1. Introduction
Today, business organizations worldwide are competing to achieve a sustainable competitive advantage. In this regard, intellectual capital is perceived as one of the most valuable organizational resources that enables sustainable development (
Gross-Gołacka et al. 2020). All dimensions of intellectual capital—human capital, relational capital, and structural capital—are a source of innovation, and new activities provide an effective sustainable competitive position (
Duodu and Rowlinson 2019). Moreover, in a volatile market, the sustainable competitive position of business organizations is strongly influenced by their intellectual capital (
Lu et al. 2021).
For small and medium enterprises (SMEs), intellectual capital dimensions are an important driver for technological innovation, which, in turn, spurs innovative performance and a sustainable competitive position (
Agostini et al. 2017). Developing a sustainable business is challenging for SMEs in developing countries. In contrast, the high costs of procurement of tangible resources, due to financial limitations, prompt business organizations in developing countries to prefer intangible resources, particularly intellectual capital in order to spur competitiveness and performance (
Lu et al. 2021). Thus, sustainable competitive advantage is no longer rooted in tangible resources and financial capital, but the effective channeling of unique intellectual resources (
Balaji and Makhija 2001).
In several developing countries, SMEs contribute to economic empowerment in the form of job creation and the social welfare of the majority of the population, especially for those who do not have access to formal jobs in the public sector (
Agyei 2018). In Indonesia, SMEs are the most important pillars of the economy. The
Coordinating Ministry of Economic Affairs of the Republic of Indonesia (
2021) noted that the number of SMEs in 2021 reached 64.2 million, with a contribution to the Gross Domestic Product of 61.07% (8573.89 trillion rupiah). The contribution of SMEs to the Indonesian economy includes the ability to absorb 97% of the total workforce and collect up to 60.4% of the total investment. However, bankruptcy and failure remain a problem for SMEs worldwide, especially in less developed economies (
Kücher et al. 2020).
According to resource-based theory (RBT), firm resources, especially intangible ones, are more likely to contribute to firms achieving and maintaining superior performance when combined or integrated (
Barney 1991). From the intellectual capital-based view (ICV), competitive advantage takes the form of resource characteristics that allow a company to outperform competitors in the same industry (
Reed et al. 2006). Both of these became the theoretical motivation for conducting this study. Another motivation for conducting this research was that empirically, even though SMEs have a large influence on the global economy, attention to SMEs in the study of intellectual capital is still limited (
Marzo and Scarpino 2016). The concept and nature of intellectual capital have been widely studied, but a common understanding of the role of intellectual capital in achieving a sustainable competitive advantage in organizations, with the changing environment and world economic situation, is still lacking (
Lentjushenkova et al. 2019). Business organizations’ awareness of the importance of intellectual capital for their development is still low because of the intangible characteristics of intellectual capital, and the many elements it comprises (
Gross-Gołacka et al. 2020).
Several researchers have examined the relationship between intellectual capital and sustainability issues, such as
Chaudhry and Chaudhry (
2022), who examine the effect of green intellectual capital on sustainable economic excellence in manufacturing companies in Pakistan;
Lu et al. (
2021), who examined the effect of intellectual capital on sustainable competitive advantage in terms of differentiation strategy and cost leadership strategy in Chinese and Pakistani companies;
Mukherjee and Sen (
2019), who examined the effect of intellectual capital on sustainable growth in Indian firms; and
Xu and Wang (
2018), who examined the relationship between intellectual capital and the sustainable growth of manufacturing companies in Korea. Other researchers have also conducted research on the relationship between sustainable competitive advantage and organizational performance, such as
Patrisia et al. (
2022),
Khan et al. (
2019), and
Guimarães et al. (
2017). Even so, it is difficult to find research that examines intellectual capital as an antecedent of sustainable competitive advantage, and that examines the impact of sustainable competitive advantage on organizational performance in a comprehensive research model.
