Open Access


Research Article

Main Article Content

Seare Asfaha Sebhatucorresponding author


This research seeks to address small and medium-sized enterprises (SMEs)’ performance problems by linking dynamic managerial capabilities to firm performance. In today’s dynamic market environment, it is vitally important for managers/owners of SMEs to possess dynamic capabilities. This study limited its focus to three managerial capabilities namely networking, sensing, and innovation with the moderating role of market dynamism. The data collection process and analysis provided findings that revealed that Chinese SME managers/owners effectively employ managerial capabilities in managing their firms. The hypotheses tests resulted in significant positive relationship between the main variables and performance. The moderating variable, however, had a significant effect only on moderating the relationship between sensing capabilities and performance. The findings from this study suggest that SMEs need to improve their knowledge and application of managerial capabilities in transforming their business performance thereby contributing to the national economy. This study contributes to the dynamic capabilities’ literature by adding to the existing research on the subject. It also provides an understanding of how dynamic capabilities are deployed to build up a solid and sustainable firm performance that resists the waves of market upheavals and it is expected to greatly benefit theory, policy and practice.

dynamic capabilities, firm performance, small and medium enterprises, PLS-SEM

Article Details

How to Cite
Sebhatu, S. (2021). Managerial capabilities and firms’ sustainable performance: Evidence from Chinese manufacturing small and medium-sized enterprises. Frontiers in Management and Business, 2(1), 74-86.


