The influence of market competition on SMEs' performance in emerging economies: Does process innovation moderate the relationship?

Keelson, Solomon Abekah et al. Article The influence of market competition on SMEs' performance in emerging economies: Does process innovation moderate the relationship? Economies Provided in Cooperation with: MDPI – Multidisciplinary Digital Publishing Institute, Basel Suggested Citation: Keelson, Solomon Abekah et al. (2024) : The influence of market competition on SMEs' performance in emerging economies: Does process innovation moderate the relationship?, Economies, ISSN 2227-7099, MDPI, Basel, Vol. 12, Iss. 11, pp. 1-19, https://doi.org/10.3390/economies12110282 This Version is available at: https://hdl.handle.net/10419/329209 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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The Influence of Market Competition on SMEs’ Performance in Emerging Economies: Does Process Innovation Moderate the Relationship? Economies 12: 282. https://doi.org/10.3390/ economies12110282 Academic Editor: Katarina Valaskova Received: 6 August 2024 Revised: 2 October 2024 Accepted: 12 October 2024 Published: 22 October 2024 Copyright: © 2024 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/). economies Article The Influence of Market Competition on SMEs’ Performance in Emerging Economies: Does Process Innovation Moderate the Relationship? Solomon Abekah Keelson 1, Juraj Cúg2, John Amoah 1,*, Zora Petráková3, Jacob Odei Addo 1 and Abdul Bashiru Jibril 4 1Department of Marketing and Strategy, Takoradi Technical University, Takoradi WH1851, Ghana; [email protected] (S.A.K.); [email protected] (J.O.A.) 2Department of Economics, Faculty of Operational and Economics of Transport and Communications, University of Zilina, 010 26 Zilina, Slovakia; [email protected] 3Institute for Forensic Engineering, Faculty of Civil Engineering, Slovak University of Technology, 810 05 Bratislava, Slovakia; [email protected] 4School of Management and Economics, University of Kurdistan Hewlêr, 30 Metre Avenue, Erbil, Kurdistan Region, Iraq; [email protected] *Correspondence: [email protected] Abstract: Small and medium enterprises (SMEs) are vital to the economic development of emerging economies, significantly contributing to employment, innovation, and GDP growth. This study investigates the influence of market competition on SME performance in emerging economies, specifically examining the moderating role of process innovation. Using a sample of 365 SMEs in the western region of Ghana, the research employed a convenience sampling technique to gather data. The analysis utilized partial least square structural equation modeling (PLS-SEM) to explore the relationships between market competition, process innovation, and SME performance. The findings revealed that three direct hypotheses were supported, indicating a positive relationship between market competition and SME performance, while the moderated hypotheses were not supported. These insights provide valuable implications for SME owners, managers, and policymakers. Keywords: emerging economies; innovation; market competition; SMEs 1. Introduction Small and medium-sized enterprises (SMEs) are the backbone of emerging economies, playing a pivotal role in economic development, job creation, and innovation. SMEs account for a significant portion of total business activity and employment. For instance, in developing countries, SMEs contribute up to 60% of total employment and up to 40% of GDP (Amoah et al. 2022). Their flexibility, adaptability, and capacity for innovation make SMEs crucial drivers of economic growth and social progress (e.g., Dvorsky et al. 2024). SMEs also contribute to economic diversification by reducing dependency on a few large industries or companies. They provide opportunities for entrepreneurship, especially in rural and underserved areas, and help to distribute economic benefits more evenly across society (Ayyagari et al. 2011). Furthermore, SMEs are often more nimble than larger enterprises, allowing them to respond quickly to market changes and adopt new technologies, which is essential for fostering a dynamic and competitive economic environment (North et al. 2020;OECD 2019). In many emerging economies, SMEs play a critical role in fostering innovation (Abdul-Azeez et al. 2024). They often operate in niche markets and are more willing to take risks compared to larger firms, leading to the development of new products, services, and business models (Taran et al. 2015;Dvorskýet al. 2023). This innovative capacity is crucial for sustaining long-term economic growth and competitiveness in the global Economies 2024,12, 282. https://doi.org/10.3390/economies12110282 https://www.mdpi.com/journal/economies Economies 2024,12, 282 2 of 19 market (OECD 2019). Furthermore, while some research has highlighted the challenges faced by SMEs in Ghana, such as limited access to finance, inadequate infrastructure, and lack of managerial skills (Ntiamoah et al. 2016), there is insufficient exploration of how these challenges interact with market competition and the potential for process innovation to mitigate negative impacts. Despite their significant role, SMEs face intense market competition, particularly from larger firms and foreign competitors, which poses substantial challenges to their sustainability