Government policy, IT capabilities, digital transformation, and innovativeness in Post-Covid context: case of Vietnamese SMEs

Purpose: COVID-19 has made businesses increasingly dependent on technology to be competitive and efficient. Small and medium enterprises (SME) digitalisation and innovation research are widespread. SME digital transformation and innovation require government policies, initiatives and assistance. How the government can help SMEs achieve these goals is unclear. So, this paper aims to investigate how government policy may assist Vietnamese SMEs to boost innovation performance and digital transformation. Design/methodology/approach: The study will take a quantitative approach, with questionnaires distributed to 659 respondents from SMEs in Vietnam through snowball and convenience sampling procedures. The structural equational modelling method is used for data analysis. Findings: The study indicated that government policies supported Vietnamese SMEs’ innovation and information technology (IT) capabilities. Government policy assistance also boosted IT capabilities and innovation. Furthermore, mediation effects show that digital transformation fully mediates the relationship between innovativeness and firm performance, whereas IT capabilities partially mediate this relationship. Research limitations/implications: Further research that replicates the findings and analyses contextual heterogeneities between nations is advised because Vietnam’s pandemic setting was both similar and dissimilar. Practical implications: The study demonstrated government-company interactions through supportive policy. It investigated whether SMEs seeking digital transformation and innovativeness might gain competitive benefits by implementing effective knowledge management and enhancing their IT capabilities. Originality/value: A resource-based theoretical framework is extended to study how innovation, public policy and digital transformation for SMEs interact. The study confirms government policy strongly influences enterprises’ digital development. Specifically, the new mediating effects of IT capabilities and digital transformation are explored and provide new insights into the existing literature.