Driving SMEs’ Sustainable Competitive Advantage: The Role of Service Innovation, Intellectual Property Protection, Continuous Innovation Performance, and Open Innovation

Abstract

The process of transforming service innovation into sustainable competitive advantage in small and medium-sized enterprises (SMEs) remained underexplored. Grounded in the resource-based view, this study investigated the roles of intellectual property protection, open innovation, and continuous innovation performance in facilitating this transformation. A survey of 158 representatives from Chinese SMEs was conducted. The results showed that service innovation had a significant positive effect on both intellectual property protection and continuous innovation performance. Furthermore, intellectual property protection significantly influenced continuous innovation performance, which, in turn, had a significant impact on sustainable competitive advantage. Notably, continuous innovation performance was found to partially mediate the relationship between service innovation and sustainable competitive advantage. However, the moderating role of open innovation and the mediating role of intellectual property protection in the relationship between service innovation and sustainable competitive advantage were not supported. This study contributed to the literature by offering a deeper understanding of how service innovation could drive sustainable competitive advantage in small and medium-sized enterprises. The empirical findings provided practical insights to help small and medium-sized enterprises align their innovation efforts with appropriate protective and collaborative strategies to enhance long-term competitiveness and market positioning.

1. Introduction

Innovation has been a key driver of economic growth and dynamism [1]. It is also essential for small and medium-sized enterprises (SMEs) to achieve and sustain their competitive advantage. In response to intensifying business competition and the expansion of the service sector, many SMEs are increasingly investing in service innovation (SI) to strengthen their market position [2]. Service innovation enables SMEs to differentiate themselves by enhancing their value propositions, thereby supporting market positioning and promoting sustainable growth [3]. Moreover, it improves operational efficiency and strategic agility, allowing SMEs to adapt effectively to evolving market conditions and sustain long-term competitive advantages.

Enterprises typically engage in R&D activities while also employing intellectual property protection (IPP) to safeguard innovation outcomes and prevent unfair competition. As a result, considerable attention has been devoted to protecting innovations from imitation by competitors [4]. Although numerous studies have explored the relationship between IPP and various types of innovation—such as product innovation [5,6], technological innovation [7], green innovation [8,9], and open innovation [10,11], research on service innovation remains notably limited [12]. One reason is that the outcomes of service innovation are often intangible and dynamic, making them difficult to protect through formal IP protection methods (IPPMs) [13]. Päällysaho and Kuusisto [14] classify IPPMs into three categories: formal, informal, and semi-formal. Agostini, Nosella, and Soranzo [6] found that Italian high-tech SMEs rely on informal IPPMs (e.g., time-to-market strategies and employees’ unique skills). Similarly, Morales et al. [15] examined the role of IPPMs in the commercial success of sustainable innovations among Dutch SMEs, finding that informal IPPMs (e.g., trade secrets) positively influenced innovation outcomes. While most existing studies have examined IPP as an independent variable to assess its value to firms [6,9,15], limited attention has been given to its potential mediating role in transforming innovation into sustainable competitive advantage (SCA).

Moreover, the relationship between SI and IPP is increasingly being challenged by the concept of open innovation (OI) [11], a strategic approach that encourages firms to pursue innovation by integrating external sources rather than relying solely on internal R&D. OI and IPP are widely considered to have a paradoxical yet symbiotic relationship. Freel and Robson [11] argued that informal IPPMs are associated with higher levels of inbound open innovation. However, comprehensive discussions on the relationship between SI and IPP in the context of OI remain scarce.

The purpose of this study was to analyze the roles of IPP, OI, and CIP in the process of transforming SI into SCA in SMEs of China, and to examine the relationships among these variables. This study offers three innovative contributions. First, we construct theoretical analyses to examine how IPP and OI can serve as facilitators or barriers in the transformation of SI into SCA. This is intended to address existing gaps in the literature by providing a deeper understanding of the mechanisms that enable the translation of service innovation into long-term competitive benefits among SMEs. Second, it provides empirical evidence on the influence of IPP, OI, and CIP in the SI-to-SCA transformation, offering novel perspectives on this process. Third, from a managerial standpoint, the study presents practical guidance for SMEs seeking to maximize innovation outcomes by identifying critical factors such as IPP, OI, and CIP. These findings can help firms better align their innovation strategies with protection mechanisms and collaborative approaches to enhance long-term competitiveness and market positioning.

