Enhancing MSME Performance through Dynamic Capabilities and Entrepreneurial Orientation: The Mediating Role of Transformational Leadership

Abstract

Micro, Small, and Medium-sized Enterprises (MSMEs) are the foundation of the economy, driving long-term economic growth, job creation, and innovation. They account for most firms in most nations and make considerable contributions to national GDP, export revenues, and community development. Considering dominance in the national economy, the profitability and long-term viability of MSMEs are inseparably linked to the quality of leadership within these businesses. Effective leadership plays a pivotal role in guiding strategic direction, fostering innovation, managing limited resources, and navigating volatile market conditions. Hence, this study aims to achieve two primary objectives: (i) to examine the impact of dynamic capabilities and entrepreneurial orientation on MSMEs performance, and (ii) to ascertain the mediating effect of transformational leadership on the relationship between dynamic capabilities, entrepreneurial orientation and MSMEs performance. A total of 146 responses were returned and found usable for final analysis using the PLS-SEM technique. The findings revealed that there is no significant direct effect between dynamic capabilities and MSMEs performance but there is a significant direct effect on entrepreneurial orientation on MSMEs performance. Furthermore, the results indicate that transformational leadership does not mediate the relationship between dynamic capabilities and entrepreneurial orientation with MSME performance.