The Role of Knowledge Management and Knowledge Capabilities in Driving Innovation and Business Performance in e-Commerce SMEs

Abstract

Small and medium-sized businesses (SMEs), especially those in the e-commerce industry, are finding it more challenging to use intangible assets to support innovation and commercial performance in the knowledge-based digital economy. Few studies have thoroughly investigated how various aspects of knowledge capability collectively impact business performance through innovation capability, particularly in the context of emerging economies like Vietnam, despite the substantial body of literature on knowledge management (KM) and innovation. By integrating five essential knowledge factors—knowledge management, knowledge absorptive capability, knowledge application, knowledge transformation, and knowledge sharing—and evaluating their effects on innovation capability and business performance, this study seeks to close this gap. A quantitative research strategy was used to accomplish this goal. Using a standardized questionnaire with validated scales, 567 SMEs in the Vietnamese e-commerce industry were surveyed to collect primary data. To test the hypotheses and assess the structural links between the constructs, the data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM). The results show that all five knowledge-related elements have a beneficial impact on corporate performance and innovation capability. Interestingly, knowledge transformation had the most significant influence on innovation potential, while knowledge management had the most significant direct impact on company performance. The association between knowledge components and business results was also found to be somewhat mediated by innovation capability, underscoring its function as a dynamic capability that transforms knowledge into concrete value. The theoretical presumptions of the Knowledge-Based View (KBV), the Resource-Based View (RBV), and the Dynamic Capabilities theory are all supported by these findings. The results show how knowledge management and knowledge capabilities can be used to boost innovation and enhance business performance in the digital economy, with practical implications for SME managers, legislators, and other stakeholders.