Factors Affecting Innovation in Small and Medium-Sized Enterprises in Hanoi in the Context of Digital Transformation: Current Conditions and a Proposed Research Model

Innovation has become a practical condition for the survival and upgrading of small and medium-sized enterprises (SMEs), yet the mechanisms through which digital transformation improves innovation remain unevenly understood in emerging urban economies. This article examines the current conditions of Hanoi's SME sector and develops an integrated model of the factors affecting firm-level innovation. The study combines an integrative review of resource-based, dynamic-capability, absorptive-capacity, network, and institutional perspectives with a structured synthesis of recent official statistics, policy documents, local innovation and digital-transformation indices, and a Hanoi-specific survey of 534 SMEs. The current-state analysis reveals a conversion gap. Hanoi leads Vietnam's Provincial Innovation Index and Digital Transformation Index and possesses strong human-capital, research, and market inputs; however, business sophistication, innovation linkages, knowledge diffusion, and the integration of digital tools inside SMEs remain comparatively weak. A substantial share of surveyed firms had discontinued digital solutions, most digitalization was confined to separate administrative functions, and advanced data analysis and automation were rare. The proposed model therefore treats innovation performance as the outcome of eight complementary determinants: innovation-oriented leadership, digital capability, absorptive capacity, human capital, collaboration-network capability, financial resource availability, institutional and policy support, and digital-transformation maturity. Digital maturity is also expected to strengthen the effects of digital capability and absorptive capacity on innovation. The article specifies eleven testable hypotheses, an item pool, and a staged validation design using interviews, a stratified survey, and partial least squares structural equation modelling. Its contribution is to connect Hanoi's strong ecosystem-level conditions with the firm-level capabilities required to convert those conditions into product, process, marketing, organizational, and business-model innovation.