Digital Market Orientation, Knowledge Management Orientation, and Innovativeness in SMEs: A Structural Equation Model of Business Performance
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Abstract
Small and medium-sized enterprises (SMEs) are crucial to economic development, yet face persistent challenges in achieving sustainable business performance. Prior research has explored the roles of digitalization, knowledge systems, and innovation in firm success, but few studies integrate these constructs in a single predictive model within the context of developing economies such as the Philippines. This study aims to model the influence of digital market orientation (DMO), knowledge management orientation (KMO), and innovativeness on the business performance of SMEs in Region XII, Philippines. A quantitative cross-sectional design using partial least squares structural equation modeling (PLS-SEM) was employed. Survey data were collected from 400 SME owners using validated instruments measuring DMO, KMO, innovativeness, and business performance. Data were analyzed through SmartPLS 4.0 to assess path coefficients, predictive power, and model fit indices. Descriptive findings indicated very high levels of DMO (M = 4.42), KMO (M = 4.36), innovativeness (M = 4.40), and business performance (M = 4.29). Regression analysis revealed that DMO and KMO significantly predicted business performance (β = 0.228, p < .001; β = 0.473, p < .001), while innovativeness showed a weaker yet significant effect (β = 0.130, p = .014). In the final structural model, only DMO and KMO remained significant direct predictors, accounting for 58.3% of the variance in business performance (R² = 0.583). Model fit indices confirmed excellent fit (CFI = 0.997; RMSEA = 0.026). Digital market orientation and knowledge management orientation are essential strategic capabilities that directly enhance SME performance. While innovation remains conceptually relevant, its performance impact is mediated through digital and knowledge-based capabilities. These findings underscore the need for capacity-building programs focused on digital infrastructure and knowledge systems to promote SME growth in resource-constrained environments.
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