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EO literature suggests that the effects of entrepreneurial orientation (EO) on performance is affected by studying context. There is a lack of study executed in transitional economies. In addition, the mediating role of differentiation advantages (DA) and innovation capability (IC) on the relationship between EO and performance remains underexplored. Thus, drawing upon resource-based view and contingency theory, this study examines the mediating effects of DA and IC on this relationship in the contexts of manufacturing SMEs located in Vietnam. A sample of 176 manufacturing SMEs currently operating in Vietnam was analyzed. Partial least square structural equation modeling was applied to test the hypotheses. The results indicate that DA and IC fully mediate the relationship between EO and performance. These findings permit four theoretical contributions to the literature. First, this study contributes to the EO literature by examining the effects of EO in a transitional economy as Vietnam. Second, this study also overcomes prior EO studies in term of the operationalization of the performance. Third, this study introduces to EO literature two novel mediators such as DA and IC. Last but not least, this study it also contributes to contingency theory in EO study by addressing mediating rather moderating effects. Regarding to practical implications, managers of manufacturing SMEs should aware that adopting EO is only beneficial to the performance when EO can be used to develop DA and IC. [ABSTRACT FROM AUTHOR]