and growth (Liñán et al. 2020;Karadag 2015). The competitive landscape has been exacerbated by globalization, technological advancements, and the emergence of new market entrants, leading to increased pressure on SMEs to innovate and improve their operational efficiencies (Ocloo et al. 2014). While some studies have explored the impact of market competition on SME performance, there is a noticeable gap in understanding how process innovation can moderate this relationship. Specifically, the lack of empirical research focusing on the Ghanaian context limits the ability to draw actionable insights for SME leaders and policymakers. As many SMEs struggle to survive beyond five years of operations, understanding the interplay between market competition, process innovation, and performance is crucial for developing strategies that enhance their competitiveness and sustainability in an increasingly challenging environment (Selensky 2022). This study aims to fill this gap by (1) examining the impact of market competition on the performance of SMEs in emerging economies and (2) analyzing the moderating effect of process innovation on the relationship between market competition and SME performance. By addressing this gap, the research will provide valuable insights for SME owners, managers, and policymakers, enabling them to formulate effective strategies that leverage innovation to enhance competitiveness and performance in the face of market challenges. The other sections of the paper are the literature review, theoretical background, methodology, discussions, and conclusion. 2. Literature Review and Hypotheses Development 2.1. Theoretical Background The competitive advantage theory, primarily articulated by Michael Porter, posits that firms can achieve superior performance by adopting strategies that allow them to outperform their rivals. This theory is particularly relevant for small and medium enterprises (SMEs), which often operate in highly competitive environments where differentiation and cost leadership are critical for survival and growth. This theory emphasizes two primary routes to competitive advantage: cost leadership and differentiation (Porter 1990). Firms that achieve cost leadership aim to become the lowest-cost producers in their industry. This strategy involves minimizing production costs, optimizing supply chains, and achieving economies of scale. For SMEs, adopting a cost leadership strategy can be challenging due to their limited resources and scale. However, SMEs can still pursue cost efficiency through lean operations, strategic sourcing, and process improvements. Differentiation involves offering unique products or services that are valued by customers and perceived as distinct from those of competitors. This can be achieved through innovation, superior quality, exceptional customer service, or brand reputation. SMEs often leverage their flexibility and close customer relationships to differentiate themselves in niche markets. By focusing on specialized products or services, SMEs can create a competitive edge that larger firms might find difficult to replicate. Porter’s theory also introduces the concept of the “value chain”, which describes the full range of activities required to bring a product or service from conception to delivery. SMEs can analyze their value chain to identify activities where they can add the most value and gain a competitive advantage. For example, improving inbound logistics, enhancing product design, or optimizing marketing efforts can contribute to an SME’s competitive position (Porter 1990). Porter’s competitive advantage theory provides a useful lens for examining how SMEs in emerging economies can navigate competitive markets. By focusing on cost leadership and differentiation strategies, SMEs can identify areas where they can build and sustain competitive advantages, even Economies 2024,12, 282 3 of 19 in resource-constrained environments. Several studies have applied the theory in diverse ways. For instance, Muazu and Abdulmalik (2021) applied this theory to information technology capabilities and competitive advantage, highlighting the importance of innovation in achieving competitive advantage. Again, Nguyen et al. (2021) also applied the theory in assessing the financial performance of SMEs in Vietnam. The research focused on how SMEs can leverage competitive strategies to enhance their performance, emphasizing the role of process innovation in this dynamic. Furthermore, Arsawan et al. (2022) posit that competitive advantage theory can be used to leverage knowledge-sharing and innovation culture into SMEs’ sustainability. By integrating Porter’s competitive advantage theory, this study provides a comprehensive understanding of how SMEs can navigate and thrive in competitive markets. 