Human Capital Psychology, Learning Capability and Innovative Performance of Small Medium Enterprises

Abstract

Small Medium Enterprises (SMEs) are the backbone of the economy and account for the majority of businesses worldwide.  SMEs and are also important contributors to job creation.  Increasing SMEs competitiveness in IR 4.0 emerging markets such as Malaysia is essential for the country’s economic growth, and SMEs competitiveness can be attained through innovation. According to Dynamic Capabilities Theory (DCT), the competitiveness of SMEs is determined by the development and redevelopment of resources, as well as the ability to deal with rapid changes in the environment.

Purpose:The purpose of this study was to investigate the relationships of Human Capital (HC) and SMEs innovative performance (IP), as well as the mediation effect of Learning Capability (LC) on the relationship between HC and IP.

Design/methodology/approach: The study employed survey method utilizing structured questionnaire distributed selected SMEs. A total of 250 responses were   analyzed using Structural Equation Modelling-Partial Least Square (SEM-PLS) statistical tools.

Findings:The study discovered a significant positive relationship between HC and LC, and LC mediates the relationship between HC and SMEs innovative performance.

Research limitation:First, this study is limited by its use of perceptual data. Therefore, managers may be unable to identify many examples of practical managerial actions based on the study results. Second, the study single dimension of intellectual capital and dynamic capabilities. Therefore, a potential extension of this study could employ a longitudinal study design to empirically confirm causality and assess multiple dimensions of intellectual capital and dynamic capabilities.

Practical implication: The findings demonstrate the benefits of fostering innovation while highlighting the importance of LC in the exploitation of HC.  Results can be used by management and policy makers towards improving competitive advantage of SMEs.

Originality/value:The study clarifies the role of HC for learning capability developments. The relationship between HC, LC and innovative performance is explained using the Dynamic Capability Theory (DCT) is t a preliminary effort to broaden the concepts appeal in new geographical boundaries and empirical context, thus making an original contribution to the SMEs industry and strategic management literature.