Therefore, this research seeks to build an empirical model of organizational performance by considering the role of intellectual capital and sustainable competitive advantage. This is the novelty of this research. In addition, this study focuses on the context of SMEs, which have received less attention in the intellectual capital domain compared to larger organizations. The research questions to be answered in this study are: (a) Does intellectual capital (human capital, relational capital, and structural capital) relate to sustainable competitive advantage? (b) Does sustainable competitive advantage relate to organizational performance? Therefore, the purpose of this study is to investigate the relationship between intellectual capital (human capital, relational capital, and structural capital) and sustainable competitive advantage, and the relationship between sustainable competitive advantage and organizational performance.
Some of the contributions of this study are as follows: firstly, this study focuses on SMEs in developing countries, namely Indonesia, so that the findings enrich the understanding of intellectual capital in the value creation process in developing countries. Secondly, this study examines the impact of sustainable competitive advantage on organizational performance, which can increase the understanding that sustainable competitive advantage must be translated into organizational performance, to the extent that organizational performance is higher than competitors. Thirdly, this study also extends the previous studies by proposing intellectual capital as an important variable underlying the sustainability practices of companies for superior performances. Finally, the results of this study support the RBT and the ICV.
3. Methodology
The positivism paradigm used in this research is to seek the interconnection of social phenomena, namely the practice of intellectual capital in SMEs in developing countries, especially Indonesia, in order to produce a general causal law so that an event can be controlled and predicted. This study used a sample of SMEs located in Denpasar, Bali province, Indonesia. Based on data from the
Denpasar City Communication Informatics and Statistics Office (
2022), there were 1348 SMEs in Denpasar, which included South Denpasar, East Denpasar, West Denpasar, and North Denpasar. The sample size of 308 SMEs was determined using the sample size determination formula (
Yamane 1973):
where
n is the sample size,
N is the population, and
e is the tolerable error.
A simple, random sampling technique was used, with the sample selection procedure using a lottery without returns until 308 SMEs were selected. Data were collected from CEOs of SMEs, who represented organizations as respondents, using questionnaires that were directly sent to the respondents.
The questionnaire was accompanied by a cover letter that explained the purpose of the study and guaranteed data confidentiality. Two weeks after sending out the questionnaires, responses began to be received. Of the 308 questionnaires sent, 105 were filled in and received (response rate: 34.09%). However, only 99 were filled out completely by the respondents and were used in this study (usable response rate: 32.14%).
Non-response bias test was conducted to determine whether the characteristics of the respondents who returned filled-in questionnaires were different from those of respondents who did not return them (non-response). In this study, respondents who returned answers to the questionnaire after the specified time were considered to represent the answers of non-response respondents. The results of the independent sample
t-test (
Table 1) show that the
t-value at equal variance was −0.158, with a
p-value of 0.875 (>0.05). Therefore, there is no difference in scores between the returning and non-returning questionnaire groups, indicating that there was no non-response bias. Most of the participants in this study are males (66.66%), had been employed for >5 years (75.75%), and have bachelor’s degrees as their highest qualification (80.19%).
Measurements of intellectual capital, including human, relational, and structural capital, and organizational performance are adapted from
Wang et al. (
2014). Human and relational capital are measured by five items, whereas structural capital is measured by seven items, and organizational performance is measured by 11 items. Sustainable competitive advantage is measured using a tool adopted from
Guimarães et al. (
2017) consisting of six items. All measurements are based on a five-point Likert scale, ranging from 1 (strongly disagree) to 5 (strongly agree).
Table 2 summarizes the descriptive statistics of the research variables, which include the minimum and maximum values (theoretical and actual), mean, and standard deviation. The mean value indicates that the responses of the participants to the research variables were similar. Respondents answer that they agree to the variable items of human capital (HC), relational capital (RC), sustainable competitive advantage (SCA), and organizational performance (OP), which are indicated by the mean values of 4.15, 4.18, 4.28, and 4.38, respectively. Similarly, the mean value of the structural capital (SC) variable is 3.69, which is close to 4.00, indicating that the respondents agree with these variable items.