2.2. SMEs and Market Competition Empirical research has extensively examined the impact of market competition on the performance of SMEs in various contexts. This study provides insights into how competitive pressures shape the operational and strategic decisions of SMEs, influencing their overall performance. Several studies have established a link between the intensity of market competition and SME performance metrics such as profitability, market share, and growth. For instance, a study by Naradda Gamage et al. (2020) found that SMEs operating in highly competitive markets tend to experience lower profit margins due to price wars and increased operational costs. However, these firms often report higher innovation rates as they strive to differentiate themselves and capture market share. Similarly, research by Jeong and Chung (2023) demonstrated that SMEs in competitive industries show significant improvements in efficiency and customer service as they seek to maintain their market positions. Competition also affects the survival and exit rates of SMEs. A longitudinal study by Oguh and Bello (2023) and Kardos et al. (2024) revealed that high levels of competition lead to higher business failure rates among SMEs, particularly those that lack the necessary resources and capabilities to compete effectively. However, the same study highlighted that competition serves as a natural selection mechanism, fostering the survival of more resilient and adaptable firms. Additionally, a study by Abdul (2019) showed that competitive pressure encourages SMEs to innovate and diversify their product offerings, which can enhance their survival prospects in the long run. The impact of competition on SME performance varies across different regions and sectors (Rua et al. 2018). For example, a study by Ayyagari et al. (2011) found that SMEs in developing countries face unique competitive challenges, such as informal sector competition and inadequate infrastructure, which significantly affect their performance. In contrast, SMEs in developed countries benefit from more supportive regulatory environments and better access to resources, which can mitigate the adverse effects of competition. Sectoral differences are also evident, with technology-intensive industries experiencing higher competitive pressures and greater innovation-driven performance outcomes compared to traditional manufacturing sectors (Audretsch 2002). 2.3. Market Share Distribution Market share distribution reflects the concentration of power among firms within an industry, influencing competitive dynamics and strategic decision-making (Rosário and Raimundo (2024). The relationship between market share distribution and the performance of small and medium-sized enterprises (SMEs) has garnered significant attention in recent years (Quoc Trung 2021;Appiah Fening et al. 2008). This relationship is critical as market share is often seen as a key indicator of a firm’s competitive position and overall success. Below are key findings from recent studies that explore this dynamic. A study by Khattak et al. (2024) emphasized that a higher market share often leads to improved performance metrics for SMEs. The research indicates that firms with larger market shares can benefit from economies of scale, which enable them to reduce costs and enhance profitabil- Economies 2024,12, 282 4 of 19 ity. This finding is consistent with the notion that market share is positively correlated with performance, as firms can leverage their position to negotiate better terms with suppliers and attract more customers. Research conducted by Blundell et al. (1999) highlights that market share distribution significantly influences SMEs’ competitive advantage. The study found that SMEs with a substantial market share are better positioned to invest in marketing and innovation, which further enhances their performance. The authors argue that maintaining a competitive market share is crucial for long-term sustainability and growth in emerging markets. Kueng et al. (2016,2017) argued that market share distribution should be viewed as a strategic asset for SMEs’ performance. The findings suggest that firms that prioritize market share distribution in their strategic planning tend to outperform their competitors. This is particularly evident in industries where customer loyalty and brand recognition play significant roles in driving sales. Research by Grullon et al. (2019) suggests that industries with concentrated market shares often experience less intense competition and higher barriers to entry for new firms. Conversely, fragmented market share distributions can lead to price volatility and increased competitive pressures (Baldauf and Mollner 2021). Empirical studies underscore the importance of market share distribution in shaping SME strategies. For example, firms with dominant market positions may leverage economies of scale to lower costs and maintain competitive pricing strategies (Roy and Roy 2024;Gupta and Govindarajan 2017). Therefore, SMEs operating in fragmented markets must differentiate their offerings through innovation or service quality to capture market share effectively. H1: There is a positive relationship between market share distribution and SME performance. 