Innovation capability as a driver of competitiveness and improved market performance in SMEs

Purpose This study explores the role of innovation capability as a key driver of market performance for SMEs, while analysing the mediating effect of competitive advantage within a resource-based management framework. Design/methodology/approach A quantitative approach was employed using a stratified sample of 5,813 SMEs across 13 Latin American countries. Data were collected via online surveys and analysed using partial least squares structural equation modelling (PLS-SEM) Findings Results confirm that innovation capability significantly enhances both competitive advantage and market performance. Moreover, competitive advantage partially mediates this relationship, reinforcing its strategic role in translating innovation into superior outcomes. Research limitations/implications The cross-sectional design of the study also limits the analysis of long-term causal relationships. Future research could replicate the study at different points in time to track how relationships between variables evolve over time and focus on how competitive advantage develops in relation to organisational maturity and the competitive environment (Block et al., 2017; Anand et al., 2021). Another limitation of the study is the exclusion of the control variable of country. Including this variable could help to identify whether innovation processes have a widespread impact on the development and sustainability of SMEs in Latin America, or if this varies from country to country (Shrafat and Ismail, 2019; Peterson, 2020). Practical implications From a practical perspective, the research is pertinent to SME directors and managers in that it confirms innovation capability as one of their principal assets. Developing continuous innovation processes can lead to better market outcomes. To this end, firms need to invest in the resources and capabilities that underpin their capacity to innovate; beyond enhancing market performance, these investments enable the development of competitive advantage, which strengthens market positioning and is crucial for sustainability. Originality/value The study expands empirical evidence to the Latin American SME context, integrating resource-based theory with market performance constructs. It offers a robust framework for understanding innovation-driven competitiveness in emerging economies.