The research hypothesis is tested using variance-based structural equation modeling (SEM-PLS), which is able to test several dependent and independent variables simultaneously and works efficiently with small sample sizes and complex models. This study uses WarpPLS software (ver. 8.0).
5. Discussion
The findings of this study indicate that intangible resources—in this case, intellectual capital—benefit sustainable competitive advantage and organizational performance. Intellectual capital is an intangible resource that works towards achieving sustainable competitive advantage and higher organizational performance (
Kianto et al. 2014). This study succeeded in confirming H1, H2, and H3, by proving that the three dimensions of intellectual capital are significantly and positively related to sustainable competitive advantage. The better the quality of intellectual capital owned, the more sustainable competitive advantages can be achieved by SMEs. Employees of SMEs in Denpasar are creative, experienced, and often develop new ideas and knowledge, all of which help companies to explore market opportunities and defend against environmental threats by increasing revenues and/or reducing expenses. Furthermore, the training provided by the company strengthens the professional skills of the employees. These main resources for the company are difficult to obtain or imitate by competitors and cannot be easily substituted. This finding is consistent with that of
Mukherjee and Sen (
2019), who claim that intellectual capital is a significant driver of sustainable growth in developing companies. In addition, the results of this study are also in line with the findings of
Lu et al. (
2021), who show that in Pakistan and China, human capital exhibited a positive and significant effect on sustainable competitive advantage. The findings of this study also support
Chaudhry and Chaudhry (
2022), who found that human capital has a significant positive effect on sustainable competitive advantage in manufacturing companies certified to ISO 14001 in Pakistan.
The significantly positive relationship between relational capital and sustainable competitive advantage reveals that the exploration of market opportunities or the company’s efforts to defend itself from environmental threats resulted from intense communication and effective collaboration to identify and solve problems. The achievement of sustainable competitive advantage is also supported by interactions with stakeholders, including customers and strategic partners, which are always well maintained by the company.
De Castro et al. (
2004) insist that relational capital contributes to creating reputational value for the company and is considered an open system that is in dialogue with the external environment and interested parties. This finding is also supported by that of
Xu and Wang (
2018), who conclude that relational capital significantly contributes to the growth of corporate sustainability in Korea. The findings of this study suggest that intellectual capital plays an important role for companies, and helps them to survive in the long term in a dynamic market (
Bontis et al. 2018) by using a strategy that is different from their competitors (
Lu et al. 2021). The findings of this study also support
Chaudhry and Chaudhry (
2022), who found relational capital to have a significant positive effect on sustainable competitive advantage.
This study confirms that SMEs with efficient operating procedures have a flexible and comfortable culture and atmosphere, and can rapidly respond to changes, making it difficult for competitors to imitate their products and services. The systems and procedures of the companies that support innovation encourage companies to adhere to environmental sustainability by using key resources in the production process and product development. Emphasis on investment in the development of new markets has also encouraged companies to be responsible while using their main resources, particularly economically, to provide goods and services to the community. The findings of this study support the claim (
Chen 2008) that structural capital provides a competitive advantage to firms in China. In addition to China, the role of structural capital in sustainable competitive advantage, other strategic advantages, and cost leadership strategies has also been reported for companies in Pakistan (
Lu et al. 2021). The findings of this study imply that companies investing in intangible resources (
Khan et al. 2019) and their organizational culture (
Jardon and Martínez-Cobas 2019) can gain sustainable competitive advantage. Indeed, adequate investment in the dimensions of intellectual capital is an important factor for the strategic position of a business (
Kong and Ramia 2010).
Confirmation of H1, H2, and H3 of this research, as described above, shows the importance of intellectual capital as a creator of productivity, competitiveness, and the long-term sustainability of an organization (
Singh et al. 2019). These findings support the ICV, which identifies that intellectual capital is a key production factor that can ensure a sustainable competitive advantage for companies. Intellectual capital has an inevitable role to play in the value creation process and is a significant determinant of a company’s market success (
Radjenović and Krstić 2017). In a rapidly changing environment, companies achieve and maintain their competitive advantage by mobilizing and profitably exploiting intellectual resources.