2.4. Number of Market Competitors The number of competitors in a market significantly influences SMEs’ competitive strategies, market positioning, and overall performance. The impact of the number of market competitors on the performance of small and medium-sized enterprises (SMEs) is a critical area of research, particularly in the context of dynamic and competitive environments. Research indicates that in highly competitive environments, SMEs often face challenges such as price wars, reduced profit margins, and intensified pressure to innovate (Naradda Gamage et al. 2020). A study by Clementi and Palazzo (2016) and Makkonen et al. (2014) highlighted that industries with a larger number of competitors tend to have higher entry and exit rates, leading to dynamic market conditions where firms must continually adapt to survive. Kothari et al. (2013) affirmed that in emerging economies, the proliferation of competitors can be attributed to factors such as lower barriers to entry, rapid market liberalization, and technological advancements. For instance, in the context of Asian economies, the competitive landscape is characterized by a multitude of small and mediumsized enterprises competing vigorously for market share (Pingali et al. 2023). O’Dwyer and Gilmore (2019) examined how the number of competitors influences SMEs’ customer orientation and performance. Their findings indicate that in highly competitive markets, SMEs that prioritize customer engagement and responsiveness tend to perform better. The study emphasizes that competition compels SMEs to focus on customer needs, leading to improved customer satisfaction and loyalty, which are critical for sustained performance. Research by Manzaneque-Lizano et al. (2019) discusses the long-term implications of market competition on SME sustainability. The study found that while competition can drive short-term performance improvements through innovation and customer focus, it can also lead to market saturation and increased exit rates among SMEs. The authors suggest that SMEs must develop sustainable competitive strategies that allow them to thrive in the long term, despite the challenges posed by a high number of competitors. H2: There is a positive relationship between the number of competitors and SME performance. Economies 2024,12, 282 5 of 19 2.5. Product Innovation Product innovation is crucial for SMEs to stay competitive and meet evolving customer demands. It involves the development and introduction of new or improved products/services to the market (Matejun 2018). Research highlights several factors influencing product innovation in SMEs. A study by Osei et al. (2016) found a strong positive correlation between product innovations and the performance of SMEs. Their research indicated that SMEs actively engaged in developing new products experience higher sales growth and improved market share. The authors argued that product innovation is essential for SMEs to differentiate themselves in competitive markets, leading to enhanced customer satisfaction and loyalty. Also, a study by Zakaria et al. (2016) examined the moderating effect of market orientation on the relationship between product innovation and SME performance. The findings suggest that SMEs with a strong market orientation, focusing on customer needs and preferences, are more likely to translate their product innovations into improved performance. The study emphasizes that understanding market demands is crucial for successful innovation outcomes. Osei et al. (2016) highlighted in their studies that SMEs with a strong learning culture, which encourages knowledge sharing and adaptation, are better able to leverage their product innovations to enhance performance. This suggests that organizational learning is a critical factor in translating innovation efforts into tangible results. A recent study by Hadi (2023) discusses the long-term sustainability of SMEs through continuous product innovation. The authors argued that while short-term performance gains from product innovation are evident, sustained innovation efforts are necessary for long-term viability. The research suggests that SMEs should develop a culture of innovation that encourages ongoing product development to remain competitive in the market. Given this, the study proposes the following: H3: There is a positive relationship between product innovation and SME performance. 2.6. The Moderating Role of Process Innovation Process innovation is a critical aspect of improving operational efficiency and enhancing the competitive position of small and medium-sized enterprises (SMEs). It refers to the implementation of new or significantly improved production or delivery methods, which can lead to cost reductions, increased productivity, and enhanced product quality (Soesetio et al. 2024). Process innovation is vital for the success and sustainability of SMEs. Process innovation, which encompasses improvements in production and operational processes, has been identified as a critical factor that may moderate this relationship. Muharam et al. (2020) examined the effect of process innovation and market innovation on financial performance with the moderating role of disruptive technology. Their findings suggest that in highly competitive environments, SMEs that adopt process innovations are better equipped to enhance operational efficiency and respond to market demands. This adaptability leads to improved performance outcomes, indicating that process innovation can significantly strengthen the competitive position of SMEs. A study by Daradkeh and Mansoor (2023) found that intense competition drives SMEs to innovate their processes, which in turn enhances their performance. The authors argue that process innovation acts as a buffer, enabling SMEs to maintain their performance levels even in challenging competitive landscapes. Aliasghar et al. (2022) explored the sources of knowledge and process innovation using perceived competitive intensity as a moderating factor. Their findings indicated that SMEs with a higher absorptive capacity are more