Do sustainability innovation and firm competitiveness help improve firm performance? Evidence from the SME sector in vietnam

This study unfolds the nexus between sustainability innovation, firm performance of small- and medium-sized enterprises (SMEs) by exploring the mediating role of firm competitiveness in the context of an emerging market. This study adopts a systematic literature review approach which results in arguing that this relationship is not explored in-depth in current literature. This is especially more critical for emerging economies as current literature shows a lack of empirical research in this research topic. A well-structured questionnaire was administrated for data collection. A total of 435 valid responses from top executives, managers, and experts were received and used for data analysis. Structural equation modeling (SEM) was used to investigate the relationships between constructs and latent variables. Our findings reveal that there is a significant and positive relationship among sustainability innovation and firm competitiveness. Firm competitiveness has a positive and significant relationship with financial, environmental, and operational performance. Moreover, sustainability innovation had an indirect positive and significant effect on financial performance. The statistical results indicate that the indirect effects are all significant (sig. < 0.05) and the order of these indirect effects is consistent with those of direct effects of firm competitiveness on firm performance dimensions. Stakeholder theory is applied to check how firm competitiveness helps improve the performance of SMEs. To the best of our knowledge this study is the first that explores the mediating role of firm competitiveness between sustainability innovation and SMEs’ performance. Based on the context of the influence of the COVID-19 pandemic, this study presents implications for entrepreneurs and top management with respect to strategic perspectives to drive their businesses in a sustainable direction.