This study investigates the dynamic capabilities (DCs) and competitive advantage of South African\r\nsmall and medium enterprises (SMEs). DCs are organisational processes purposefully designed to\r\nalter the ââ?¬Å?firmââ?¬â?¢s resource baseââ?¬Â in other to achieve competitive advantage in a rapidly changing\r\nenvironment. DCs govern a firmââ?¬â?¢s ââ?¬Å?valuable, rare, inimitable and non-substitutableââ?¬Â organisational\r\nresources. Research has shown that South African SMEs contribute approximately 35% to the national\r\ngross domestic product. SMEs are significant in their contributions to economic growth, innovation of\r\nnew products, technological progress and competitive advantage. However, most SMEs are\r\nconfronted with challenges such as; changes in technologies, innovative products, customer\r\ndemands, and the desire to remain flexible. SMEs are often faced with competitive forces which\r\nthreaten their survival. The failure rate of SMEs is much higher than that of larger organisations. South\r\nAfrican SMEs fail at a rate of between 70 and 80%. SMEs need DCs to achieve competitive advantage in\r\nfast changing business environments. Research on DC has been on a piecemeal basis. An empirical\r\nresearch on SMEsââ?¬â?¢ DC from a developing countries context has not received wide attention. Through\r\nan online based survey of South African SMEs, our paper provides an insight into the types of\r\norganisational capabilities or DCs that can lead to competitive advantage within the SMEs. The\r\nstatistical findings clarify the notion that DCs alone cannot lead to competitive advantage. It was found\r\nthat sensing, integrative and behavioural capabilities are part of DC constructs: this study extends the\r\nused four DC constructs (absorptive, adaptive, innovative and networking capabilities) to include\r\nsensing, integrative and behavioural capabilities. The findings show DCs have significant impacts on\r\ncompetitive advantage, and are capable of influencing SMEsââ?¬â?¢ valuable, rare, inimitable and nonsubstitutable\r\n(VRIN) resources to achieve competitive advantage in a fast changing business\r\nenvironment.
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