Assessing the influence of social capital and innovations on environmental performance of manufacturing SMEs

Abstract

AbstractPursuing sustainable development has become a necessity for all types of businesses, including small medium enterprises (SMEs). Owing to the increasing stakeholder pressures towards environmental conservation, innovations may be required given SMEs' limited resources. Drawing upon the resource‐based view, this study aims to shed light on how social capital helps small manufacturing firms to innovate, and how innovations, in turn, enhance their environmental performance. Based on data gathered from 203 small Malaysian manufacturers and analysed using partial least squares structural equation modelling (PLS‐SEM), the findings emphasised the crucial role of social capital, process innovation and digital innovation in enhancing a small firm's environmental performance. Both process innovation and digital innovation mediate the relationship between social capital and environmental performance, of which digital innovation held a stronger effect. Additionally, findings from the Importance Performance Map Analysis (IPMA) specified that digital innovation has a high importance for environmental performance but showed a low performance. Overall, the model exhibits medium predictive power, and provides theoretical and practical implications for guiding future directions in enhancing the environmental performance of manufacturing SMEs.