Competitive capabilities and firm performance: A study among small rural firms

Abstract

Manufacturing micro, small, and medium enterprises (MSMEs) in a developing country plays a distinctive and decisive role in its economic development. Despite its importance, various challenges confront these units, dragging them to the point of closure. Consequent to such sudden shocks to the economy, and resource deficiencies, these units become unable to develop competencies crucial to their sustenance. The present research purports to study whether MSMEs in the manufacturing sector employ capabilities of innovation, human resource practices (HRP), information and communication technology (ICT), and intellectual property rights (IPR) that are vital to improving their performance. The study employs the theory of resource-based view (RBV) to identify the specific capabilities that make manufacturing MSMEs competitive, as reflected through better firm performance. A regression analysis is performed among 90 manufacturing MSMEs to determine the relationship between capabilities and firm performance (combined and individual). The capabilities that significantly and positively contribute to firm performance are found to be competitive, and vice versa. The findings unambiguously reveal that MSMEs in rural areas are at a stage of developing competencies; albeit the pace being relatively slow.