likely to leverage process innovations to improve performance in competitive markets. This suggests that process innovation not only mediates the relationship between competition and performance but is also influenced by the firm’s ability to absorb and utilize external knowledge. A study by Hervas-Oliver et al. (2014) examined various innovation strategies, including process innovation, and their effects on SME performance. The study found that while process innovation directly impacts performance, its effectiveness is moderated by market competition. In a competitive environment, SMEs that focus on process innovation are Economies 2024,12, 282 6 of 19 more likely to achieve significant performance improvements compared to those that do not prioritize this area. Based on this, the study therefore proposes the following: H4a: Process innovation will significantly moderate the relationship between the number of competitors and SME performance. H4b: Process innovation will significantly moderate the relationship between market share distribution and SME performance. H4c: Process innovation will significantly moderate the relationship between product innovation and SME performance. 2.7. SMEs Performance Small and medium enterprises (SMEs) are vital to economic growth, innovation, and job creation across the globe. However, their performance is influenced by various factors, including market competition, innovation, and strategic orientation. Market competition is a significant determinant of SME performance. The intensity of competition can compel SMEs to innovate and improve their operational efficiencies. According to Belás et al. (2021) and Svobodova et al. (2024), competitive pressures drive SMEs to adopt strategic orientations that enhance their performance. The study emphasizes that SMEs that engage in proactive competitive strategies, such as differentiation and cost leadership, tend to achieve better market outcomes. Heinicke (2018) found that SMEs that prioritize process innovation report higher performance levels. The study underscores the importance of adopting innovative practices to improve operational processes and customer satisfaction. Moreover, research by Cardoni et al. (2023) suggests that process innovation not only improves productivity but also enables SMEs to respond effectively to changing market demands. Their findings indicate that SMEs that invest in innovative processes are better positioned to compete against larger firms, thereby enhancing their overall performance. Research by Haseeb et al. (2019) further supports this notion, indicating that SMEs facing high market competition are more likely to invest in innovation and process improvements. The study highlights that competitive environments foster a culture of continuous improvement, which is crucial for sustaining business performance. Empirical studies provide valuable insights into the factors influencing SME performance. For instance, a study by Agyapong et al. (2024) analyzed the performance of SMEs in Ghana and found that those adopting strategic orientations focused on innovation and market responsiveness achieved better performance outcomes. The findings suggest that strategic alignment with market demands is crucial for SME success. Additionally, a study by Sakib et al. (2022) identified key factors influencing SME performance, including strategic orientation, resource allocation, and innovation capabilities. The study emphasizes the importance of a holistic approach that considers both internal capabilities and external market conditions in enhancing SME performance (Popoviˇc et al. 2019). Based on the above literature review, the below proposed conceptual framework (Figure 1) is outlined as a guide for the present study. Economies 2024,12, 282 7 of 19 Economies 2024, 12, x FOR PEER REVIEW 7 of 20 Figure 1. Proposed conceptual framework of the study. 3. Methodology 3.1. Data Collection and Sampling The study aims to explore the influence of market competition on the performance of small and medium enterprises (SMEs) in emerging economies, specifically focusing on the moderating role of process innovation. To achieve this, a robust data collection and sampling strategy is essential to ensure the reliability and validity of the findings. This section outlines the methodologies that were employed for data collection and the sampling techniques utilized in this research. Using the conceptual framework, a questionnaire was created to test the study model and the suggested hypotheses. Two sections, A and B, made up the questionnaire. Each respondent’s personal demographic information was included in Section A, while Section B included questions about the study’s variables. Rather than using a longitudinal approach, which would have required data collection and analysis on multiple occasions, the cross-sectional research design was chosen. The primary data collection method for this study was deployed through a structured questionnaire distributed to SME owners and managers in Ghana. The target population for this study includes SMEs operating in various sectors within Ghana, including manufacturing, services, and retail. According to the Ghana Statistical Service (2017), there are over 1.5 million SMEs in the country, making them a significant part of the economy. A pre-test with forty-five (45) participants was held before