2. Theoretical Background and Hypotheses Development

2.1. Resource-Based View (RBV)

Interest in intangible assets emerged in the business management literature during the 1980s [16], with the resource-based view (RBV) becoming a foundational theoretical framework. The RBV suggested that a firm’s intangible and tangible resources could be developed into unique capabilities that led to SCA. Sveiby and Risling [17] introduced knowledge management strategies for non-traditional enterprises, influencing Swedish firms such as Skandia AFS, and leading to the Swedish Council of Service Industries endorsing these strategies in 1993 [18]. Wernerfelt [19] identified unique resources (e.g., brand equity and skilled employees) as sources of sustained competitive advantage. Although the original RBV did not explicitly emphasize IP, recent studies have broadened its scope. For example, Feng et al. [20] demonstrated how IP creates competitive advantages in the Chinese mobile phone industry, while Kim and Kim [21] showed that IP enhances innovation performance in Korean firms by enabling the provision, protection, and strategic use of valuable resources.

The RBV thus provides a robust framework for understanding how a firm’s internal resources, particularly key intangible assets such as intellectual property (IP), can generate SCA [7]. This theoretical perspective aligns with the present study’s focus on the role of SI and IPP in enhancing firms’ competitive positioning.

2.2. Firm Continuous Innovation Performance (CIP) and Sustainable Competitive Advantage (SCA)

SCA refers to a firm’s ability to secure a superior market position through unique and difficult-to-imitate value creation strategies [22]. To enhance SCA, enterprises continually pursue innovation to maintain and strengthen their market position [23,24]. Continuous innovation performance refers to the long-term outcomes achieved through ongoing innovation in technology, products, services, and processes [25]. CIP is crucial for firm growth and profitability [26] and has traditionally been linked to a firm’s internal R&D activities. Continuous innovation enhances enterprise transformation, boosts industry competitiveness, and improves operational performance [24].

According to the RBV, the knowledge assets and core competencies accumulated through innovation activities are essential for achieving differentiated competition [19,21]. Through continuous innovation, enterprises can develop unique products and services tailored to individual customer needs, thereby creating strong barriers to market competition [25]. This not only improves short-term profitability but also fosters sustainable competitive advantage by continually strengthening a firm’s inimitable resources and capabilities [13].

However, it is important to note that CIP, as a long-term performance measure, has not been extensively studied in relation to its contribution to firms’ sustainable competitive advantage. Nonetheless, research on innovation performance provides a strong foundation, with numerous studies demonstrating that innovation performance contributes to sustained competitive advantage [27,28]. For instance, Ferreira, Coelho, and Moutinho [27] conducted an empirical study of 387 firms in Portugal and found that innovation capability had a significant positive effect on firm performance, which in turn enhanced sustainable competitive advantage. Similarly, Chen, Lin, and Chang [28] found that innovation performance positively influences firms’ competitive advantage in Taiwanese manufacturing industry.

H1. 

A firm’s continuous innovation performance positively influences its sustainable competitive advantage.

2.3. Intellectual Property Protection

Intellectual property protection (IPP) refers to the legal techniques and procedures used to ensure that owners of intangible assets (e.g., artistic creations) can lawfully control, use, and derive benefits from their rights. Firms often utilize a combination of formal methods (e.g., trademarks, copyrights, and patents) and informal strategies (e.g., trade secrets) to protect their innovations [13]. Effective IPP can enhance a firm’s market competitiveness, value, and reputation [29,30]. Beyond protection, IPP facilitates technological and commercial collaboration and supports the commercialization of inventions [31,32]. According to the RBV, a firm’s competitive advantage arises from resources that are valuable, rare, inimitable, and non-substitutable [19]. IPP serves as a crucial mechanism for transforming imitable resources into distinctive, non-replicable assets.

Previous studies suggest that IPP not only prevents the replication of innovations but also supports subsequent innovation performance [13]. For instance, Lee et al. [33] found that various IPPMs have complementary effects, and appropriate use of IPPMs can significantly enhance a firm’s innovation performance. Similarly, Hussain and Terziovski [34] examined firms in the Australian biotechnology, pharmaceutical, and ICT sectors, concluding that effective IP exploitation and protection within a culture of organizational learning significantly boost innovation outcomes.

Thus, this study proposes the following hypothesis:

H2. 

Intellectual property protection positively influences a firm’s continuous innovation performance.

Furthermore, numerous prior studies have demonstrated that IPP significantly contributes to firms’ sustainable competitive advantages. For instance, Grimaldi, Greco, and Cricelli [32] found that effective IP management plays a crucial role in balancing export-oriented open innovation with the maintenance of competitive advantage. Agostini et al. [35] highlighted the importance of patents and trademarks in enhancing the economic performance of SMEs across various Italian industries. Similarly, Jee and Sohn [36] observed that SMEs in countries with weak IP regimes often rely on informal protection strategies, such as complex product designs, to preserve their innovative capabilities.

Therefore, this study proposes the following hypothesis:

H3. 

Intellectual property protection positively influences a firm’s sustainable competitive advantage.

