The Role of Digital Capabilities in Driving Marketing Innovation and Business Performance: Evidence from Indian SMEs

Abstract

This study investigates the role of digital capabilities in enhancing the business performance of small and medium-sized enterprises (SMEs) in India, with a specific focus on how digital capabilities influence performance outcomes, their relationship with marketing innovation, the mediating role of marketing innovation, and the moderating influence of competition intensity. Although India's digital ecosystem has expanded dramatically driven by flagship initiatives such as Digital India, Start-up India, and the MSME digitalization agenda many Indian SMEs continue to face significant barriers including limited financial resources, inadequate digital infrastructure, and a shortage of skilled digital talent. Primary data were gathered from 385 retail and service-sector SMEs registered under the Udyam Registration Portal of the Ministry of Micro, Small & Medium Enterprises (MoMSME), and analysed using Partial Least Squares Structural Equation Modeling (PLS-SEM) via SmartPLS 4.0. The findings reveal that digital capabilities employ a significant positive influence on SME business performance and serve as a key driver of marketing innovation. Marketing innovation partially mediates the relationship between digital capabilities and performance. However, competition intensity does not significantly moderate the link between digital capabilities and business performance. These results highlight the commanding for Indian SMEs to invest in digital transformation, strengthen workforce digital literacy, and develop strategic governance frameworks to convert digital capabilities into sustained competitive advantages. This study contributes theoretically by extending the Resource-Based View (RBV) and Dynamic Capabilities Theory (DCT) in the context of Indian SMEs and digitally emerging economies