The Mediating Effect of Competitive Advantage between Innovation Capability and Firm’s Competitiveness A Study on Manufacturing Firms in Ethiopia

Abstract

The mediation function of competitive advantage between innovation capability and firms' competitiveness was examined in this study. In order to examine the causal links between the dependent variable (competitiveness), the independent variable (innovation capability), and the mediating variable (competitive advantage), a survey research design with data collected from primary data sources was used.  From a total of 300 structured questionnaires that were given to proportionally chosen industrial enterprises, 270 were correctly completed and returned. Data was collected from Addis Ababa and Surrounding Sheger Cities being centers of industrialization in Ethiopia.   Both AMOS v23 and SPSS v26 were used to analyze the outcome. While structural equation modeling was utilized to test hypotheses, confirmatory factor analysis (CFA) was utilized to evaluate the validity and dependability of the data. The result shows that the direct effect of innovation capability on firms competitiveness was positive and significant (β=0.67, p=0.000, C.R=10.15), the direct effect of Innovation capability on competitive advantage was positive and significant (β=0.71, P=0.000; C.R=9.86), the direct effect of Competitive advantage on competitiveness was significant and the indirect effect or mediated effect of innovation capability on competitiveness was also positive (β=0.20). Further the Standardized indirect (Mediated) effect of Innovation Capability on Competitiveness was significantly different from zero at the 0.01 level (P=.008 two-tailed), lower bootstrap CI (0.063) and upper bootstrap CI (0.311). In conclusion, the finding from the current study informs that innovation capability has a significant direct and indirect effect on firms’ competiveness. Moreover, it was found that competitive advantage has a partial mediation role between innovation capability and competitiveness.  Accordingly, it is recommended that owners of manufacturing firms in Ethiopia should properly develop their innovation capability practices to gain competitive advantage and competitiveness.