Innovativeness and SME Performance: The Mediating Role of Resource Leveraging in Tanzania’s Agro-Processing Sector

Abstract

Small and medium enterprises (SMEs) play a crucial role in economic growth, particularly in resource-constrained environments like Tanzania's agro-processing sector. Utilising Dynamic Capability Theory (DCT) and Resource Dependence Theory (RDT), this study examines the relationship between innovativeness and resource leveraging in enhancing SME performance. Data were collected using stratified random sampling from 254 agro-processing SMEs and analysed using Partial Least Squares Structural EquationModelling (PLS SEM). The findings indicate that due to contextual constraints, innovativeness alone does not significantly affect performance.Instead, its impact is fully realised only when combined with effective resource leveraging, which serves as a critical mediator. Resource leveraging optimises resources and alleviates constraints, confirming its contribution to competitive advantage. This emphasises the need to integrate innovation with strategic resource management to address issues such as funding, access to technology, and skilled labour shortages in Tanzania's agro-processing sector. The study advances understanding of SME performance by linking DCT and RDT and offers insights applicable to similar developing economies. Practical implications include recommendations for managers to promote innovation and optimise resource use, as well as policy suggestions to enhance access to resources and infrastructure. Keywords: Innovativeness; Resource Leveraging; Agro Processing SMEs; SME Performance