Government support, strategic capability and SMEs’ international competitiveness: evidence from a small open economy

Competitiveness is a multifaceted concept that has attracted considerable scholarly and policy attention across regional, national, industry, and firm levels (Fetscherin, Alon, & Johnson, 2010). While much of the literature emphasizes macro-level determinants, firm-level competitiveness—particularly in international contexts—remains underexplored and conceptually ambiguous (Siggel, 2006; Falciola, Jansen, & Rollo, 2020). Nonetheless, competitiveness is widely acknowledged as a critical factor for firm survival and performance in global markets. At the firm level, international competitiveness is often operationalized in terms of a firm's export capabilities relative to local and global rivals (Traiyarach & Banjongprasert, 2022), reflecting adaptability, market connectivity, and responsiveness to evolving demands (Falciola et al., 2020). These capabilities manifest in organizational routines and measurable performance outcomes (Cetindamar & Kilitcioglu, 2013; Cele, Hennessy, & Thorne, 2021). Rooted in the resource-based view (RBV) (Teece, Pisano, & Shuen, 1997), competitiveness is framed as a function of firm-specific resources and capabilities that generate sustainable advantage (Bhawsar & Chattopadhyay, 2015; Dvouletý & Blažková, 2020; Chikán, Czakó, Kiss-Dobronyi, & Losonci, 2022), with resource heterogeneity and immobility explaining performance disparities across firms (Varga, Sipos, Rideg, & Lukovszki, 2024).

Empirical research has predominantly emphasized endogenous drivers of competitiveness, often overlooking the influence of exogenous mechanisms. Yet, as Child et al. (2022) note, external sources—such as access to information, advisory support, and financial resources—are crucial for SMEs navigating international markets, given their limited internal capacities compared with MNEs (Catanzaro & Teyssier, 2021). Among these exogenous mechanisms, government support is widely regarded as a pivotal facilitator of small and medium-sized enterprise (SME) internationalization (Jalali, 2012, 2025a; Ahmed & Brennan, 2019; Durmuşoğlu, Apfelthaler, Nayir, Alvarez, & Mughan, 2012). Despite considerable global investment in such programs (Freixanet, Churakova, Rialp, & Lin, 2021), questions remain regarding their effectiveness and the pathways through which they influence competitiveness. This study addresses this gap by empirically examining both the direct and indirect effects of government support on SME competitiveness, with a focus on Strategic Capability (SC) as a mediating factor, thus integrating RBV and Industrial Organization (IO) perspectives. By doing so, the model bridges microeconomic determinants (firm-specific capabilities) with macroeconomic interventions (policy initiatives), offering a comprehensive explanation of competitiveness formation (Paul & Dhiman, 2021).

The study further highlights the particular challenges faced by SMEs from developing economies, which often lag behind firms in advanced markets due to structural and capability-related constraints (Fetscherin, Alon, Johnson, & Pillania, 2012; Tálas & Rózsa, 2015; Mishra, Rao, Monga, & Vishwanath, 2016; Ganai, Khan, & Bhat, 2023; Jalali, 2025a). Focusing on Armenian SMEs, the research provides novel theoretical and empirical insights into how targeted government support can foster international competitiveness in emerging contexts.

Finally, the study proposes a model distinguishing between informational and experiential government support initiatives while incorporating SC to clarify their differential effects on competitiveness. Guided by the central research question — how can government support initiatives enhance SME competitiveness in international markets? — the paper advances prior research by explicitly linking exogenous policy interventions with endogenous firm resources and capabilities. The study proceeds with theoretical framing and hypothesis development, followed by methodology, empirical analysis using Partial least squares structural equation modeling (PLS-SEM), and concludes with managerial and policy implications alongside directions for future research.

Competitiveness is a central construct in international business, traditionally analyzed at macro levels. However, scholars emphasize that while nations provide public goods, it is firms—not countries—that actively compete in global markets (Falciola et al., 2020). Understanding competitiveness at the firm level is therefore essential, particularly regarding how firms achieve profit by effectively addressing international customer demands (Chikán, 2008).

