As the major force in Chinese construction, construction SMEs have played an important role in promoting construction industry growth. However, they are facing a myriad of problems and difficulties which have constrained their further development. The research investigates how construction SMEs in China compete for success via the use of core capability and competitive strategy in a transitional economy in China. Based on industry organization approach and resourced-based view, a theoretical framework is developed to investigate the relationship among core capability, competitive strategy and industry structure factors within Chinese construction SMEs. Based on the data collected from construction SMEs in China, the empirical findings of the study suggests that core capability, competitive strategy and industry structure related factors have significant impact on the construction SMEs’ performance. The pattern among core capability, competitive strategy and industry structure factors are also observed with empirical evidences from case studies of three companies. The case studies illustrate the link between theory and practice as it relates to the relationship among core capability, competitive strategy and industry structure in the construction SMEs and their success. Despite the significance of the study, it is worth acknowledging the exploratory nature of this study. It is hoped that the framework developed in this study will provide the theoretical foundation for more rigorous research in the future.