2.4. Service Innovation

Innovation is widely recognized as a key driver of business growth [37]. Service innovation is defined as “a new service—an invention that has not yet been successfully introduced to the market” [1]. From a demarcation perspective, the nature and characteristics of service innovation differ significantly from those of product innovation [38]. While product innovation typically involves tangible items and complex technologies, service innovation is primarily based on intangible processes, such as component interactions and incremental improvements to existing procedures [13,38]. Consequently, as service innovation represents an intangible “product”, it is essential to examine how such activities influence business value.

The dynamic and intangible nature of service innovation presents significant challenges for securing intellectual property protection [13]. These characteristics often expose innovations to imitation, making it difficult for firms to capture the benefits post-launch [4,13]. Numerous studies have emphasized that firms are acutely aware of these difficulties in protecting service-based intellectual property [13]. In response, many have adopted informal or hybrid protection strategies. These strategies may include leveraging lead-time advantages, trade secrets, and customer loyalty initiatives to mitigate imitation risks and enhance innovation value. Based on these insights, this study suggests that advancing service innovation addresses conventional intellectual property limitations and compels firms to adopt novel protection mechanisms, thereby strengthening their intellectual property frameworks. Thus, the study proposes that:

H4. 

Service innovation positively influences intellectual property protection.

Service innovation is a critical factor for SMEs in achieving competitive advantage [23]. Recent studies have shown that service innovation enhances both innovation performance and sustainable competitiveness. For example, Shin, Kim, Jung, and Kim [2] found that integrating product and service innovation improves performance in manufacturing firms. McDermott and Prajogo [39] emphasized that ambidextrous innovation positively influences performance in SME service firms. Similarly, Hameed et al. [40] demonstrated that open innovation enhances service and business performance in the Pakistani hotel industry. Based on these findings, this study proposes the following hypothesis:

H5. 

Service innovation positively influences a firm’s continuous innovation performance.

Prior research consistently indicates that service innovation not only delivers direct business value and a competitive edge in terms of sustainable advantage but also helps maintain innovation vitality and long-term market leadership [22,25]. Lusch and Nambisan [41] identified the positive role of service innovation in strengthening firms’ competitive advantages. Cheng et al. [42] examined the impact of service innovation on sustainable competitive advantage in higher education. Hong et al. [43] analyzed how service innovation initiatives enabled Maybank Malaysia to achieve sustainable competitive advantage through environmentally and socially responsible practices, highlighting the broader implications of service innovation for sustainable growth in the banking sector. Chen and Tsou [44] investigated how the adoption of information technology enhances service innovation in Taiwanese financial firms, revealing that IT-driven service innovation positively contributes to firms’ competitive advantage. Thus, the study proposes that:

H6. 

Service innovation positively influences a firm’s sustainable competitive advantage.

2.5. Intellectual Property Protection (IPP) as a Mediating Role

IPP can play a crucial mediating role in converting innovation outcomes into CIP and SCA. This relationship can be effectively explained through the lens of the RBV, which asserts that a firm’s resources contribute to competitive advantage when they are valuable, rare, inimitable, and non-substitutable [19,45]. The outcomes of SI are typically intangible (e.g., innovations in service delivery), making it difficult for firms to transform these into CIP and SCA. This challenge arises because intangible service innovations are often easily replicated by competitors once introduced to the market. By implementing intellectual property protection, firms can convert these intangible and easily imitable resources—such as service innovations—into inimitable assets, such as formal intellectual property rights [46]. This transformation not only preserves the uniqueness of innovations but also strengthens the firm’s ability to maintain long-term competitive advantage. Moreover, effective IP protection incentivizes continuous innovation, reinforces market position, and promotes resilience in long-term competition.

The role of IPP is receiving increasing attention in the relationship between innovation activities and innovation performance. For example, Rylková and Chobotová [47] used IPP as a metric to evaluate firms’ innovation performance. Song et al. [48] identified an inverted U-shaped relationship between IPP and innovation performance in China’s A-share listed companies. Tang et al. [49] examined the moderating effect of IPP on the relationship between distributed innovation and digital product innovation performance among Chinese technology firms. Barbu and Militaru [50] discussed how intellectual property rights support new ventures in transforming innovation potential and creativity into market value, profits, productivity, employment, wages, and competitiveness.

This study argues that the mediating role of IPP should be further explored in the process of transforming service innovation into sustainable innovation advantages. Given the intangible nature of service innovation and its susceptibility to imitation, obtaining IP protection is a necessary step in converting SI into CIP for SMEs. Thus, the study proposes that:

H7. 

Intellectual property protection mediates the relationship between service innovation and firms’ continuous innovation performance.

