Digital orientation and performance in manufacturing SMEs: the mediating role of innovation

Purpose This study explores the relationship between digital orientation (DO), innovation and performance in small- and medium-sized manufacturing enterprises (SMEs) to answer the following research question: Is innovation a mediating mechanism in the relationship between DO and the performance of manufacturing SMEs? Design/methodology/approach A partial least squares structural equation model (PLS-SEM) was applied to data from a sample of 4,270 manufacturing SMEs in 16 Latin American countries, collected in 2022 by the Ibero-American Observatory of manufacturing SMEs (MSMEs). Findings The findings reveal a positive and significant relationship between DO and the performance of MSMEs. Likewise, the mediating role of innovation in this relationship is confirmed, albeit modestly. The article provides evidence that the DO of SMEs is enhanced as a dynamic capability when integrated with innovation processes. Originality/value The study fills a knowledge gap regarding the relationship between DO, innovation and business performance from three perspectives: the nature of these relationships, sector and firm size and regional context. First, by proposing and testing innovation as a mediator between DO and performance, it contributes to a better understanding of these relationships. Second, by focusing on MSMEs, it addresses a sector that has received relatively little scholarly attention despite its importance to the economy. Finally, by focusing on Latin America, it addresses a region that is largely overlooked in the existing literature.