SMEs Performance in Malaysia: The Role of Contextual Ambidexterity in Innovation Culture and Performance

Abstract

Small and medium-sized enterprises (SMEs) in both the industrial and service sectors
have been identified as the drivers of Malaysia’s fast economic growth. However, SMEs are faced
with an inherent issue of lack of resources and capabilities which constrains the ability of SMEs to
improve performance. Due to this, it is critical for SMEs to understand and develop an important
capability that supports them in facing a dynamic and competitive business environment. This study
examines the mediating role of contextual ambidexterity as a dynamic capability in the relationship
between innovation culture and SME performance. The online surveys were carried out starting from
5th July until 25th July 2021. A total of 277 SMEs in Selangor, Malaysia participated in this study
and Covariance-Based Structural Equation modeling analysis was utilized to test the hypotheses.
The findings show that in terms of direct relationships, innovation culture has a significant positive
relationship with contextual ambidexterity, while innovation culture and contextual ambidexterity
have a significant positive relationship with SME performance. The findings showed that contextual
ambidexterity is significant as a mediator in the relationship between innovation culture and SME
performance. This study makes an important contribution to the management field by highlighting
the role of contextual ambidexterity, which is often the focus of large companies. These findings
support the notion of dynamic capability that accentuates the importance of developing capabilities
in dealing with dynamic and challenging situations.