The effect of government of Pakistan’s Common Facility Centre (CFC) program on small and medium enterprise (SME) competitiveness: the role of SMEs’ dynamic capabilities

Abstract

The small and medium enterprise (SME) sector is considered the backbone of a country's economic development process. SMEs in developing countries face the challenges of resource and capability shortages that hinder their productivity, innovation, and competitiveness in domestic and international markets. To safeguard their SMEs from the negative effects of resource shortages, governments develop industrial clusters and design support programs for clustered firms. One such program, called the 'Common Facility Centre' (CFC) program, was designed by the Government of Pakistan (GOP) to preserve its manufacturing sector's SME competitiveness through the provision of advanced production technologies and technological knowledge and skills. This study is designed to investigate the effect of this CFC program on the competitiveness of recipient SMEs in Pakistan. The study also intends to explore the role dynamic capabilities play for SMEs harnessing greater competitive benefits from this support program. Extant research on the effectiveness of governments' support programs has produced mixed results. Previous studies have also rarely considered how internal capabilities of firms impact the competitiveness effects of these support program. The theoretical framework for this study is based on resource-based theory (RBT) and dynamic capabilities theory (DCT). Using a multidimensional competitiveness measure, this research hypothesises that the use of the CFC program enhances production, innovation, internationalisation and market competitiveness among SMEs. It is also hypothesises that SME absorptive capacity (ACAP) and networking capability (NCAP) moderate the effect of the CFC program on their competitiveness. By using a cross-sectional survey and a self-administered structured questionnaire, data is collected from 224 users (SMEs) of the CFC program all over Pakistan. Findings reveal that use of the CFC program has a positive significant effect on production, innovation, and market-based competitiveness of user SMEs, but no significant effect on the internalisation competitiveness dimension. The ACAP of user firms does not moderate the effect of CFC program use on any of the competitiveness dimensions. NCAP of user firms moderates the effect of CFC program use, but only on the internationalisation competitiveness of user SMEs. Both significant and non-significant findings offer useful insights for research and practice