data screening, missing values analysis, outliers, normality assessment, common method variance (CMV), and non-response bias. The findings indicate that collaboration and knowledge management have positive and statistically significant effects on sustainability performance, whereas innovation does not exhibit a significant effect. Innovation and collaboration explain 41.2% of the variance in knowledge management, while the three capabilities collectively account for 28.3% of the variance in sustainability performance. Theoretically, the study extends the RBV by demonstrating that sustainability requires not only valuable resources but also the DCT to adapt and reconfigure them under changing conditions. The integration of innovation, collaboration, knowledge management, and sustainability performance into a single unified model provides a capability-based explanation of how internal capabilities and external relational mechanisms jointly shape SME sustainability performance. Practically, the findings offer actionable insight for SME practitioners and policymakers in formulating capability-driven strategies to enhance long-term business sustainability.