the questionnaire’s finalization to confirm the scales’ reliability. According to Hair et al. (2019), certain questions were removed and modified, while others that did not meet the acceptable reliability threshold were kept. After the questionnaire was revised, the data collection process got underway. The respondents who were available and prepared to complete the questionnaire were chosen using convenience sampling. A combination of offline and online approaches was employed. Before the questionnaire was distributed, it was made clear that participation in the study was completely voluntary and confidential. The targeted respondents received an email with the Google link to the questionnaire following the approval of their consent (Amoah et al. 2022). The respondents provided a total of 365 valid responses. According to Hair et al. (2017) and Tabachnick and Fidell (2007), quantitative analysis needs a sample size of 300 or more, which this study satisfies. The data collection period spanned from January to May of 2024. Each respondent took an average of twelve minutes to finish SME performance Process innovation Market share distribution Product innovation Number of competitors H4c H4a H3 H1 H2 H4b Figure 1. Proposed conceptual framework of the study. 3. Methodology 3.1. Data Collection and Sampling The study aims to explore the influence of market competition on the performance of small and medium enterprises (SMEs) in emerging economies, specifically focusing on the moderating role of process innovation. To achieve this, a robust data collection and sampling strategy is essential to ensure the reliability and validity of the findings. This section outlines the methodologies that were employed for data collection and the sampling techniques utilized in this research. Using the conceptual framework, a questionnaire was created to test the study model and the suggested hypotheses. Two sections, A and B, made up the questionnaire. Each respondent’s personal demographic information was included in Section A, while Section B included questions about the study’s variables. Rather than using a longitudinal approach, which would have required data collection and analysis on multiple occasions, the cross-sectional research design was chosen. The primary data collection method for this study was deployed through a structured questionnaire distributed to SME owners and managers in Ghana. The target population for this study includes SMEs operating in various sectors within Ghana, including manufacturing, services, and retail. According to the Ghana Statistical Service (2017), there are over 1.5 million SMEs in the country, making them a significant part of the economy. A pre-test with forty-five (45) participants was held before the questionnaire’s finalization to confirm the scales’ reliability. According to Hair et al. (2019), certain questions were removed and modified, while others that did not meet the acceptable reliability threshold were kept. After the questionnaire was revised, the data collection process got underway. The respondents who were available and prepared to complete the questionnaire were chosen using convenience sampling. A combination of offline and online approaches was employed. Before the questionnaire was distributed, it was made clear that participation in the study was completely voluntary and confidential. The targeted respondents received an email with the Google link to the questionnaire following the approval of their consent (Amoah et al. 2022). The respondents provided a total of 365 valid responses. According to Hair et al. (2017) and Tabachnick and Fidell (2007), quantitative analysis needs a sample size of 300 or more, which this study satisfies. The data collection period spanned from January to May of 2024. Each respondent took an average of twelve minutes to finish answering the questionnaire. To uphold the highest standards of ethics and confidentiality, participants were expressly instructed not to write their names on the questionnaire Economies 2024,12, 282 8 of 19 before or after responding. The survey used a Likert scale to measure responses, allowing for quantitative analysis of the data collected. This method has been widely used in similar studies to assess the factors influencing SME performance (Jibril et al. 2024; Ocloo et al. 2014). The PLS-SEM software version was used to process and assess the valid responses that were received. PLS-SEM was selected for this quantitative study due to the complexity of the model under investigation and the need for precise forecasting. It is a popular choice in empirical studies because of its adaptability and suitability for explanatory research, particularly in domains like studies where relationships can be complex (Metzker et al. 2021). The researchers can systematically investigate, quantify, and explain relationships between variables since the explanatory approach is employed in this quantitative design. Since testing the hypotheses, performing statistical analyses, and deriving generalizable conclusions about the relationships observed in this study were the main objectives, this approach was beneficial (Jibril et al. 2024). 