The Impact of Sustainability Integration on Business Performance: Empirical Evidence from Manufacturing Firms/Smes in Developing Countries

Abstract

Sustainability integration has become a strategic imperative for manufacturing firms worldwide; however, empirical evidence regarding its impact on business performance in developing country contexts remains limited, particularly among small and medium-sized enterprises (SMEs) that face resource constraints and institutional challenges. This research aims to examine the effect of sustainability integration, encompassing environmental, social, and governance (ESG) practices, on the business performance of manufacturing SMEs in developing countries and to investigate the mediating roles of eco-innovation and operational efficiency, as well as the moderating role of management commitment. Using a quantitative cross-sectional survey design, primary data were collected from 312 manufacturing SME owners and managers in developing countries. The proposed framework was tested using Partial Least Squares Structural Equation Modeling (PLS-SEM) with SmartPLS 4.0, employing bootstrapping with 5,000 resamples to assess direct, mediation, and moderation effects. The analysis reveals a significant positive direct relationship between sustainability integration and business performance (? = 0.48, p < 0.001). Eco-innovation (indirect ? = 0.16, p < 0.001) and operational efficiency (indirect ? = 0.12, p < 0.01) partially mediate this relationship, while management commitment significantly moderates the effect (? = 0.18, p < 0.01). The model explains 62% of the variance in business performance. Sustainability integration is not only feasible but also strategically imperative for manufacturing SMEs in developing countries because it creates competitive advantages despite resource constraints. This research contributes empirically based evidence on sustainability–performance linkages in developing country settings and provides valuable insights for SME owners, managers, and policymakers.