Competitive advantage and firm performance: evidence from small and medium enterprises

This study aims to examine the relationship between competitive advantage and firm performance in the context of small and medium enterprises (SMEs). The dominant theories in strategic management views competitive advantage as firm performance but the opposition claims that it is a firms’ capability to acquiring superior performance. The latter claims that competitive advantage could lead to firm performance but many other factors might alter the relationship. Previous studies have examined the impact of competitive advantage on firm performance but not on SMEs. The analysis on the 365 set of usable data collected from the SME owner-managers using questionnaire survey shows that differentiation has positive impact on firm performance but with relatively lower impact compared to previous studies. Lower cost is found to have negative effect on customer retention but the effect is not significant. Based on the findings of the study, SMEs are advised to construct their competitive advantage around differentiation.