The Effect of Innovation and Digital Capital Adoption on MSME Performance Mediated by Competitive Advantage
DOI:
https://doi.org/10.55047/transekonomika.v5i6.1120Keywords:
Competitive Advantage, Digital Capital Adoption, Emerging Economies, Innovation Capability, MSME PerformanceAbstract
Amid the accelerated advancement of digital technologies and the intensification of market rivalry, continuous enhancement of business performance among MSMEs has become imperative through innovation and digital transformation initiatives. Nevertheless, empirical investigations examining the contribution of digital capital adoption and innovation to MSME performance, particularly when competitive advantage functions as an intervening mechanism, remain relatively scarce, especially within regional MSME settings. This study is conducted to investigate the influence of innovation and digital capital adoption on MSME performance, with competitive advantage positioned as a mediating construct. A quantitative research design is employed, utilizing survey responses obtained from 90 MSME proprietors in Probolinggo Regency. The data that were gathered are processed and evaluated through PLS-SEM to assess both direct and indirect causal pathways among the examined variables. The results reveal that innovation is found to exert a significant positive effect on competitive advantage, which in turn is shown to significantly enhance MSME performance. On the other hand, there is no evidence that innovation directly affects the performance of MSMEs. However, adopting digital capital has been shown to have a big and positive effect on performance results. Moreover, the linkage between innovation and MSME performance is fully mediated by competitive advantage. These results suggest that innovation enhances MSME performance only when it is transformed into competitive advantage, whereas digital capital adoption directly contributes to performance improvement. Therefore, for MSME practitioners, strengthening innovation strategies oriented toward competitive differentiation and expanding the effective use of digital capital are essential to improve business performance.
Downloads
References
Affandi, Y., Ridhwan, M. M., Trinugroho, I., & Hermawan, D. (2024). Digital adoption, business performance, and financial literacy in ultra-micro, micro, and small enterprises in Indonesia Yoga. Research in Internationan Business and Finance, 70(7), 1–17. https://doi.org/10.1016/j.ribaf.2024.102376
Afifah, N., & Triyanto, E. (2023). Pengaruh Literasi Keuangan, Pemanfaatan Teknologi Informasi Dan Penggunaan Informasi Akuntansi Terhadap Kinerja UMKM Di Kecamatan Teras Kabupaten Boyolali. Jurnal Ilmiah Research and Development Student, 1(2), 75–89. https://doi.org/10.59024/jis.v1i2.322
Almansoori, S. I., Araci, Z. C., & Dweiri, F. (2025). A structural equation modeling approach to evaluating innovation dynamics’ effect on SME performance in the United Arab Emirates. Discover Applied Sciences, 7(5), 357. https://doi.org/10.1007/s42452-025-06865-x
Anderson, J., & Hidayah, N. (2023). Pengaruh Kreativitas Produk, Inovasi Produk, dan Kualitas Produk terhadap Kinerja UKM. Jurnal Manajerial Dan Kewirausahaan, 5(1), 185–194. https://doi.org/10.24912/jmk.v5i1.22566
Asheq, A. Al. (2021). The impact of e-marketing orientation, technological orientation and learning capacity on online SME performance. Innovatiing Marketing, 17(3), 169–178. https://doi.org/10.21511/im.17(3).2021.14
Audretsch, D. B., Belitski, M., Caiazza, R., & Phan, P. (2023). Collaboration strategies and SME innovation performance. Journal of Business Research, 164(May), 114018. https://doi.org/10.1016/j.jbusres.2023.114018
Badghish, S., & Soomro, Y. A. (2024). Artificial Intelligence Adoption by SMEs to Achieve Sustainable Business Performance : Application of Technology – Organization – Environment Framework. Sustainability (Switzerland), 16(1864), 1–24. https://doi.org/10.3390/su16051864
Carrasco-carvajal, O., García-pérez-de-lema, D., & Castillo-vergara, M. (2023). Impact of innovation strategy, absorptive capacity, and open innovation on SME performance: A Chilean case study. Journal of Open Innovation: Technology, Market, and Complexity, 9(2), 100065. https://doi.org/10.1016/j.joitmc.2023.100065
