Digital Capabilities and Product Innovation: A Strategic Nexus for Market Success

The research aims to explore the dynamic relationship between digital capability (DC) and business performance (BP), focusing on the relationship mediated by product innovation (PI) in the retail industry. Design/Methodology/Approach: Data was gathered from 330 retail SMEs in Johor, Malaysia, using a quantitative research approach. Analysis was conducted using partial least squares structural equation modelling (PLS-SEM). Research findings: DC is significantly associated with PI and BP. PI directly relates to BP and mediates the relationship between DC and BP, while CI does not moderate it. Theoretical Contribution/Originality: This study pioneers empirical research on the relationship between DC, PI, CI, and BP within retail Bumiputera SMEs in Malaysia. It contributes to the RBV theory by examining how DC influences BP as a strategic resource. The study’s result implies that DC and PI are key drivers of BP regardless of the CI in the market. This study demonstrates how PI is a mediating factor essential to boosting BP. Practitioner/Policy Implication: This study highlights the importance of DC for Bumiputera SMEs in Johor, Malaysia. By promoting DC and providing tailored support programs, the Malaysian government can boost their competitiveness, innovation, and global reach.