Research on competitiveness is grounded in two main theoretical streams: IO and RBV. IO focuses on external, industry-specific determinants, including market concentration, competitive structure, and economies of scale, that shape a firm's position within its competitive environment (Dvouletý & Blažková, 2020). In contrast, RBV emphasizes internal, firm-specific drivers, defining competitiveness as the outcome of managing strategic resources and capabilities to achieve sustainable advantage (Chikán et al., 2022). While IO highlights exogenous influences, RBV underscores endogenous capacities.

Neither perspective alone fully captures the complexity of competitiveness in international markets. Empirical evidence increasingly indicates that firm-level competitiveness emerges from the interaction between internal capabilities—such as routines, competencies, and strategic resources—and external mechanisms, including market conditions and government support (Freixanet, 2012; Mishra et al., 2016; Mata, Falahat, Correia, & Rita, 2021; Traiyarach & Banjongprasert, 2022).

This study adopts an integrative approach, bridging IO and RBV, conceptualizing competitiveness as a dynamic capability shaped by both internal resources and supportive external interventions (Chikán, 2008; Cetindamar & Kilitcioglu, 2013). In particular, government support can enhance SMEs' strategic capabilities, indirectly facilitating international success (Francis & Collins‐Dodd, 2004; Jalali, 2024). Accordingly, the research question guiding this study— how can government support initiatives enhance SME competitiveness in international markets? —examines the combined effects of exogenous and endogenous parameters on firms’ global performance, providing a nuanced framework for understanding international competitiveness as a product of both internal and external determinants (Chabowski & Mena, 2017).

The literature on government support initiatives and SME international performance remains fragmented, with mixed evidence regarding their effectiveness. While several studies report that such initiatives enhance international performance (Durmuşoğlu et al., 2012; Jalali, 2012, 2024; Han, Liu, Xia, & Gao, 2018; Ahmed & Brennan, 2019), others find negligible or no benefits for SMEs operating in global markets (Alvarez, 2004; Njinyah, 2018). These inconsistencies underscore the need to investigate the mechanisms through which government support influences firm-level outcomes, particularly the mediating pathways affecting competitiveness (Leonidou, Palihawadana, & Theodosiou, 2011; Malca, Peña-Vinces, & Acedo, 2020; Shu, De Clercq, Zhou, & Liu, 2019; Catanzaro & Teyssier, 2021; Falahat, Soto-Acosta, & Ramayah, 2022; Heriqbaldi, Esquivias, Samudro, & Widodo, 2023; Jalali, 2024, 2025b).

Government support initiatives are classified in diverse ways. Some studies distinguish between financial and marketing assistance (Mata et al., 2021), while others adopt more nuanced categorizations, including informational, training, trade mobility, and financial programs (Leonidou et al., 2011; Falahat, Lee, Ramayah, & Soto-Acosta, 2020). A widely adopted framework differentiates initiatives into informational support—providing objective market knowledge—and experiential support—facilitating direct engagement in international activities (Durmuşoğlu et al., 2012; Jalali, 2024). Informational support encompasses tools such as market research, export consultations, seminars, and guidance materials, helping firms navigate foreign market structures and competitors (Lages & Montgomery, 2005; Haddoud, Jones, & Newbery, 2017). Experiential support involves international exposure through trade missions, exhibitions, and foreign trade offices, enabling experiential learning and access to global networks (Faroque et al., 2021; Guimarães, Blanchet, & Cimon, 2021).

Both types of support are essential for SMEs, enhancing knowledge acquisition and practical engagement. However, research often focuses on export performance rather than directly examining competitiveness as an outcome (Appiah, Osei, Selassie, & Osabutey, 2019; Freixanet, 2022). Empirical studies on the link between government support and competitiveness are limited. Some evidence suggests direct effects of support on competitiveness, though findings vary by type of initiative (Mata et al., 2021; Traiyarach & Banjongprasert, 2022). Other studies indicate indirect effects, highlighting mediating factors such as international experience or export commitment (Gençtürk & Kotabe, 2001; Francis & Collins‐Dodd, 2004).

Recognizing these distinctions, this study focuses on informational and experiential support independently to clarify their differential effects on SMEs’ strategic capabilities and competitiveness (Geldres-Weiss & Carrasco-Roa, 2016; Haddoud, Jones, & Newbery, 2018; Faroque et al., 2021). Accordingly, the following hypotheses are proposed.

