The moderating variable (MV) effects the strength of the relationship between the IDV and DV. Whereas, the mediating variable (MED.V) explains the relationship between the IDV and DV. For example if the mediator exists the relationship exists if it does not, the relationship is unaffected.

For instance, "capacity building": 

Moderating affect: If a new capacity (MV) strengthens or weakens the relationship between technology obsolescence (IDV) and firm performance (DV) such as improved or reduced performance then it is a moderator.

Note: in the case of obsolete technology, likely reduced cost, better customer service would moderate the technology problem.

Mediating affect: If the new capacity creates a new technology such as 6G then it acts as a mediator to performance; as it adds a clear competitive advantage other companies may not have. If the new capacity does not exist then the competitive advantage also does not exist.

I hope this is helpful.

Dear Dyer. It's a good explanation. 

When you engage the existing staff for developing new skills further to combat the technological changes, indicates the competence building: and the question here is development of new skills, and it may be a mediator. 

When we look into Asian countries or developing countries, the technology though adopted is new to them. Almost it acting as mediator with the explanation you added. 

Further it affects the IV more but it's result is equally influencing the DV also.

Regards

Dil.

Hi Mr. Kumar,

In the context you provide, the development of new skills could well mediate performance if the new skill adds value, is new/rare to the industry, is difficult to copy and not substitutable (resource based view). For instance, if your staff could all suddenly speak Mandarin, the advantage might lead to new opportunities in China, be it outsourced production (reduced labour cost, Toshiba does this for instance) or new markets to enter that current competitors would have difficulty copying, at least in the short-medium term. In this type of a scenario, I agree with you.

In combination with my first example, perhaps you could envision the dual stimulus effect.

Interesting question,

Daryn

You might be interested in the attached article.

Dear Kumar,

From a theoretical point of view, "innovation capacity (R&D) and capacity building (T&D)" are close to the concept of dynamic capabilities (Teece et al. 1997).

This concept is usefully instrumented by Pavlou and El Sawi (2005) as a mediator variable and use environnement turbulence as a mediator. It might be useful for you conceptualisation work.

Hope it can help

Regards

SB

Teece, David; Pisano, Gary; Shuen, Amy (1997). Dynamic Capabilities and Strategic Management "Dynamic Capabilities and Strategic Management". Strategic Management Journal 18 (7): 509–533.