Exploring the Relationship between Sustainability Performance, Sustainable Competitive Advantages, and Firm Performance in Small and Medium-sized Enterprises of Pakistan

Small and medium-sized firms (SMEs) play a critical role in every economy, contributing significantly to gross domestic product (GDP) and employment creation. However, tackling the negative environmental effect of SMEs is critical to their overall performance. Achieving sustained success necessitates a mix of elements that create a competitive advantage and assist the accomplishment of triple-bottom-line objectives. While previous research has explored business performance and sustainability individually, there is minimal understanding of how sustainability performance impacts firm performance, with sustainable competitive advantages serving as a mediator. Our continuing research aims to fill this knowledge gap by investigating the influence of sustainability performance on firm performance, particularly in SMEs businesses, and by investigating the possible mediating role of sustainable competitive advantages. We assess sustainability performance across three dimensions: economic, environmental, and social. Financial and market performance, quality performance, and innovation performance are used to evaluate firm performance. We use partial least squares structural equation modeling (PLS-SEM) to analyze data from 370 SMEs firms in Pakistan. Our findings give empirical support for the Resource-Based Theory stressing dynamic capacities and provide useful insights for SMEs on effective resource allocation and the implementation of sustainable practices. However, this study has limitations, including its focus on SMEs in Pakistan, which may limit the generalizability of the findings to other regions and sectors. Future research should consider broader geographic and industry contexts to validate these results. This work makes a theoretical and managerial contribution to improving corporate performance.