Resource scarcity is traditionally viewed as a significant barrier to firm performance and growth. However, in the context of emerging markets, severe resource constraints frequently act as a catalyst for entrepreneurial ingenuity. This study examines the intricate relationship between resource scarcity, creative problem-solving, and the development of frugal innovation within Small and Medium Enterprises (SMEs) in Cape Town, South Africa. Grounded in the theory of entrepreneurial bricolage and the Resource-Based View (RBV), this research employs a sequential explanatory mixed-methods design. Quantitative data was collected via a survey of 152 SME owners and managers across the manufacturing, technology, and service sectors, followed by qualitative insights gathered through 15 in-depth, semi-structured interviews. The quantitative analysis reveals a statistically significant positive relationship between perceived resource scarcity and the output of frugal innovations, a relationship that is fully mediated by the organization's creative problem-solving capacity. Furthermore, thematic analysis of the qualitative data identifies three primary mechanisms through which Cape Town SMEs achieve frugal innovation: agile material substitution, operational process simplification, and the establishment of localized resource-sharing networks. This paper contributes to the broader literature on innovation management by providing robust empirical evidence from a Sub-Saharan African economic hub, demonstrating that systemic constraints can foster sustainable, highly efficient solutions. The findings offer actionable implications for SME leaders, investors, and policymakers striving to cultivate economic resilience and innovation in resource-scarce environments.
Keywords: Frugal Innovation, Resource Scarcity, Creative Problem-Solving, SMEs, Entrepreneurial Bricolage, Cape Town, Emerging Markets.