Strategic Adaptation to Recurrent Crises: How Innovation and Financial Resilience Drive SME Performance in Emerging Economies

Samira Troudi, Sami Aouadi

SMEs in emerging economies are constantly exposed to frequent crises such as financial crises, health crises, and the impact of the supply chain on their operations. This paper examines the potential of two strategic reactions to be synergistic in improving SME resilience and post crisis performance, namely innovation diffusion and financial adaptation. We estimate fixed-Effects regression models using sales growth as a resilience proxy based on firm-level panel data of 5,000 SMEs in Sub-Saharan Africa, South Asia and Latin America on the World Bank Enterprise Surveys (20102024). Findings indicate that product innovation, process innovation and R&D investment are all significant in enhancing sales growth in times of crisis. Credit, alternative finance, and liquidity management access have even greater positive impacts. Most importantly, innovation and access to credit are positively related (coefficient = 0.098, p < 0.05) and this relationship is complementary, meaning that firms that implement both strategies are three times better than those that implement only one strategy. Digitalization is a mediating channel. Regional heterogeneity shows that South Asia is the region, which is most advantageous in terms of digital innovation, Latin America is more advantageous in terms of flexible financing, and Sub-Saharan Africa is more constrained in terms of structural credit. Policy implications focus on combined interventions: credit guarantees associated with innovation, digital finance ecosystems, and industry-specific resilience programs. Innovation capabilities and financial inclusion, which must be carried out at the same time, are essential in the development of sustainable SMEs in crisis-prone areas.