The Role of Innovation in Enhancing Competitive Advantage through Market Orientation and Business Environment Factors: A Proposed Framework

In today’s rapidly changing, competitive business environment, firms must rely on innovation to achieve and sustain competitive advantage. Iinnovation has become a cornerstone of national development strategies, especially among SMEs that constitute over 94% of the total companies in the countries. This paper examines how innovation contributes to competitive advantage, how market orientation mediates this relationship, and how business environment factors (such as dynamism, turbulence, institutional environment) moderate the effectiveness of innovation. Drawing on the resource-based view (RBV) and dynamic capabilities perspective, we propose a conceptual model and review empirical evidence. The findings suggest that innovation positively influences competitive advantage; that market orientation is a key mechanism (mediator) translating innovation into competitive advantage; and that the strength of that relationship is contingent upon the business environment (moderator). Implications for managers and scholars are discussed. In conclusion, the study underscores the need for SMEs to not only innovate but to do so with a strategic market orientation and an acute awareness of the external business landscape. These insights offer practical implications for SME managers, policymakers, and innovation hubs aiming to build resilient, high-performing enterprises in the region.

Innovation, Competitive Advantage, Market Orientation, Business Environment, Proposed framework.

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