Moreover, previous studies have highlighted the role of IPP in transforming innovation into SCA. For example, from a macro perspective, Yang et al. [51] found that countries holding graphene patents are positively associated with achieving SCA. Similarly, Hunjet et al. [52] emphasized that protecting innovations through intellectual property registration systems is essential for converting them into strong competitive advantages. These findings suggest that both innovation and intellectual property positively influence firms’ sustainable competitiveness. However, prior research has primarily focused on the direct effects of IPP, without thoroughly examining its potential mediating role in this transformation process. Thus, the study proposes that:

H8. 

Intellectual property protection mediates the relationship between service innovation and firms’ sustainable competitive advantage.

2.6. Continuous Innovation Performance (CIP) as a Mediating Role

CIP may serve as a critical mediating factor in the relationship between SI and SCA, as it reflects a firm’s ongoing adaptation and enhancement of its offerings [25]. It is important to note that the competitive advantage generated by innovation is not inherently sustainable and is often temporary [53]. For innovation to result in sustainable competitive advantages, it must be continually refined and embedded within the organization’s operational processes [25].

Numerous studies have highlighted the significance of continuous innovation in achieving SCA. For instance, Madonsela et al. [54] asserted that continuous innovation is a fundamental enabler of sustainable business practices, thereby reinforcing long-term competitive advantage. de Oliveira Teixeira and Werther Jr [55] emphasized that innovation is fundamental to competitive advantage. They noted that firms like 3M and Apple, which consistently innovate, outperform those that do not. Similarly, Kuncoro and Suriani [56] found that product innovations which consistently deliver customer value are positively associated with SCA. These findings suggest that the transformation of SI into SCA may be mediated by CIP. Thus, this study proposes that:

H9. 

Continuous innovation performance mediates the relationship between service innovation and firms’ sustainable competitive advantage.

2.7. The Moderating Role of Open Innovation (OI)

OI refers to the systematic utilization of a firm’s dynamic capabilities to manage key technological processes—both internal and external—including technology acquisition and exploitation throughout the innovation process [57]. It is characterized by extensive collaboration and knowledge sharing with external stakeholders [58]. OI is a critical strategy for SMEs to gain a competitive edge [32]. It is often driven by the need for new or advanced technologies; however, it also introduces risks, such as the potential for competitors to access proprietary intellectual property. The relationship between IPP and OI is often viewed as paradoxical, as IPP can function either as an enabler or a barrier to OI [32]. Therefore, OI adds a layer of complexity to the interplay between innovation and intellectual property protection.

Several prior studies have examined the relationship between OI and IPP [32,59]. For example, Grimaldi, Greco, and Cricelli [32] found that the absence of an IP strategy impedes outbound OI, while defensive and collaborative IP strategies facilitate OI adoption and improve innovation performance. Lichtenthaler [59] emphasized that the size and quality of corporate patent portfolios significantly affect both inward and outward technology transfer. Bican et al. [60] identified an ambivalent relationship between IPP and OI, underlining the critical role of IPP across all stages and levels of the open innovation process. Based on the above studies, this study proposes that:

H10. 

Open innovation moderates the relationship between service innovation and intellectual property protection.

Overall, the conceptual framework is presented in Figure 1.

3. Method

This study employed a cross-sectional research design using a questionnaire. This approach enables efficient, large-scale analysis of current innovation activities, particularly in SMEs, where panel data are often unavailable. Given the challenges of conducting long-term studies and the sample size limitations of the in-depth interview method, this design was considered the most appropriate for studying innovation activities among SMEs.

3.1. Samples and Data Collection

This study focused on SMEs in Guangdong Province, which has maintained the highest GDP among all Chinese regions for 36 consecutive years and contributes the largest share of the country’s SMEs and overall economic output. Due to its high concentration of innovative and economically active enterprises, Guangdong offers a representative context for examining SME development and innovation across China. Data were collected through an email-based survey using a convenience sampling approach. SMEs were randomly selected from the government website Qi Zhi Dao, and invitation emails were sent introducing the study and outlining participation guidelines, including the preferred job positions of respondents.

To ensure sampling precision, three screening criteria were applied: (1) Respondent’s Role: Participants were required to hold primary managerial positions (e.g., CEO, technical director, finance director) and be involved in strategic and operational decision-making. Insights into service innovation and intellectual property practices necessitate knowledge beyond general personnel responsibilities. (2) Enterprise Size: Firms had to qualify as SMEs, defined as having fewer than 200 employees in accordance with Gunningham [61]. (3) Service Innovation: Companies must have engaged in service innovation activities within the past five years.

A total of 183 responses were received. After excluding responses that did not meet the screening criteria, 158 valid responses were retained for analysis. The sampled SMEs spanned diverse industries, reflecting the cross-sectoral nature of service innovation. Respondent characteristics are presented in

Table 1. Sample characteristics.

