Published 2025-08-15
Keywords
- Innovation, entrepreneurial orientation, SMEs, Saudi Arabia, mediation analysis,
This work is licensed under a Creative Commons Attribution 4.0 International License.
Abstract
Saudi Arabia’s past economic policies have been successfully based on petro revenue, but the rapidly changing geopolitical landscape and high volatility of global energy markets have escalated the need for economic diversification. Along these lines, Small and Medium Enterprises (SMEs) are given a crucial role in the national development plan (Vision 2030) as enablers of sustainable growth, job creation, and private sector development. This study investigated how innovation acted as a mediating variable between entrepreneurial orientation (risk taking and proactiveness) and the business growth of Saudi SMEs. The study generated results using Structural Equation Modeling (SEM) and mediation analyses based on a quantitative survey of 87 small to medium business owners and managerial staff from different industry sectors, as well as in-depth qualitative interviews with 14 industry owners and eight policymakers. Results of the study indicated that innovation significantly mediated the relationship between entrepreneurial orientation and business growth (β = 0.52, p < .01) with indirect effects supported by bootstrapping procedures. The direct paths between risk-taking and proactiveness to innovation were also significant (risk-taking β = 0.38; p < .01, and proactiveness β = 0.45; p < .01). Qualitative findings, together with the quantitative results in this study, provide insights into key structural barriers such as access to finance, regulatory complexity, digital skills gaps, and weak markets. The study concludes with policy recommendations for specific regions based on a comparative analysis of SME ecosystems in the region and internationally, and makes evidence-based contributions to the existing knowledge on entrepreneurship-based economic diversification in rentier state settings.