Beyond Digitalisation: A Relational-Incremental Microfoundation of Dynamic Capabilities in Traditional-Market MSMEs

Lies Hendrawan Krisnawati; Djumarno Djumarno; Wedia Hastuti; Junef Ismaliyanto; Muslimah Muslimah

doi:10.59603/ppiman.v4i4.1515

Authors

Lies Hendrawan Krisnawati STIE Bhakti Pembangunan
Djumarno Djumarno Universitas Mercu Buana
Wedia Hastuti STIE Bhakti Pembangunan
Junef Ismaliyanto STIE Bhakti Pembangunan
Muslimah Muslimah STIE Bhakti Pembangunan

DOI:

https://doi.org/10.59603/ppiman.v4i4.1515

Keywords:

Calculated Experimentation, Dynamic Capabilities, Handicraft MSMEs, Relational Market Sensing, Traditional Markets

Abstract

This study examines how handicraft micro, small, and medium-sized enterprises (MSMEs) operating in a traditional market develop dynamic capabilities under conditions of resource constraint, relational embeddedness, and uneven digitalisation. Using a qualitative case-study design, data were collected from ten owners and managers of handicraft MSMEs in Beringharjo Market, Yogyakarta, through semi-structured interviews, non-participant observations, and business documentation. Data were analysed using reflexive thematic analysis, cross-case comparison, and abductive reasoning, with sensing, seizing, and transforming used as sensitising concepts rather than predetermined coding categories. Seven interrelated themes emerged: relational market sensing, calculated experimentation, incremental resource reconfiguration, relational capability as strategic capital, selective digital adaptation, heterogeneous pathways to competitiveness, and learning through failure. The findings reveal a distinctive adaptive mechanism in which market changes are sensed primarily through customer and business relationships, opportunities are seized through low-risk experimentation, and resources are transformed through cumulative micro-adjustments rather than radical restructuring. Digital technologies complement these processes by extending relational reach and information flows rather than replacing established market relationships. The study develops a relational-incremental microfoundation of dynamic capabilities, demonstrating how strategically meaningful adaptation can emerge from informal, resource-conscious, and socially embedded practices. These findings extend dynamic capability theory into the context of traditional-market microenterprises and challenge assumptions that effective SME adaptation necessarily depends on extensive formalisation or comprehensive digital transformation.

References

Arranz, C. F. A., Arroyabe, M. F., Arranz, N., & Fernandez de Arroyabe, J. C. (2023). Digitalisation dynamics in SMEs: An approach from systems dynamics and artificial intelligence. Technological Forecasting and Social Change, 196, 122880.

Byrne, D. (2022). A worked example of Braun and Clarke’s approach to reflexive thematic analysis. Quality & Quantity, 56, 1391-1412. https://doi.org/10.1007/s11135-021-01182-y

Engelmann, A. (2024). A performative perspective on sensing, seizing, and transforming in small- and medium-sized enterprises. Entrepreneurship & Regional Development, 36(5-6), 632-658. https://doi.org/10.1080/08985626.2023.2262430

Fredrich, V., Gudergan, S., & Bouncken, R. B. (2022). Dynamic capabilities, internationalization and growth of small- and medium-sized enterprises: The roles of research and development intensity and collaborative intensity. Management International Review, 62, 611-642. https://doi.org/10.1007/s11575-022-00480-3

González-Salgado, I. de L., Rivera-Navarro, J., Gutiérrez-Sastre, M., Conde, P., & Franco, M. (2024). Conducting member checking within a qualitative case study on health-related behaviours in a large European city: Appraising interpretations and co-constructing findings. Health, 28(1), 3-21. https://doi.org/10.1177/13634593221109682

Harsanto, B., Kasumaningrum, Y., Mulyana, A., Faisal, Y. A., & Hadjielias, E. (2026). Sustainable innovation in craft-based SMEs: A mixed-method study of Indonesian batik communities. Small Business Economics, 67, 299-336. https://doi.org/10.1007/s11187-026-01201-y

Hennink, M., & Kaiser, B. N. (2022). Sample sizes for saturation in qualitative research: A systematic review of empirical tests. Social Science & Medicine, 292, 114523. https://doi.org/10.1016/j.socscimed.2021.114523

Hussein, A. S., Kartikasari, A., Hapsari, R., Parwati, K. Y., & Wahyuli, E. F. (2026). From heritage to high-tech: Digital strategies for sustainable growth in Indonesian batik SMEs. Cogent Business & Management, 13(1), 2607803. https://doi.org/10.1080/23311975.2025.2607803

Jie, H., Gooi, L. M., & Lou, Y. (2025). Digital maturity, dynamic capabilities and innovation performance in high-tech SMEs. International Review of Economics & Finance, 99, 103971. https://doi.org/10.1016/j.iref.2025.103971