Items		Num	Percentage (%)
Number of employees	Less than 20	91	57.59%
	21–50	56	35.44%
	51–200	11	6.96%
Establish time	Less than 1 year	104	65.82%
	1–2 years	32	20.25%
	3–5 years	17	10.76%
	5–10 years	5	3.16%
	More than 10 years	0	0.00%
Job position	CEO	121	76.58%
	Sales executive	3	1.90%
	Operations supervisor	8	5.06%
	Technical supervisor	6	3.80%
	Financial supervisor	4	2.53%
	Head of personnel and administration	16	10.13%
Industries	Retail	5	3.16%
	Manufacturing	12	7.59%
	Internet and technological services	64	40.51%
	Telecommunication	25	15.82%
	Financial Services	19	12.03%
	Education	13	8.23%
	Transport and transportation	16	10.13%
	Sports and entertainment	4	2.53%
	Others	0	0.00%
Total		158	100.00%

.

3.2. Measurements

All scales used in this study were from prior research to ensure their reliability. A 5-point Likert scale questionnaire was employed to measure the constructs (Appendix A), where participants indicated their level of agreement with each item on a scale ranging from 1 (strongly disagree) to 5 (strongly agree). Service innovation was assessed using eight items [23], focusing on the extent of innovation implemented by enterprises over the past five years, with 1 indicating “no change” and 5 indicating “complete change”. Open innovation was evaluated with 10 items, based on the work of Hung and Chou [62]. Intellectual property protection was measured using seven items, as identified by Aloini et al. [63]. Continuous innovation performance was assessed using five items, as defined by Aloini, Lazzarotti, Manzini, and Pellegrini [63], while sustainable competitive advantage consisted of three items, as outlined by Casidy, Nyadzayo, and Mohan [23].

3.3. Data Analysis

The study employed Partial Least Squares Structural Equation Modeling (PLS-SEM) using Smart PLS (Version 4.1.0.8) to test the hypotheses and examine the relationships between variables [64]. This method is advantageous because it does not require the data to follow a normal distribution, effectively handles complex and multidimensional models, and performs well with small sample sizes.

4. Results

4.1. Measurement Model

The reliability and validity of the model constructs were thoroughly assessed. As shown in

Table 2. Cronbach’s α, composite reliability, and AVE.

Items		Factor Loading	Cronbach’s α	CR	AVE
CIP	CIP1	0.768	0.857	0.903	0.700
	CIP2	0.858
	CIP3	0.861
	CIP4	0.856
IPP	IPP4	0.793	0.817	0.879	0.645
	IPP5	0.795
	IPP6	0.805
	IPP7	0.819
OI	OI3	0.765	0.841	0.887	0.611
	OI4	0.814
	OI5	0.730
	OI6	0.848
	OI8	0.746
SCA	SCA1	0.883	0.861	0.915	0.782
	SCA2	0.900
	SCA3	0.870
SI	SI4	0.808	0.772	0.868	0.687
	SI5	0.842
	SI6	0.836

Note: SI: Service innovation; OI: Open innovation; IPP: Intellectual property protection; CIP: Continuous innovation performance; SCA: Sustainable competitive advantage; CR: Composite reliability; AVE: Average variance extracted.

, all factor loadings exceeded the acceptable threshold of 0.70 [65]. The Cronbach’s α and composite reliability (CR) values surpassed the 0.70 threshold, while the average variance extracted (AVE) values exceeded 0.60. These results confirm the internal consistency, reliability, and convergent validity of the model. Furthermore, reliability values greater than 0.70 indicate strong construct reliability. During the analysis, items with factor loadings below 0.60 (i.e., ipp1, ipp2, ipp3, oi1, oi2, oi7, si1, si2, and si3) were removed from the measurement tool, in accordance with Hair Jr, Matthews, Matthews, and Sarstedt [64]. After excluding these items, the factor loadings of each item within the construct were higher than their cross-loadings with other constructs. The results from the Fornell–Larcker criterion (

Table 3. The square roots of the AVE scores.

	CIP	IPP	OI	SCA	SI
CIP	0.837
IPP	0.502	0.803
OI	0.444	0.461	0.782
SCA	0.657	0.410	0.510	0.884
SI	0.563	0.449	0.436	0.419	0.829

Note: The diagonals represent the average variance extracted (AVE); SI: Service innovation; OI: Open innovation; IPP: Intellectual property protection; CIP: Continuous innovation performance; SCA: Sustainable competitive advantage.

) demonstrated that the square root of the AVE for each variable was greater than the correlations between variables, supporting discriminant validity. Additionally, the heterotrait–monotrait (HTMT) coefficients, all of which were below 0.90 (

Table 4. Heterotrait–monotrait ratio (HTMT).

