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The study aims to investigate innovation capability as a mediator in the relationship between talent management (TM) and entrepreneurial firm performance in Micro, Small and Medium Enterprises (MSMEs) in Thailand based on employer perceptions.

A questionnaire survey was completed by 674 MSMEs in Thailand, both directly and online. Four hypotheses were tested using structural equation modelling (SEM).

The results demonstrated that TM has a significant and positive influence on innovation capability, but no evidence was found for a positive relationship between TM and entrepreneurial firm performance. However, innovation capability positively influences entrepreneurial firm performance, and it fully mediates the positive relationship between TM and entrepreneurial firm performance. These results suggest that TM can enhance entrepreneurial firm performance if it is implemented with effective innovation capability.

The SEM model was employed with a limited number of enterprises, so the sample cannot represent the full population, as there are more than three million MSMEs in Thailand. More countries and factors should be incorporated into the model.

The owner-managers and HR practitioners of MSMEs can utilise the study results to develop talent strategies and innovative interventions that will enhance their firm’s performance.

This study thus aims to strengthen the capacities of MSME entrepreneurs and policymakers to elevate inclusive innovation capability in MSMEs and to also accelerate progress towards the Sustainable Development Goals (SDG); innovation is one of the three important aspects of SDG9.

The study contributes by filling the research gap related to TM in the MSME business and enterprise development literature, and it aids in creating innovation capability to increase effective investments in TM.