The impact of rising prices on the profitability of SMEs in emerging markets

Abstract

The goal of this study is to determine how price increases affect the operational dynamics and profitability of small and medium-sized enterprises (SMEs) in Kosovo, an emerging market where SMEs play a vital role in economic growth. The study examines how price changes impact key aspects of SME performance, particularly profitability, inventory levels, customer attendance, and company expenses, amidst global inflationary pressures and changing economic conditions. Data were collected from a cross-sectional sample of 506 SMEs using Structural Equation Modeling (SEM). The direct and indirect effects of price increases on the identified variables were analyzed through the proposed model. The results show that price increases are associated with measurable effects across various operational areas, indicating statistically significant relationships. Contrary to expectations, the data suggest that SMEs sometimes respond strategically to price increases, potentially mitigating adverse effects through inventory adjustments or customer engagement strategies. The findings offer empirical insights for business owners, policymakers, and development institutions, highlighting the importance of resilience-building and adaptive strategies for SMEs facing economic volatility. This study contributes to the limited empirical data on SME performance in post-pandemic transitional economies experiencing inflation.