	CIP	IPP	OI	SCA
IPP	0.603
OI	0.509	0.549
SCA	0.756	0.491	0.594
SI	0.690	0.563	0.537	0.514

Note: SI: Service innovation; OI: Open innovation; IPP: Intellectual property protection; CIP: Continuous innovation performance; SCA: Sustainable competitive advantage.

), further confirmed discriminant validity. Multicollinearity was assessed using the variance inflation factor (VIF), with values ranging from 1.000 to 2.391, well below the recommended cutoff of 3.33, confirming that multicollinearity was not a significant concern. The construct was successfully validated, confirming the measurement model’s validity and reliability. Finally, the model fit was evaluated with a standardized root mean square residual (SRMR) value of 0.065, which is below the threshold of 0.80. Additionally, the normed fit index (NFI) of 0.790 exceeded the threshold of 0.70, indicating a good model fit [65].

4.2. Structural Model Assessment

The structural model was estimated using the PLS algorithm with 5,000 resamples through bootstrapping. The results, including path coefficients and their significance levels, are presented in

Table 5. Hypothesis test results.

Hypothesis		β	t-Value	p Values	Results
H1	CIP -> SCA	0.580	6.690	0.000	Supported
H2	IPP -> CIP	0.312	4.235	0.000	Supported
H3	IPP -> SCA	0.097	1.194	0.232	NS
H4	SI -> IPP	0.300	3.340	0.001	Supported
H5	SI -> CIP	0.423	5.216	0.000	Supported
H6	SI -> SCA	0.049	0.560	0.576	NS

Note: SI: Service innovation; IPP: Intellectual property protection; CIP: Continuous innovation performance; SCA: Sustainable competitive advantage; NS: Not supported.

and Figure 2.

The findings indicate that continuous innovation performance (β = 0.580, t = 6.690, p < 0.001) has a significant positive effect on sustainable competitive advantage, supporting H1. Additionally, intellectual property protection (β = 0.312, t = 4.235, p < 0.001) significantly and positively influences continuous innovation performance, supporting H2. In contrast, service innovation (β = 0.097, t = 1.194, p > 0.05) does not have a significant effect on sustainable competitive advantage, leading to the rejection of H3. Open innovation (β = 0.324, t = 3.957, p < 0.001) significantly and positively affects intellectual property protection, supporting H4. Furthermore, service innovation (β = 0.423, t = 5.216, p < 0.001) has a significant positive influence on continuous innovation performance, supporting H5. Finally, service innovation (β = 0.300, t = 3.340, p < 0.001) also significantly and positively affects intellectual property protection, supporting H6.

4.3. Mediating Effects

This study employed the variance accounted for (VAF) value, which represents the ratio of indirect to total effects, to evaluate mediation effects. In mediation analysis, a VAF below 20% indicates no mediation, a VAF between 20% and 80% suggests partial mediation [66], and a VAF above 80% indicates full mediation. As shown in

Table 6. Mediation analysis.

Hypothesis	IV	MV	DV	Direct Effect	Indirect Effect	Total Effect	VAF	Results
H7	SI	IPP	CIP	0.094 (2.367) *	0.094 (2.367) *	0.517 (7.312) ***	18.18%	NS
H8	SI	IPP	SCA	0.329 (5.790) ***	0.029 (1.104)	0.378 (4.690) ***	7.67%	NS
H9	SI	CIP	SCA	0.329 (5.790) ***	0.246 (4.514) ***	0.378 (4.690) ***	65.08%	Supported

Note: IV: Independent variable; MV: mediating variable; DV: dependent variable; SI: Service innovation; IPP: Intellectual property protection; CIP: Continuous innovation performance; SCA: Sustainable competitive advantages. NS: Not supported; * p < 0.05; *** p < 0.001.

, hypotheses H7 and H8 were not supported, whereas H9 was supported by the data through continuous innovation performance.

4.4. Moderating Effects

To assess the moderating effect of OI, this study adopted the approach proposed by Henseler and Fassott [67]. Interaction terms were created by multiplying the path coefficients of the corresponding variables. Subsequently, the lower and upper bounds of the confidence intervals were calculated. As shown in

Table 7. Bootstrapped confidence interval test for moderating effects.

Interaction Terms	2.5% Lower Bound	97.5% Upper Bound	Zero Included	Results
OI × SI -> IPP	−0.06	0.192	Yes	NS

Note: SI: Service innovation; IPP: Intellectual property protection; OI: Open innovation; NS: Not supported.

, the confidence interval for the interaction term “Service Innovation × Open Innovation” includes zero, indicating that Hypothesis H10 is not supported.

