Unlocking the link between innovation capacity and market performance of small and medium enterprises

This study examines how innovation capacity influences market performance among small and medium enterprises (SMEs) in the UAE and offers both theoretical and practical contributions. Data from 133 SMEs were analyzed using Structural Equation Modeling to assess the effects of five innovation dimensions, namely knowledge management, creativity, collaboration (COL), leadership, and organizational learning (OL), on quick response (QR), product differentiation (PDIF), and market share. The results show that OL and COL play central roles in strengthening SMEs’ ability to respond quickly to customer and market requirements, as well as supporting greater PDIF. Practically, the findings assist SMEs in leveraging innovation capabilities to enhance competitiveness and sustain growth in dynamic market environments. The analysis proceeded in three stages. First, correlation analysis explored relationships among the five innovation capacity dimensions and the three performance indicators. Second, the relationships between QR, PDIF, and overall market performance were examined. Third, the influence of the innovation capacity dimensions on the performance variables was tested. Model fit was evaluated using maximum likelihood estimates and standard fit indices (Chi-square, Goodness-of-Fit Index, Adjusted GFI, Normed Fit Index, Relative Fit Index, Incremental Fit Index, Tucker–Lewis Index, Comparative Fit Index, and the Root Mean Square Error of Approximation). The model results confirm the adequacy of the proposed framework.