The global inability of states to provide sufficient employment highlights the importance of SME growth as a solution for job creation and economic development. SMEs in Nigeria, comprising over 80% of businesses, face high failure rates due to economic shocks and inadequate support. However, a shift in perspective recognizes SMEs' potential for job creation and economic growth, spurred by government support measures. This study examines the relationship between SME competitiveness and employment generation in Southwest Nigeria, focusing on the mediating role of SME growth. The study explores how SME competitiveness, operationalized through innovation, product differentiation, product line, and imitation, influences market share and employment generation. It investigates whether SME market share growth mediates the relationship between SME competitiveness and employment generation, addressing gaps in existing research which haven't fully integrated these competitiveness factors and examined mediation by SME growth.

The literature review explores the concepts of SME competitiveness, innovation, market share, and the capability-based view (CBV). SME competitiveness is influenced by factors like innovation and business networks. Innovation is crucial for competitiveness, driving competitors to respond with their own innovations, thus creating a dynamic market environment. Market share reflects a firm's competitiveness; a positive trade-off in brand switching indicates increasing market share and competitiveness. The CBV framework posits that a firm's capabilities, not just resources, determine its competitive advantage. The literature review then examines existing research on the relationships between SME competitiveness aspects (product innovation, product differentiation, product line, product imitation, and increased market share) and employment generation. While previous studies have individually investigated these factors, this study uniquely integrates them within a single framework and investigates the mediating effect of SME growth.

This study employed a cross-sectional survey design, using a stratified random sampling method to select 93 respondents from 39 SMEs in Ogun, Osun, and Ondo states in Nigeria. A structured questionnaire with a five-point Likert scale was used for data collection through face-to-face interviews. The research instrument underwent validation using expert opinion and content validity index (CVI), achieving acceptable values (0.7 or higher). Reliability was assessed using Cronbach's alpha, resulting in acceptable internal consistency values (0.7 or higher) across all constructs. Multicollinearity was addressed using a variance inflation factor (VIF) test; no significant multicollinearity was detected. The collected data was analyzed using structural equation modeling (SEM) to test the hypothesized relationships and mediating effect of SME growth. The SEM approach was chosen to effectively analyze the complex relationships, including mediation, between the variables.

Descriptive statistics showed that the mean scores for all constructs (product innovation, product differentiation, product line, product imitation, SME growth, and employment generation) were above 3.0, indicating positive perceptions. The structural equation model results revealed that product innovation, product differentiation, and product imitation all positively influenced SME growth. Product innovation had a negative relationship with SME growth, whilst product differentiation and product imitation had positive relationships. Product line didn't have a significant relationship with SME growth. The model examining SME competitiveness and employment generation with SME growth as a mediator showed that SME growth significantly influenced employment generation. Product innovation and product differentiation had significant positive relationships with employment generation. Product line and product imitation, however, were not significantly related to employment generation in this direct relationship. The analysis of indirect effects revealed significant positive relationships between product innovation, product differentiation, and product imitation on employment generation through the mediation of SME growth. The overall goodness-of-fit test demonstrated that 75.6% of the variation in employment generation was explained by SME competitiveness. The Wald test confirmed the significance of the model's regression coefficients.

The findings support the hypothesis that SME growth mediates the relationship between SME competitiveness and employment generation. Product innovation and product differentiation positively affect employment through their impact on SME growth. While product line did not show a direct relationship with employment generation in the model, its indirect effects through SME growth was positive. Product imitation had a significant positive relationship with employment generation via the mediation of SME growth. The study's integrated framework, combining multiple dimensions of SME competitiveness, provides a more comprehensive understanding than previous research that focused on individual factors. The results align with the CBV theory, showing that effective utilization of activity-based capabilities leads to competitiveness, growth, and employment generation. The expansionary nature of the competitive strategies employed leads to greater resource utilization (human resources specifically) and increases the employment creation capacity of SMEs.

This study concludes that product innovation, product differentiation, and product imitation significantly contribute to employment generation, primarily through their influence on SME growth. The study offers a unique contribution by combining multiple dimensions of competitiveness in a single framework and highlighting the mediating role of SME growth. Further research could expand the scope of competitiveness constructs, include a broader geographical area, or investigate the moderating effects of other contextual factors.

The study's reliance on a sample from a specific region of Nigeria limits the generalizability of the findings. The choice of constructs to measure SME competitiveness may not encompass all relevant factors. Future studies should address these limitations by expanding the sample size and including a wider range of competitiveness variables.