5. Discussion

This study examined the relationships among service innovation, intellectual property protection, continuous innovation performance, and sustainable competitive advantage. Grounded in the RBV, which posits that a firm can achieve SCA when its resources and capabilities are valuable, rare, and inimitable, this research developed a conceptual framework to elucidate how service innovation contributes to long-term competitiveness. It investigated the mediating roles of intellectual property protection and continuous innovation performance. Furthermore, the moderating effect of open innovation on the relationship between service innovation and intellectual property protection was also analyzed. Accordingly, this study offers significant theoretical and practical contributions by deepening the understanding of how service innovation influences intellectual property protection and continuous innovation performance, ultimately enhancing sustainable competitive advantage in the context of open innovation. The key findings are summarized as follows.

Firstly, the results indicate that firms’ continuous innovation performance positively affects their sustainable competitive advantage. This finding is consistent with prior research suggesting that enhancing innovation capabilities is among the most strategic approaches for firms to achieve long-term competitive benefits [43]. Moreover, this study reveals positive relationships between intellectual property protection (H2) and continuous innovation performance, as well as between service innovation (H5) and continuous innovation performance, indicating that both IPP and SI are key drivers of innovation capability in SMEs. In particular, service innovation enables firms to meet evolving customer demands, improve service quality, and achieve superior innovation outcomes. Studies such as those by Casidy, Nyadzayo, and Mohan [23] and Salunke, Weerawardena, and McColl-Kennedy [22], similarly highlight the role of service innovation in fostering adaptability and differentiation among SMEs. Additionally, empirical evidence (e.g., Rajapathirana and Hui [68]) confirms the positive association between innovation and various dimensions of organizational performance, including market and financial outcomes.

Secondly, the findings suggest that service innovation positively influences intellectual property protection, indicating that firms increasingly prioritize IPP within the context of service innovation. This result supports the findings of Hurmelinna Laukkanen and Ritala [69] who argue that service innovation is no longer viewed as a supplementary activity but as a central component of business strategy. Like product and technological innovation, service innovation is protected through both formal and informal mechanisms [70]. IPP helps prevent imitation and infringement, thereby safeguarding the distinctiveness and competitiveness of innovation outcomes [33]. According to [31], a firm’s ability to profit from innovation depends largely on its effectiveness in protecting and leveraging intangible assets. Prior studies, such as [13], reveal that while firms often employ both formal and informal protection strategies, IPP in service innovation remains underdeveloped. Informal mechanisms address organizational aspects, whereas patents typically safeguard technological components, underscoring the complementary nature of these protection approaches.

Thirdly, contrary to expectations, this study found that IPP did not mediate the relationship between SI and SCA, nor the relationship between SI and CIP. Notably, the non-significant role of IPP in the relationship between SI and SCA contrasts with previous studies that identified IPP as a critical mechanism for firms to leverage innovation [6,71]. Three potential explanations are proposed for this results. The first explanation draws on the study by Song, Xiu, Zhao, Tian, and Wang [48], which identified an inverted U-shaped relationship between IPP and innovation performance among Chinese listed firms. This suggests that the effect of IPP on innovation may not be linear. The second explanation relates to the inherent characteristics of IPP systems, which are primarily developed in industrial contexts to protect tangible innovations. Given the intangible nature of service innovation, it is inherently difficult to protect through formal IPPMs, thereby limiting IPP’s ability to safeguard innovation outcomes and convert them into sustainable competitive advantage [13]. The final explanation concerns the sample composition, in which over half of the surveyed firms are startups less than one year old. Compared to more established SMEs, these early-stage firms often face greater challenges in developing and implementing effective IP strategies. Since formal IPP processes are typically time-consuming, their protective effect may be less relevant for startups. This may help explain the absence of a mediating role of IPP in our findings. This interpretation is further supported by Brem et al. [72], who studied SMEs with at least six years of operational history and found that formal IP mechanisms—such as trademarks—played a significant mediating role.

Moreover, this study revealed that continuous innovation performance plays a central role in transforming service innovation into sustainable competitive advantage. This finding is consistent with most prior studies from the innovation management perspective [25]. It suggests that, for SMEs to successfully translate service innovation into sustainable competitive advantage, they must continuously pursue improvement and self-renewal, elevating their services to meet world-class standards [73,74].

Finally, OI did not moderate the relationship between service innovation and IPP. As previously discussed, OI and IPP exhibit a paradoxical yet symbiotic relationship. OI facilitates external collaboration and enhances the efficiency and quality of service innovation [10]. However, to fully benefit from openness, firms must implement robust IPP strategies. One possible explanation for the observed result is that nearly half of the surveyed firms were startups established within the past year. These early-stage firms often possess limited resources and tend to prioritize the development of core operations during their first year. Consequently, they are typically in the early stages of adopting OI practices. This limited capacity may account for why OI did not exhibit a significant moderating effect in this study. This interpretation is supported by Brem, Nylund, and Hitchen [72], who examined more mature SMEs and found that OI had a significant impact on firm performance. The findings of this study suggest that the effects of OI and IPP may be constrained during the early phases of service innovation.

