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|a Malaysia Productivity Corporation (MPC) has introduced green productivity (GP) to address global warming by providing value-added information on productivity, quality, competitiveness and best practices through research innovative activities and creative culture. Although GP is limited in Malaysia, firms are encouraged to invest in it through the support of Green Technology Financing Scheme (GTFS). However, researchers found that the environmental technology awareness is low in the Asian region, as the percentage of invention patents is small and firms do not have the capability to innovate. Therefore, this study investigated the link among the seven dimensions of innovation capabilities (ICs) comprising learning, R&D, resources allocation, manufacturing, marketing, organization and strategic planning, by relating them with GP and a firm's competitive performance. By adopting Resource Based View (RBV) and Contingent Resource Based View (CRBV) and Theory of Planned Behaviour (TPB), the study investigated the link between ICs and a firm's competitive performance moderated by GP. Empirical quantitative data were collected from 88 samples selected from Small Medium Enterprises (SMEs) manufacturing firms in Malaysia. Structural Equation Modeling by using SMARTPLS software was employed to examine the relationship in the framework between ICs, GP practices and three performance indicators: sales performance, innovation performance and product performance. The results revealed that R&D capability has the most influential impact on a firm's competitive performance measures. The findings further verified that different ICs through GP practices have different impacts on different performance measures. Therefore, ICs and new perceptions of GP do not focus only on moral responsibility but include key strategic decisions aimed at achieving a firm's success and sustainable performance in the future. The theoretical and practical implications of the study are the GP implementation, and how it has empirically validated the importance of R&D capability in promoting innovation and performance of SMEs in Malaysia.
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