Firm capabilities are widely recognized as pivotal determinants of performance, particularly for SMEs operating in international markets (Kaleka & Morgan, 2019). Sustaining export strategies requires SMEs to cultivate a robust and diverse set of capabilities that support international engagement and long-term competitiveness (Knight & Cavusgil, 2004; Rodriguez, A. Wise, & Ruy Martinez, 2013). However, SMEs often encounter greater challenges than larger firms when entering foreign markets due to constraints in accessing critical resources and capabilities (Gupta & Chauhan, 2021).

In international contexts, specific capabilities are required not only for market entry but also to establish and sustain competitive positions while creating value. These capabilities differ markedly from those needed in domestic markets and are often conceptualized as export capabilities—high-level routines that guide firms toward international success (Leonidou et al., 2011; Catanzaro & Teyssier, 2021). The multidimensionality of SC has been confirmed through configurational approaches, encompassing market and product development, networking, and technological capacities (Raymond & St-Pierre, 2013). Empirical studies further extend this framework to include market intelligence, adaptive pricing, and distribution access (Pham, Monkhouse, and Barnes, 2017; Falahat et al., 2020).

SC in the international arena contributes significantly to firm competitiveness and performance, reinforcing the critical role of internal assets in global market success (Raymond & St-Pierre, 2013; Rodriguez et al., 2013; Coudounaris, 2018; Morgan, Feng, & Whitler, 2018; Falahat et al., 2020; Mata et al., 2021; Coudounaris & Björk, 2023). These insights highlight the necessity for SMEs to continuously build and refine their strategic capabilities to enhance both competitiveness and international performance.

Despite the importance of internal capabilities, external mechanisms often play a crucial reinforcing role. External support, particularly government assistance, provides SMEs with access to resources and guidance that strengthen strategic capabilities (Child et al., 2022). Programs such as export promotion initiatives, trade missions, and foreign agency support can directly or indirectly enhance firms’ competencies in international markets (Francis & Collins‐Dodd, 2004; Leonidou et al., 2011; Durmuşoğlu et al., 2012; Freixanet, 2012; Haddoud et al., 2018; Malca et al., 2020; Catanzaro & Teyssier, 2021). Recognizing SC as an indigenous asset that is shaped and reinforced through exogenous interventions provides a nuanced understanding of how government support facilitates competitiveness. Accordingly, this study posits.

While the link between firm capabilities and competitiveness is widely acknowledged, limited research examines the direct role of SC in enhancing SME competitiveness in international markets. Capabilities such as market knowledge, networking, and adaptive routines reinforce each other, collectively contributing to competitiveness and subsequent international performance (Chew, Yan, & Cheah, 2008; Mei & Nie, 2008; Shafia, Shavvalpour, Hosseini, & Hosseini, 2016; Mikalef, Krogstie, Pappas, & Pavlou, 2020). By developing strategic capabilities, SMEs improve their agility and responsiveness to market demands, directly enhancing competitiveness (Raymond & St-Pierre, 2013; Chikán et al., 2022). Therefore, the following hypothesis is proposed.

Drawing on the literature, the research model (Figure 1) examines how government support initiatives—informational and experiential—affect SME competitiveness, both directly and indirectly through SC. While prior studies often treat competitiveness as the outcome of either external pressures or resource accumulation, this model integrates both exogenous and endogenous parameters. Recognizing competitiveness as a multifaceted construct arising from their interaction, the framework provides a comprehensive theoretical foundation for understanding how targeted government interventions, mediated by strategic capabilities, shape SMEs’ competitiveness in international market (Chabowski & Mena, 2017).

For this study, the sampling frame was developed in cooperation with the Directory of the Armenian Customs Service, a subdivision of the State Revenue Committee. The frame consisted of SMEs that (1) had engaged in international business activities within the past five years and (2) derived at least 35% of their revenue from exports. A quota sampling methodology was employed to ensure representation across key industries—agriculture, manufacturing, and services—reflecting Armenia's international trade structure. As a small open economy with a limited domestic market and a strong dependence on cross-border exchanges, Armenia provides a relevant setting for examining how government support and SC shape SMEs’ international competitiveness. Despite challenges typical of emerging economies, the country sustained robust growth in 2023, as noted by the International Monetary Fund (IMF).