  1. Munro D. A Guide to SME Financing, 1st edn, Palgrave Macmillan, New York, 2013.
  2. Franco M and Haase H. Failure factors in small and medium-sized enterprises: Qualitative study from an attributional perspective. International Entrepreneurship and Management Journal, 2010, 6(4): 503-521.
  3. Pasanen M. In search of factors affecting SME performance the case of Eastern Finland, thesis, University of Kuopio, 2003.
  4. Helfat CE and Martin JA. Dynamic managerial capabilities: Review and assessment of managerial impact on strategic change. Journal of Management, 2015, 41(5): 1281-1312.
  5. Teece DJ, Pisano G and Shuen A. Dynamic capabilities and strategic management. Strategic Management Journal, 1997, 18(7): 509-533.;2-Z
  6. Gronum SJ. SME performance: The role of networking, innovation breadth, and business model design, thesis, The University of Queensland, 2015.
  7. Rashidirad M and Salimian H. SMEs’ dynamic capabilities and value creation: The mediating role of competitive strategy strategy. European Business Review, 2020, 32(4): 591-613.
  8. Walter A, Auer M and Ritter T. The impact of network capabilities and entrepreneurial orientation on university spin-off performance. Journal of Business Venturing, 2006, 21(4): 541-567.
  9. Adner R and Helfat CE. Corporate effects and dynamic managerial capabilities. Strategic Management Journal, 2003, 24(10 Spec Iss): 1011-1025.
  10. Helfat CE, Finkelstein S, Mitchell W, et al. Dynamic Capabilities: Understanding Strategic Change in Organizations, Blackwell Publishing Ltd., 2007.
  11. Wang CL and Ahmed PK. Dynamic capabilities: A review and research agenda. International Journal of Management Reviews, 2007, 9(1): 31-51.
  12. Kale P, Singh H and Perlmutter H. Learning and protection of proprietary assets in strategic alliances: Building relational capital. Strategic Management Journal, 2000, 21: 217-237.
  13. Bengesi KMK and Le Roux I. The influence of dimensions of networking capability in small and medium enterprise performance. International Journal of Business and Social Science, 2014, 5(2): 189-200.
  14. Huang HC, Lai MC and Lo KW. Do founders’ own resources matter? The influence of business networks on start-up innovation and performance. Technovation, 2012, 32(5): 316-327.
  15. Terziovski M. The relationship between networking practices and business excellence: A study of small to medium enterprises (SMEs). Measuring Business Excellence, 2003, 7(2): 78-92.
  16. Watson J. Modeling the relationship between networking and firm performance. Journal of Business Venturing, 2007, 22(6): 852-874.
  17. Zacca R, Dayan M and Ahrens T. Impact of network capability on small business performance. Management Decision, 2015, 53(1): 2-23.
  18. Teece DJ. Explicating dynamic capabilities: The nature and microfoundations of (sustainable) enterprise performance. Strategic Management Journal, 2007, 28(13): 1319-1350.
  19. Zhang J and Wu W. Social capital and new product development outcomes: The mediating role of sensing capability in Chinese high-tech firms. Journal of World Business, 2013, 48(4): 539-548.
  20. Hern´andez-Linares R, Kellermanns FW and L´opez-Fern´andez MC. Dynamic capabilities and SME performance: The moderating effect of market orientation. Journal of Small Business Management, 2020, 59(1): 162-195.
  21. Tseng SM and Lee PS. The effect of knowledge management capability and dynamic capability on organizational performance. Journal of Enterprise Information Management, 2014, 27(2): 158-179.
  22. Zhou SS, Zhou AJ, Feng J, et al. Dynamic capabilities and organizational performance: The mediating role of innovation. Journal of Management and Organization, 2019, 25(5): 731-747.
  23. Terziovski M. Building Innovation Capability in Organizations: An International Cross-Case Perspective, Imperial College Press, London, 2007.
  24. Lawson B and Samson D. Developing innovation capability in organisations: A dynamic capabilities approach. International Journal of Innovation Management, 2001, 5(3): 377-400.
  25. Calantone RJ, Tamer CS and Yushan Z. Learning orientation, firm innovation capability, and firm performance. Industrial Marketing Management, 2002, 31(6): 515-524.
  26. Cainelli G, Evangelista R and Savona M. The impact of innovation on economic performance in services. Service Industries Journal, 2004, 24(1): 116-130.
  27. Keskin H. Market orientation, learning orientation, and innovation capabilities in SMEs: An extended model. European Journal of Innovation Management, 2006, 9(4): 396-417.
  28. Jim´enez-Jim´enez D and Sanz-Valle R. Innovation, organizational learning, and performance. Journal of Business Research, 2011, 64(4): 408-417.
  29. Armbruster H, Bikfalvi A, Kinkel S, et al. Organizational innovation: The challenge of measuring non-technical innovation in large-scale surveys. Technovation, 2008, 28(10): 644-657.
  30. Hung KP and Chou C. The impact of open innovation on firm performance: The moderating effects of internal R&D and environmental turbulence. Technovation, 2013, 33(10-11): 368-380.
  31. Yang LB and Gan CJ. Strategic goal interdependence approach to dynamic capability and the effects of customer integration and market dynamism: Evidence from China. Systems Science and Control Engineering, 2019, 7(1): 327-337.
  32. Gonz´alez-benito J, Aguinis H, Boyd KB, et al. Coming to consensus on strategic consensus: A mediated moderation model of consensus and performance. Journal of Management, 2012, 38(6): 1685-1714.
  33. He Y, Keung Lai K, Sun H, et al. The impact of supplier integration on customer integration and new product performance: The mediating role of manufacturing flexibility under trust theory. International Journal of Production Economics, 2014, 147(Part B): 260-270.
  34. Zhu X, Dong MC, Gu J, et al. How do informal ties drive open innovation? The contingency role of market dynamism. IEEE Transactions on Engineering Management, 2017, 64(2): 208-219.
  35. Chen X, Zhou H and Wang DT. How do new ventures grow? Firm capabilities, growth strategies and performance. International Journal of Research in Marketing, 2009, 26(4): 294-303.
  36. Pavlou PA and El Sawy OA. Understanding the elusive black box of dynamic capabilities. Decision Sciences Journal, 2011, 42(1): 239-273.
  37. Shi LH and Wu F. Dealing with market dynamism: The role of reconfiguration in global account management. Management International Review, 2011, 51(5): 635-663.
  38. Arend RJ. SME – supplier alliance activity in manufacturing: Contingent benefits and perceptions hypotheses. Strategic Management Journal, 2006, 27: 741-763.
  39. Zhou KZ and Li CB. How knowledge affects radical innovation: Knowledge base, market knowledge acquisition, and internal knowledge sharing. Strategic Management Journal, 2012, 33(9): 1090-1102.
  40. Haenlein M and Kaplan AM. A begginer’s guide to partial least square analysis. Understanding Statistics, 2004, 3(4): 283-297.
  41. Hair JF, Ringle CM and Sarstedt M. Partial least squares structural equation modeling: Rigorous applications, better results and higher acceptance. Long Range Planning, 2013, 46(1-2): 1-12.
  42. Hair JF, Hult GTM, Ringle CM, et al. A Primer on Partial Least Squares Structural Equation Modeling (PLS-SEM), 2nd edn, SAGE Publications, Inc., Thousand Oaks, California, 2017
  43. Urbach N and Ahlemann F. Structural equation modeling in information systems research using partial least squares. Journal of Information Technology Theory and Application, 2010, 11(2): 5-40.
  44. Hair J, Hollingsworth CL, Randolph AB, et al. An updated and expanded assessment of PLS-SEM in information systems research. Industrial Management and Data Systems, 2017, 117(3): 442-458.
  45. Albaladejo M and Romijn H. Determinants of innovation capability in small UK firms: An Empirical analysis. Eindhoven Centre for Innovation Studies, 2000, 13(40): 1-28.
  46. Raymond L, Bergeron F and Croteau AM. Innovation capability and performance of manufacturing SMES: The paradoxical effect of IT integration. Journal of Organizational Computing and Electronic Commerce, 2013, 23(3): 249-272.
  47. Rodrigo-Alarc´on J, Garc´ıa-Villaverde PM, Parra-Requena G, et al. Innovativeness in the context of technological and market dynamism: The conflicting effects of network density. Journal of Organizational Change Management, 2017, 30(4): 548-568.
  48. Park SH and Luo Y. Guanxi and organizational dynamics: Organizational networking in Chinese firms. Strategic Management Journal, 2001, 22(5): 455-477.
  49. Laaksonen O and Peltoniemi M. The essence of dynamic capabilities and their measurement. International Journal of Management Reviews, 2018, 20(2): 184-205.