DefinePK

Abstract

Small and medium-sized enterprises (SMEs) frequently face persistent resource constraints, which are often perceived as barriers to innovation. However, emerging research suggests that scarcity can also act as a catalyst for creativity by compelling employees to adopt frugal approaches to problem-solving. Drawing on Conservation of Resources (COR) theory, this study examines the relationship between resource constraints and employee frugal innovation behavior, with creative self-efficacy as a mediating mechanism and entrepreneurial leadership as a moderating factor. Data were collected from 310 employees working in SMEs across the hospitality, textiles, and technology sectors. Using structural equation modeling and Hayes’ PROCESS macro, the findings reveal that resource constraints positively influence frugal innovation behavior, and this relationship is partially mediated by creative self-efficacy. Furthermore, entrepreneurial leadership strengthens the positive link between resource constraints and employee frugal innovation behavior, highlighting the role of leadership in transforming scarcity into opportunity. The study contributes theoretically by extending COR theory to the context of employee-level frugal innovation, illustrating how employees activate psychological resources under conditions of scarcity. Practically, it provides valuable insights for SME leaders and policymakers, emphasizing the importance of enhancing creative self-efficacy and adopting entrepreneurial leadership practices to harness constraints as drivers of innovation. Overall, this research advances understanding of how SMEs can leverage limitations to build sustainable competitiveness in resource-scarce environments.