5.1. Theoretical Implications

This study makes several theoretical contributions. First, it establishes a theoretical foundation for understanding the key determinants of SCA from a service innovation–oriented IPP perspective. While extensive research has examined the contributions of product and technological innovation to SCA [56,75], comparatively little attention has been paid to service innovation. Even fewer studies have explored the mediating role of IPP in the relationship between SI and SCA. By proposing an integrated model, this research offers a comprehensive explanation of how SI contributes to SCA, incorporating both enabling factors (e.g., IPP and innovation performance) and potential challenges (e.g., open innovation). This approach enriches the literature on innovation and competitive advantage by addressing a critical gap in understanding the strategic value of service innovation.

Second, this study extends the RBV by exploring its applicability within the context of intellectual property management. Although the RBV has been widely applied to explain how firms leverage rare, valuable, and inimitable resources to achieve SCA [45,76], the original framework does not explicitly highlight the role of intellectual property in creating competitive advantage—despite IP being recognized as one of the most important intangible resources for SMEs. By integrating IPP into the RBV framework, this research offers a more nuanced understanding of how service innovation outcomes can be transformed into unique, inimitable resources that drive SCA. Although the findings suggest that IPP does not play a central mediating role in this process, they nonetheless provide a novel contribution to ongoing RBV-related research. Accordingly, the proposed framework presents a more holistic depiction of the pathway through which innovation is converted into sustainable competitive advantage.

Finally, this study addresses an important topic, as IPP and OI are often perceived as paradoxical. Previous research has rarely examined both IPP and OI within the same framework, frequently treating them as inherently conflicting concepts [32]. This study challenges that assumption by suggesting that the relationship between IPP and OI may not be entirely contradictory. This investigation enhances theoretical insights into both intellectual property management and open innovation, offering a novel perspective that emphasizes their potential synergy.

5.2. Practical Implications

For practitioners and managers, this study offers three key practical implications. First, the results indicate that there is no significant direct relationship between SI and SCA, suggesting that SI alone does not directly lead to SCA. However, SI can indirectly contribute to SCA through CIP, which acts as a mediating factor. This highlights the importance of fostering continuous innovation to fully realize the strategic value of SI. Second, IPP can enhance CIP, which in turn reinforces SCA. Therefore, managers should prioritize IPP as part of a comprehensive strategy that incorporates robust IPPMs while simultaneously promoting CIP in order to achieve and sustain competitive advantage in dynamic market environments.

Third, the study finds that OI does not moderate the relationship between SI and IPP. The managerial implication is clear: in the context of service innovation, a firm’s level of openness does not significantly influence the intellectual property protection strategies it adopts.

5.3. Limitations and Future Suggestions

The current study is still in its infancy. Similar to other studies, this study has several limitations. First, the sample size is relatively small and primarily concentrated in Guangdong Province, which limits the generalizability of the findings. As noted above, Guangdong is distinguished by its leading GDP and dynamic innovation-driven economy. Consequently, the results are more applicable to regions with similar economic characteristics than to areas with relatively conservative or less active economic environments. Future studies should include data from SMEs located in less economically active regions to enhance the generalizability of the findings.

Second, although all surveyed firms meet the definition of SMEs, 65% of the sample consists of startup enterprises. Startups are typically in the early stages of development, and their innovation activities are often exploratory and uncertain—traits that distinguish them from more mature SMEs. This characteristic limits the applicability of the findings to well-established SMEs. Future research should investigate more mature SMEs and compare the outcomes with those of the present study.

Third, since this study focuses on general service innovation activities among SMEs without restricting the industry type, the sample includes firms from eight different industries, with a primary concentration in Internet and technological services. Although this finding aligns with previous research on the distribution and concentration of service innovation across industries [4,13], future studies could further explore SI in different industrial sectors.

Finally, although numerous studies have examined the impact of innovation on organizational outcomes such as financial and market performance, this study did not incorporate a broad measure of organizational performance. Future studies are encouraged to integrate a more extensive assessment of organizational performance within the analytical framework.

6. Conclusions

In conclusion, this study’s findings contribute to the existing theoretical research on the relationship between service innovation, intellectual property protection, continuous innovation performance, and sustainable competitive advantage based on RBV. Additionally, these findings have significant implications for enterprises in daily operations. Enterprises should prioritize protecting of their intellectual property and actively embrace open innovation strategies to enhance their continuous innovation performance and market competitiveness while improving service innovation. Subsequent studies can go deeper into the variations of these relationships across various industries and locations, along with additional variables that might influence these relationships.