SME resilience in wartime: the constraints of innovation

We investigate the role of process and marketing innovation in wartime disruptions faced by small and medium-sized enterprises (SMEs). Using survey data from 766 Israeli SMEs affected by the 2023 armed conflict, we examine how firm-specific characteristics and external constraints are associated with supply-side and demand-side disruptions across two early phases: the immediate period following conflict onset and the subsequent intermediate period. Hierarchical regression models assess the contribution of business characteristics, geographic exposure, and wartime constraints, and examine whether different innovation types moderate these relationships. The findings show that the correlates of disruption vary across phases and outcomes. In the immediate period, proximity to conflict zones and business size are associated with both supply and demand decline, while employee and management absenteeism is especially associated with demand decline. In the intermediate period, logistical difficulties, financing and credit constraints, and locality risk become more salient, particularly for supply-side disruption. Process innovation is associated with weaker supply disruption in this later phase, especially among larger SMEs, whereas marketing innovation shows limited evidence of moderating demand decline. These findings suggest that innovation is not uniformly associated with resilience but operates in a mechanism-specific and context-dependent manner during armed conflict. By distinguishing between innovation types and early wartime phases, the study contributes to the resilience literature and offers implications for policymakers and SME managers seeking targeted responses to wartime disruption.