3.2. Measurement Scales For the questionnaire, a five-point Likert scale was created, with 1 denoting strong agreement and 5 denoting strong disagreement. The study’s constructs and questions were derived from several related studies: market share distribution (Reibstein and Farris 1995; Wilbur and Farris 2014;Edeling and Himme 2018), number of competitors (Eibe Sørensen 2009;Palacios-Marqués et al. 2015;O’Dwyer and Gilmore 2019), product innovation (Liao and Barnes 2015;Aksoy 2017), process innovation (Hervas-Oliver et al. 2014; Hervas-Oliver et al. 2016), and SME performance (Aminu and Mohd Shariff 2015;Kee and Rahman 2020;Wahyuni and Sara 2020). On the side of the number of indicators or questions used per construct, all of the constructs were measured by five questions or indicators each. 4. Empirical Results 4.1. Data and Results The partial least squares structural equation modeling (PLS-SEM) statistical technique version 4.0 was utilized in this study to investigate the associations between latent variables. PLS-SEM was deployed in this study since it is reliable in producing accurate results for research in domains like the social sciences and business, being especially well-suited for studies with intricate theoretical models and non-distributed data (Hair et al. 2017). Furthermore, several methodological developments have improved PLS-SEM, including the cross-validated predictive ability test (CVPAT), which raises the model’s predictive power and enables construct-level benchmarking. Because of this, researchers who want to model and validate concepts in their studies find it to be a preferred option (Kineber et al. 2023). 4.2. Assessment of the Measurement Model A three-stage measurement model that included factor loadings, convergent validity, and discriminant validity was used to evaluate the relationship between latent variables. The degree to which the observable variables and underlying factors are related is measured by factor loadings. To ensure the goodness of the model fit, the factor loadings were carefully examined or loaded to their respective areas. According to Hair et al. (2014), every loading satisfied the minimal cut-off of 0.5. Next, convergent validity was assessed using the average variance extracted (AVE), and internal consistency and convergent reliability were computed using metrics like Cronbach’s alpha and composite reliability (CR) (Hair et al. 2019). Every model construct demonstrated strong convergent validity (see Table 1) and met the recommended threshold for Cronbach’s alpha ( ≥ 0.7), indicating adequate internal consistency. AVE calculates the difference between the variance a construct captures and the variance caused by measurement error. When the AVE is 0.5 or greater, indicating that the construct accounts for more than half of the variation in its indicators, this is generally regarded as acceptable. This is essential to proving the validity of the construct. It is Economies 2024,12, 282 15 of 19 Also, future studies could apply a qualitative approach since the present study only used a quantitative approach. Author Contributions: Conceptualization: S.A.K. and J.A.; methodology, J.A. and A.B.J.; software, J.C., A.B.J. and J.A.; validation, Z.P., S.A.K., J.C. and J.O.A.; formal analysis, J.A. and A.B.J.; investigation, Z.P., J.A., J.O.A., J.C. and Z.P.; resources, J.C., Z.P., S.A.K., J.O.A. and J.A.; data curation, A.B.J. and J.C.; writing—original draft preparation, S.A.K., J.C., J.A. and Z.P.; writing—review and editing, Z.P., A.B.J. and S.A.K.; visualization, S.A.K. and J.O.A.; supervision, Z.P. and S.A.K.; project administration, S.A.K., J.A., J.C. and Z.P.; funding acquisition, J.C. and Z.P. All authors have read and agreed to the published version of the manuscript. Funding: This research was funded by an output of the project “The implementation framework and business model of the Internet of Things, Industry 4.0 and smart transport” with grant number NFP313011BWN6, and the APC was funded by the UNIVERSITY OF ŽILINA. Informed Consent Statement: Informed consent was obtained from all subjects involved in the study. Data Availability Statement: Data are available upon reasonable request. Acknowledgments: The contribution is a partial output of scientific project VEGA 1/0409/23 “Forensic marketing as a platform of objective empirical support for managerial decision-making processes.” We are also grateful to the editor-in-chief and the anonymous reviewers for their constructive criticism that helped in shaping the entire manuscript. Conflicts of Interest: The authors declare no conflicts of interest. Appendix A Table A1. F-square. Constructs F-Square (f2) Market Share Distribution 0.023 Number of Competitors 0.079 Process Innovation 0.014 Product Innovation 0.065 SMEs Performance Process Innovation ×Market Share Distribution 0.007 Process Innovation ×Product Innovation 0.013 Process Innovation ×Number of Competitors 0.002 Table A2. Model fit. Constructs Saturated Model Estimated Model SRMR 0.068 0.068 d_ULS 0.873 0.890 d_G 0.497 0.512 Chi-square 916.164 957.344 NFI 0.854 0.848 References Abdul, Ramadhan Odhiambo. 2019. Effect of Entrepreneurial Competencies on the Survival of Small and Medium Enterprises in Kenya. Doctoral dissertation, JKUAT-COHRED, Nairobi, Kenya. Abdul-Azeez, Oluwatosin, Alexsandra Ogadimma Ihechere, and Courage Idemudia. 2024. SMEs as catalysts for economic development: Navigating challenges and seizing opportunities in emerging markets. GSC Advanced Research and Reviews 19: 325–35. 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