Harnessing Green Dynamic Capabilities for Sustainable Tourism Performance: The Mediating Role of Green Service Innovation in Bali’s Tour and Travel SMEs

In response to increasing global sustainability demands, this study examines how green dynamic capabilities influence business performance in Bali Island’s tour and travel SMEs, with green service innovation as a mediating mechanism. Drawing on the resource-based view (RBV) and dynamic capability theory, the research adopts a quantitative approach using survey data from 387 SMEs and employs structural equation modeling (SEM) to analyze the relationships among green dynamic capabilities, green service innovation, and business performance. Findings reveal that green dynamic capabilities significantly enhance both green service innovation and business performance. Notably, green service innovation partially mediates this relationship, underscoring its pivotal role in transforming internal sustainability-oriented capabilities into tangible performance outcomes. The key contribution of this study lies in extending RBV by integrating green service innovation as a strategic conduit that links eco-centric capabilities to competitive advantage in a tourism SME context—a perspective that remains underexplored in emerging economies. Practically, the study provides actionable insights for SME owners and policymakers to prioritize innovation in service design and delivery as a pathway to sustainable tourism performance.