This study has also proven that sustainable competitive advantage has a significant positive relationship with organizational performance, so that H3 is accepted. These findings support the RBV, which illustrates that a company’s superior performance is contributed to by a combination and integration of resources. Increasing the value of the company increases its competitive advantage, which leads to an increase in company performance. The company’s ability to face sustainability challenges determined its profits and market viability (
de Villiers and Sharma 2020). Therefore, the construct of sustainable competitive advantage is an important antecedent of organizational performance because sustainable competitive advantage is a basic attribute needed by organizations to achieve positive economic consequences (
Guimarães et al. 2017). Moreover, the company’s ability to explore market opportunities and its main resources, which are difficult to obtain, replace, or imitate by competitors, make the rate of return on investment and assets, as well as the rate of return on sales, of the company better than those of its main competitors. This also has an impact on obtaining higher profits and sales growth, compared to its competitors. The company’s commitment to the welfare of employees, society, and the environment, as well as responsibly using key resources in economic, ethical, and philanthropic aspects, shows that the company is responsive and exhibits good quality development. This finding emphasizes that intellectual capital can play a strategic role in social relationships to achieve the set mission or raison d’être and fulfill the interest of local communities, people, or social groups by performing commercial activities (
Bontis et al. 2018). The results of this study are similar to those of
Saeidi et al. (
2015),
Walsh and Dodds (
2017),
Khan et al. (
2019), and
Dimitrakaki (
2022) who find a significant positive relationship between sustainable competitive advantage and organizational performance.
6. Conclusions
This study investigates the relationship between each dimension of intellectual capital and sustainable competitive advantage and highlights the importance of the relationship between sustainable competitive advantage and organizational performance, all of which are found to be significantly and positively related. These findings indicate that human capital plays a significant role as an important intangible resource in building a sustainable competitive advantage. The findings of this study also show empirical evidence that relational capital is a determinant in creating a sustainable competitive advantage. These findings indicate that the influence of relational capital cannot be underestimated in creating a sustainable competitive advantage. The results of this study also provide empirical evidence that structural capital is a significant predictor in supporting the construction of a sustainable competitive advantage.
These results contribute to the fact that the significant role of structural capital cannot be ignored in influencing sustainable competitive advantage. Furthermore, the empirical evidence of this research is demonstrated by the significant effect of sustainable competitive advantage on increasing organizational performance. Likewise, if sustainable competitive advantage increases, then organizational performance will also increase. Therefore, human capital, relational capital, and structural capital play an important role in achieving sustainable competitive advantage, which ultimately results in increased organizational performance. This finding enriches the understanding of intellectual capital in the value creation process of SMEs in developing countries. In addition, it also enhances the understanding of sustainable competitive advantage’s translation into organizational performance.
The findings of this study provide theoretical implications supporting the RBT and ICV by asserting that intangible resources—in this case, intellectual capital—benefit sustainable competitive advantage and organizational performance. This has implications for academics and researchers who must explore the role of intellectual capital more deeply so that the theory of intellectual capital can be further developed. The methodological implication of this research is that it can provide information, description, and comparison for further studies that wish to discuss similar topics, but with different conditions of research subjects, research variables, and research periods.
The practical implication of this research is that it is recommended that SME owners continue to develop and maintain their intellectual capital through investment in workforce recruitment and selection, workforce training and development, collaboration with stakeholders, organizational learning, and others. SMEs must allocate more investment to intangible resources, especially intellectual capital, in order to have strategic resources that are valuable, scarce, inimitable, and strategically unmatched, so as to be able to create competitive advantage and produce organizational performance that exceeds their competitors.
To be able to generalize the results of this study, further studies must include a large sample size. Subsequent research can also examine the direct relationship of intellectual capital with organizational performance, as well as the role of sustainable competitive advantage as a mediator. Further investigation is also required to analyze organizational performance using its components—operational and financial performance.