Khurana, I., Dutta, D. K., & Ghura, A. S. (2022). SMEs and digital transformation during a crisis: The emergence of resilience as a second-order dynamic capability in an entrepreneurial ecosystem. Journal of Business Research, 150, 623-641. https://doi.org/10.1016/j.jbusres.2022.06.048

Li, W., & Wang, X. (2026). Investigating how digital technology network embeddedness affects small and medium-sized enterprise growth: A dynamic capabilities perspective. Technological Forecasting and Social Change, 223, 124442. https://doi.org/10.1016/j.techfore.2025.124442

Lu, Q., Meng, X., Su, J., Au, A. K. M., Wu, Y., & Wang, C. (2023). TMT functional background heterogeneity and SMEs’ performance: The role of dynamic capabilities and business environment. Journal of Business Research, 160, 113807. https://doi.org/10.1016/j.jbusres.2023.113807

Marino-Romero, J. A., Palos-Sánchez, P. R., & Velicia-Martín, F. (2024). Evolution of digital transformation in SMEs management through a bibliometric analysis. Technological Forecasting and Social Change, 199, 123014. https://doi.org/10.1016/j.techfore.2023.123014

Merín-Rodrigáñez, J., Dasí, À., & Alegre, J. (2024). Digital transformation and firm performance in innovative SMEs: The mediating role of business model innovation. Technovation, 134, 103027. https://doi.org/10.1016/j.technovation.2024.103027

Mtisi, S. (2022). The qualitative case study research strategy as applied to a rural enterprise development doctoral research project. International Journal of Qualitative Methods, 21, 1-13. https://doi.org/10.1177/16094069221145849

Quansah, E., Hartz, D. E., & Salipante, P. (2022). Adaptive practices in SMEs: Leveraging dynamic capabilities for strategic adaptation. Journal of Small Business and Enterprise Development, 29(7), 1130-1148. https://doi.org/10.1108/JSBED-07-2021-0269

Radicic, D., & Petković, S. (2023). Impact of digitalization on technological innovations in small and medium-sized enterprises (SMEs). Technological Forecasting and Social Change, 191, 122474. https://doi.org/10.1016/j.techfore.2023.122474

Saeedikiya, M., Salunke, S., & Kowalkiewicz, M. (2024). Toward a dynamic capability perspective of digital transformation in SMEs: A study of the mobility sector. Journal of Cleaner Production, 439, 140718. https://doi.org/10.1016/j.jclepro.2024.140718

Saputra, M. H., Utomo, M. N., Ariansyah, K., Wismayanti, Y. F., Ansyah, R. H. A., Koeswinarno, & Suradi. (2024). Small and medium-sized enterprises’ dynamic capabilities and competitive advantage: The mediating effect of digitalization. Entrepreneurial Business and Economics Review, 12(3), 41-67. https://doi.org/10.15678/EBER.2024.120303

Shafi, M., Zoya, Fauzi, M. A., & Yang, Y. (2025). Factors influencing small handicraft enterprises to adopt technological innovation: Insights from Pakistani handicraft enterprises. Asian Journal of Technology Innovation, 33(2), 509-543. https://doi.org/10.1080/19761597.2024.2372571

Soluk, J., Decker-Lange, C., & Hack, A. (2023). Small steps for the big hit: A dynamic capabilities perspective on business networks and non-disruptive digital technologies in SMEs. Technological Forecasting and Social Change, 191, 122490. https://doi.org/10.1016/j.techfore.2023.122490

Troise, C., Corvello, V., Ghobadian, A., & O’Regan, N. (2022). How can SMEs successfully navigate a VUCA environment: The role of agility in the digital transformation era. Technological Forecasting and Social Change, 174, 121227. https://doi.org/10.1016/j.techfore.2021.121227

Wu, C.-W., Botella-Carrubi, D., & Blanco-González-Tejero, C. (2024). The empirical study of digital marketing strategy and performance in small and medium-sized enterprises (SMEs). Technological Forecasting and Social Change, 200, 123142. https://doi.org/10.1016/j.techfore.2023.123142

Yao, M. X., Wang, D., & Freeman, S. (2026). Digital barriers and capabilities in aspirant emerging-market SMEs: A resource-adaptive dynamic capabilities model of transformation phases. Technovation, 152, 103506. https://doi.org/10.1016/j.technovation.2026.103506

Zahoor, N., Zopiatis, A., Adomako, S., & Lamprinakos, G. (2023). The micro-foundations of digitally transforming SMEs: How digital literacy and technology interact with managerial attributes. Journal of Business Research, 159, 113755. https://doi.org/10.1016/j.jbusres.2023.113755