How can frugal innovation lead to SMEs resilience? Dual theory perspectives of diffusion of innovation and knowledge-based view

Abstract

In the context of limited resources, the ability of SMEs to handle knowledge and its dynamics is the key to successful businesses. Based on the theoretical framework of diffusion of innovation and knowledge-based theory, this research attempted to build the model of how community-based frugal innovation can increase SMEs resilience. A series of mediations of diverse knowledge sharing and knowledge integration were employed to predict this relationship. The research employed a quantitative method of analysis through surveys of 348 fashion and craft SMEs in the special region of Yogyakarta. Besides analysis of the results in general terms, the research employed partial least squares structural modeling to obtain coefficient values between latent variables. The results of the research regarding serial mediations showed that diverse knowledge sharing mediated the relationship between community-based frugal innovation and SMEs resilience. However, knowledge integration is not considered to mediate this relationship because it is not significant to SMEs resilience. The arguments of this research were examined in the discussion and implication section. The findings of this research addressed the unclear research gap in how frugal innovation can affect SMEs resilience through knowledge-based theory. Competitive advantages and resilience of SMEs in resource-poor environments rely on the extent to which SMEs can absorb and apply knowledge.