The Effectiveness of Capabilities and Malaysian SMEs’ Performance: Mediated by Innovation

Abstract

Purpose: The Malaysian government has set ambitious targets for economic expansion. SMEs, being the backbone of the economy, are essential contributors to the country’s overall growth, making substantial contributions to the GDP. SMEs are vital in generating employment opportunities, promoting innovation, and contributing to national revenue. However, there are numerous challenges hinder SMEs from increasing export activities in the global market. This study aims to identify the capabilities that can enhance Malaysian small and medium enterprises’ export performance. Design/methodology/approach: This study employs contingency theory together with resource-based and market-based perspectives to provide a multidimensional understanding of the issue. By combining these approaches, the research highlights how organizational performance is not only shaped by internal resources and capabilities but also influenced by external market conditions and contextual factors. Findings: The study contributes valuable insights that enable organizations to evaluate their current practices, adopt innovative approaches, and refine their strategic decision-making processes, which in turn enhances efficiency and leads to stronger export outcomes. Research limitations/implications: This research seeks to fill the existing gap in the literature by examining how the capabilities of Malaysian SMEs influence their export performance, while also investigating the role of innovation as a mediating factor that links organizational strengths with international success. Practical implications: The study provides valuable implications for SMEs by showing how systematic improvements in decision-making during export activities can translate into better performance in international markets. It further establishes that capability enhancement serves as a fundamental factor influencing the overall export competitiveness of SMEs. Originality/value: To bridge the existing research gap concerning the export performance of SMEs, this study seeks to establish a holistic conceptual framework. The proposed model positions technological and managerial capabilities and innovation as mediating elements that shape SMEs’ ability to perform effectively in international markets, while simultaneously fostering long-term growth and strengthening competitiveness.