A total of 211 valid questionnaires were collected, producing a 29.8% response rate, which aligns with prior international business studies (Ngo, Janssen, Leonidou, & Christodoulides, 2016; Sekyere & Jalali, 2025). Each firm was represented by one knowledgeable respondent, primarily top managers involved in international operations. Respondent competence was verified via self-assessed knowledge, accuracy, and confidence ratings on five-point scales, and only valid responses were retained. Mean self-assessment scores indicated high respondent reliability—knowledge (4.8), accuracy (4.8), and confidence (4.7). Among respondents, 69.3% were male, 58.4% were aged 40–50, 86.2% held university degrees, 43.7% had more than ten years of relevant experience, and 90.1% reported prior international exposure. Respondent characteristics appear in Table 1.

Most constructs were measured using five-point Likert scales, while control variables—firm size, age, and industry—were operationalized separately. All dependent and independent variables relied on validated scales from prior studies to enhance reliability and ensure conceptual coherence, thereby reducing measurement ambiguity and enabling precise assessment of inter-construct relationships.

1. Government Informational Support (GIS). Measured using eight items adapted from Jalali (2024), Falahat et al. (2022), and Haddoud et al. (2018) (CA = 0.93).

2. Government Experiential Support. Assessed with eight items from the same sources (CA = 0.92).

3. SC. Measured with thirteen items adapted from Pham et al. (2017) (CA = 0.90).

4. Competitiveness (COM). Evaluated using seven items from Tálas and Rózsa (2015) and Buckley, Pass, and Prescott (1988) (CA = 0.91).

A full overview of all constructs and loadings appears in Table 2.

PLS-SEM was used to evaluate the measurement and structural components of the model. The analyses were carried out in SmartPLS 3.2.8, employing the standard PLS algorithm alongside bootstrapping and blindfolding procedures (Ringle, Wende, & Becker, 2015). Given that all data originated from a single respondent group, the possibility of common method bias (CMB) was taken into account. To minimize this risk, several procedural steps recommended by Podsakoff, MacKenzie, Lee, and Podsakoff (2003) were implemented, such as emphasizing respondent anonymity and confidentiality during data collection. In addition, CMB was assessed statistically using full collinearity variance inflation factors (VIFs) following Kock's (2015) guidelines. The highest VIF value (2.108) remained well below the 3.3 threshold, suggesting that neither collinearity nor method bias posed a concern. A comparison of early and late respondents using t-tests also found no significant differences, indicating the absence of non-response bias.

Although PLS-SEM offers fewer global fit diagnostics than covariance-based SEM, it was the more appropriate choice given the model's predictive focus, complexity, and sample characteristics.

The measurement model was evaluated to ensure adequate internal consistency and convergent validity. As shown in Table 3, all constructs exhibit strong reliability, with composite reliability values exceeding the recommended threshold of 0.708. Moreover, the average variance extracted for each reflective construct is above 0.50, confirming that the indicators capture a substantial proportion of their respective construct variance. These results collectively demonstrate that the measurement model meets the criteria proposed by Hair, Hult, Ringle, and Sarstedt (2022) and provides a robust foundation for subsequent structural analysis.

Subsequently, the Heterotrait-Monotrait (HTMT) Ratio of Correlations was employed to assess discriminant validity (Henseler, Ringle, & Sarstedt, 2015; Ringle, Sarstedt, Sinkovics, & Sinkovics, 2023). The confidence intervals for all HTMT values for the lower (2.5%) and higher (97.5%) bounds do not include 1 (Henseler et al., 2015). Hence, as presented in Table 4, all constructs are distinctive; thus, discriminant validity was affirmed.

The proposed structural relationships were examined using the standard PLS algorithm. Hypotheses were tested through a bootstrap procedure with 5,000 resamples at a significance level below 0.01, following established guidelines (Hair, Ringle, & Sarstedt, 2011). Construct-level changes were applied using the sign change option, with the number of cases determined by the sample size (Hulland, 1999). The significance of relationships was assessed using p-values, while beta coefficients, standard deviations, t-values, and f² values are reported in Table 5.

