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Purpose The purpose of this study is to explore the influence of transformational leadership (TL) on firm's frugal innovation. It also deepens understanding of appropriate mechanisms and conditions to improve specific aspects of frugal innovation namely frugal functionality, frugal cost and frugal ecosystem by examining the mediating role of knowledge management capability (KMC) and moderating mechanism of collaborative culture. Design/methodology/approach The paper utilized structural equation modeling and cross-sectional design to test hypotheses in the proposed research model using data collected from 351 participants in 112 Vietnamese firms. Findings The findings indicate that KMC significantly mediates TL's effects on aspects of firm's frugal innovation namely frugal functionality, frugal cost and frugal ecosystem. In addition, the influence of KMC on frugal functionality is different and depended on the extent of collaborative culture in an organization. Research limitations/implications The paper has significantly contributed to increasing the understanding of the link between TL and specific aspects of frugal innovation by highlighting the important role of KMC and positive effects of collaborative climate in an organization. Originality/value The paper is unique in the attempts to provide the valuable initiatives and integration view of leadership practices for improving specific dimensions of frugal innovation of firms in developing and emerging market.
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