Digital Transformation, Innovation Capability, and SME Competitiveness: Evidence from Khanh Hoa Province, Vietnam

Do Van Ly, Nguyen Tuan Duy

Abstract: This study investigates the effect of digital transformation on the competitiveness of small and medium-sized enterprises (SMEs), highlighting the mediating role of innovation capability. Grounded in the Resource-Based View (RBV) and Dynamic Capabilities Theory, the research develops and empirically tests a structural model that links digital transformation, innovation capability, and SME competitiveness. A quantitative survey was administered to 400 SMEs operating in Khanh Hoa Province, Vietnam, and data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM). The results reveal that digital transformation has a significant positive impact on both innovation capability and SME competitiveness. Furthermore, innovation capability exerts a positive influence on competitiveness and partially mediates the relationship between digital transformation and SME competitiveness. The findings emphasize that digital transformation alone is insufficient to enhance competitive performance unless firms simultaneously develop their innovation capabilities. This study contributes to the growing body of research on digitalization in emerging economies and provides practical insights for SME managers and policymakers aiming to foster digital readiness and innovation-driven competitiveness. Policy implications, limitations, and directions for future research are also discussed.

Keywords: Digital transformation, Innovation capability, SME competitiveness, Emerging economy

How to Cite?: Do Van Ly, Nguyen Tuan Duy, "Digital Transformation, Innovation Capability, and SME Competitiveness: Evidence from Khanh Hoa Province, Vietnam", Volume 14 Issue 11, November 2025, International Journal of Science and Research (IJSR), Pages: 1031-1037, https://www.ijsr.net/getabstract.php?paperid=SR251110002725, DOI: https://dx.doi.org/10.21275/SR251110002725