As presented in Table 5, the hypothesis proposing a direct effect of GIS on SME competitiveness (H1: β = 0.072, t-value = 1.075, p = 0.282) was not empirically supported, whereas experiential support significantly enhanced SMEs’ competitiveness in international markets (H2: β = 0.246, t-value = 4.049, p < 0.001). SC was influenced by both informational (H3: β = 0.402, t-value = 8.375, p < 0.001) and experiential (H4: β = 0.528, t-value = 8.146, p < 0.001) supports, while H5 (β = 0.518, t-value = 8.931, p < 0.001) confirmed a positive association between SC and SME competitiveness, highlighting its mediating role in translating government interventions into performance outcomes.

It is important to note, however, that the interpretation of competitiveness should consider the role of government support. While competitiveness is often understood as rivalry among firms, such rivalry assumes equal opportunities. In this context, SMEs benefiting from government interventions may gain advantages not solely attributable to market competition but also to policy support. Therefore, the observed effects should be interpreted as a combination of SC and the enabling role of government initiatives rather than pure competitive outcomes. The model accounted for 63% of the variance in SC and 70% in SME competitiveness, with VIF values below 5 and Q² > 0, confirming the robustness and predictive relevance of the findings. Collectively, these results highlight the pivotal role of experiential government support and SC in driving SMEs’ competitiveness, offering empirical evidence of how policy interventions and firm capabilities jointly enhance international market performance.

To account for possible contextual differences across sectors, a MGA was conducted. Although firms in agriculture, manufacturing, and services operate under varying market conditions, assuming identical behavioral patterns across sectors may overlook meaningful heterogeneity. MGA is therefore a suitable tool to verify the stability of structural relationships in PLS-SEM models (Sarstedt, Henseler, & Ringle, 2011; Peterson, Arregle, & Martin, 2020).

The MGA results, presented in Table 6, show no statistically significant differences across the three sectors for any of the hypothesized paths. The beta coefficients across agriculture, manufacturing, and services remain closely aligned, and all MGA p-values exceed the 0.05 threshold. These findings indicate that the effects of government informational and experiential supports, as well as SC, are consistent across sectors.

This stability suggests that SMEs across different industries respond to governmental export supports in similar ways, and sectoral context does not materially alter the strength or direction of the proposed relationships. Such consistency enhances confidence in the generalizability of the model's findings across the broader SME landscape.

The international business literature has extensively examined competitiveness at national and industry levels (Cele et al., 2021; Ganai et al., 2023; Varga et al., 2024), yet firm-level analyses, particularly for SMEs, remain limited. Most studies focus on macro-level determinants, offering limited insight into how competitiveness is shaped within individual firms. This study addresses that gap by investigating how government support initiatives influence SME competitiveness in international markets, both directly and indirectly through SC, grounded in the RBV.

Empirical findings show that informational initiatives do not directly enhance SME competitiveness (H1), whereas experiential initiatives exert a significant positive effect (H2), indicating that hands-on support is more effective than information provision alone. SC mediates the relationship between both types of government support and competitiveness (H3, H4), functioning as a complementary resource that allows firms to leverage external interventions effectively. In other words, government support alleviates strategic limitations and creates indirect pathways through which informational initiatives may still influence performance. H5 confirms that SC independently strengthens SME competitiveness, aligning with prior research (Mei & Nie, 2008; Chikán et al., 2022).

While these results highlight the benefits of government support, it is important to consider potential drawbacks. Overreliance on external assistance may foster dependency or distort market competition, giving supported firms an advantage that does not necessarily reflect inherent capabilities. Overall, the findings aligned with limited number of previous researches (Traiyarach & Banjongprasert, 2022; Mata et al., 2021; Freixanet, 2012) suggest that carefully designed government initiatives, particularly experiential support, can enhance SME competitiveness, but policymakers must balance support with measures that preserve market efficiency and promote long-term capability development.

