Strategic Innovation and SME Resilience in Regional Industrial Clusters: Evidence from the Valencian Textile District during COVID-19

Small and medium-sized enterprises (SMEs) operating in traditional manufacturing clusters face acute challenges when sudden systemic shocks disrupt established markets and production routines. This article analyses how SMEs embedded in a mature industrial cluster responded to the COVID-19 crisis, focusing on the Valencian textile district in Spain, a Southern European manufacturing ecosystem that remains under-represented in resilience research. Using a mixed-methods design combining survey data from 80 SMEs with complementary managerial interviews, the study examines how dynamic capabilities, strategic innovation behaviours, and organisational characteristics relate to firms’ ability to maintain or increase turnover during the crisis. The results show that product development strategies are most strongly associated with resilience, substantially increasing the likelihood of maintaining or growing turnover. Diversification into technical textiles also displays a positive, though more moderate, relationship with resilience, while conventional R&D indicators exhibit limited short-term explanatory power in this mature manufacturing context. Firm age shows a negative association with resilience, suggesting greater adaptability among younger firms. Gender composition also matters: firms with a higher share of female employees, and to a lesser extent women in management positions, tend to display greater adaptive capacity. Qualitative insights from managerial interviews help explain how strategic agility and organisational diversity enabled rapid adaptation under conditions of extreme uncertainty. Overall, the findings indicate that during abrupt, demand-driven systemic shocks, agile and market-oriented innovation strategies play a more decisive role in short-term SME resilience than formal R&D investment in traditional industrial clusters. The study offers actionable implications for SME managers and regional policymakers seeking to strengthen cluster resilience through flexible product strategies, selective technical upgrading, and inclusive organisational structures.