This study offers several important contributions to the literature. First, it confirms that experiential government support positively affects SMEs' international competitiveness, corroborating prior research while enhancing measurement rigor through multi-item scales for both government support initiatives and competitiveness. SC is identified as a key mediator, demonstrating how external support translates into firm-level competitive advantage.

Second, the study advances theoretical understanding by integrating IO and RBV perspectives, bridging micro- and macroeconomic analyses. IO emphasizes market structures and exogenous conditions, while RBV highlights firm-specific resources and capabilities. By linking government support—conceptualized as an exogenous intervention—to the cultivation of SC as an endogenous asset, this study shows that international competitiveness arises from both external interventions and internal capabilities. It is also important to note that when some enterprises receive government support, the observed outcomes do not solely reflect pure market competition. Instead, they represent a combination of the effects of public policy and the firms’ internal strategic capabilities.

Third, the research addresses limitations of prior macro-level studies by focusing on firm-level dynamics, providing nuanced insights into how SMEs leverage support initiatives. Finally, by distinguishing between informational and experiential support, the study highlights their differential effects on SC and competitiveness, deepening our understanding of government support as a multifaceted driver of SME internationalization (Leonidou et al., 2011; Malca et al., 2020; Shu et al., 2019; Catanzaro & Teyssier, 2021; Falahat et al., 2022; Jalali, 2024, 2025b).

This study offers important implications for both managerial practice and public policy. Consistent with prior research (Mata et al., 2021; Traiyarach & Banjongprasert, 2022), the findings demonstrate that government support initiatives enhance SMEs’ international competitiveness by strengthening SC, enabling firms to achieve more favorable positions in global markets. Policymakers can leverage these insights to design context-sensitive, effective support programs that align with national economic realities and the specific needs of businesses, thereby boosting international trade performance.

The results also highlight that firms cannot rely solely on exogenous interventions. Managers must assess their strategic capabilities and identify areas for development to fully capitalize on government support, echoing Leonidou et al.'s (2007) view of SC as a critical link between policy initiatives and SME internationalization. A balanced approach to informational and experiential support can maximize international performance, while awareness-raising efforts facilitate broader adoption and impact (Coudounaris, 2018; Mata et al., 2021).

Beyond economic outcomes, government support initiatives can generate positive societal effects, such as regional development, job creation, and social innovation. By empowering SMEs, policymakers contribute to broader social and economic resilience, fostering inclusive growth and innovation ecosystems. Tailoring interventions to heterogeneous exporter groups and adopting a facilitative role thus strengthens both firm-level competitiveness and societal well-being (Leonidou et al., 2011; Haddoud et al., 2018).

While this study offers valuable insights, it has notable limitations. Its focus on Armenia as a developing country means data were collected solely from exporters within a single national context, and the heterogeneous sample spans agriculture, manufacturing, and services, reflecting Armenia's trade structure. Therefore, findings may not generalize to other developing nations or different industrial settings. The research highlights the role of government support in shaping SME competitiveness, yet competitiveness is inherently multidimensional and influenced by multiple factors, warranting a broader analytical perspective. Future studies should examine SME competitiveness internationally and incorporate alternative theoretical frameworks, such as dynamic capabilities, institutional theory, contingency theory, or organizational learning, to deepen understanding. Moreover, exploring diverse government support mechanisms across various economies—including less developed, semi-closed, or large open economies—could provide more comprehensive insights into effective strategies for enhancing SMEs’ international performance.

This study enhances our understanding of how SMEs can utilize government support initiatives to strengthen their international competitiveness. It distinguishes between two types of interventions—informational and experiential—and examines the critical role of SC in mediating the influence of these exogenous supports on SME competitiveness. By integrating SC with government support, the research offers a significant contribution to the literature on competitiveness, clarifying both its formation and outcomes. Employing the PLS-SEM methodology and analyzing data from 211 exporting SMEs across Armenia's agricultural, manufacturing, and service sectors, the study provides a solid empirical foundation for its conceptual framework. The findings illuminate how SMEs can translate strategic capabilities, supported by targeted government initiatives, into enhanced international competitiveness. These insights offer a valuable basis for future research exploring mechanisms through which SMEs in diverse contexts can leverage policy interventions to achieve sustainable competitive advantage in global markets.