Chege, S. M., & Wang, D. (2020). The influence of technology innovation on SME performance through environmental sustainability practices in Kenya. Technology in Society, 60, 101210. https://doi.org/10.1016/j.techsoc.2019.101210
Clamor, W. L., & Saloma, C. (2023). Digital capital and belonging in universities: quantifying social inequalities in the Philippines. Frontiers in Education, 8(April), 1–11. https://doi.org/10.3389/feduc.2023.1137121
Djiu, N., Victoria, N., Saputra, D., Djiu, N., Victoria, N., & Saputra, D. (2024). The role of competitive advantage in mediating technological capabilities and social media usage on SMEs export performance. Procedia Computer Science, 234(2023), 756–763. https://doi.org/10.1016/j.procs.2024.03.062
Djobo, C., & Tawas, H. (2014). Pengaruh Orientasi Kewirausahaan, Inovasi Produk, Keunggulan Bersaing, Terhadap Kinerja Pemasaran Usaha Nasi Kuning di Kota Makassar. Jurnal EMBA : Jurnal Riset Ekonomi, Manajemen, Bisnis Dan Akuntansi, 2(3), 1214–1224. https://doi.org/10.33096/paradoks.v4i1.768
Djou, S., Husain, P., Lukum, M., & Ente, M. (2025). Pengaruh Kapasitas Inovasi terhadap Kinerja UMKM Gorontalo Dimediasi Lingkungan Bisnis. Jurnal Ilmu Manajemen Dan Bisnis (JIMB), 13(1), 78–86. https://doi.org/10.47918/jimb.v13i1.2278
Donaghy, D. (2021). Defining Digital Capital and Digital Poverty. Itnow, 63(1), 54–55. https://doi.org/10.1093/itnow/bwab025
Faiz, F., Le, V., & Masli, E. K. (2024). Determinants of digital technology adoption in innovative SMEs. Journal of Innovation & Knowledge, 9(4), 100610. https://doi.org/10.1016/j.jik.2024.100610
Fajrina, F. N. (2021). Pengaruh Inovasi Produk, Desain Produk, Dan Kualitas Produk Terhadap Keputusan Pembelian Pada Produk Maybelline Di Yogyakarta [Universitas Islam Indonesia]. https://dspace.uii.ac.id/bitstream/handle/123456789/43341/18311016.pdf?sequence=1
Fang, G. G., Qalati, S. A., Ostic, D., Mir, S., Shah, M., & Mirani, M. A. (2021). Effects of entrepreneurial orientation, social media, and innovation capabilities on SME performance in emerging countries: a mediated–moderated model. Technology Analysis & Strategic Management, 0(0), 1–13. https://doi.org/10.1080/09537325.2021.1957816
Farida, I., Sunandar, S., & Aryanto, A. (2019). Faktor-Faktor Yang Berpengaruh Terhadap Kinerja Umkm Di Kota Tegal. Monex Journal Research Accounting Politeknik Tegal, 8(2), 79–82. https://doi.org/10.30591/monex.v8i2.1385
Ferdinand, A. T., & Killa, M. F. (2014). A study on backward business partner networking advantage and Pareto distribution network accessibility as a bridging process for marketing performance: Indonesian evidence. Proceedings of the 14th Euroasia Business and Economics Society Conference-Barcelona, 23–25.
Firdaus, A. N., & Yuldinawati, L. (2025). Unlocking Export Performance : The Mediating Power Of Competitive Advantage For Indonesian Smes. International Journal of Environmental Sciences, 11(4), 2035–2056. https://doi.org/10.64252/s03ce323
Fitriati, T. K., Purwana, D., & Buchdadi, A. D. (2020). The Role of Innovation in Improving Small Medium Enterprise ( SME ) Performance. Internationan Journal of Innovation, Creativity and Change, 11(2), 232–250. https://www.ijicc.net/images/vol11iss2/11216_Fitriati_2020_E_R.pdf
Fornell, C., & Larcker, D. F. (1981). Evaluating structural equation models with unobservable variables and measurement error. Journal of Marketing Research, 18(1), 39–50. https://doi.org/10.1177/002224378101800104
Fu, Q., Sial, M. S., Arshad, M. Z., Comite, U., Thu, P. A., & Popp, J. (2021). The Inter-Relationship between Innovation Capability and SME Performance : The Moderating Role of the External Environment. Sustainability (Switzerland), 13(9132), 1–14. https://doi.org/10.3390/su13169132
Ghozali, I., & Latan, H. (2015). Partial Least Squares : Konsep, Teknik dan Aplikasi Menggunakan Program SmartPLS 3.0 (2nd ed.). Universitas Diponegoro.
Hair, J. F., Risher, J. J., Sarstedt, M., & Ringle, C. M. (2019). When to use and how to report the results of PLS-SEM. European Business Review, 31(1), 2–24. https://doi.org/10.1108/EBR-11-2018-0203
Hasna, N. (2020). Pengaruh Inovasi Produk, Inovasi Proses dan Inovasi Layanan Terhadap Kinerja UMKM. In UMMagelang Conference Series. Business and Economics Conference in Utilization of Modern Technology, 713–719. https://journal.unimma.ac.id/index.php/conference/article/view/4693
Husaeni, R. (2021). Strategi Keunggulan Bersaing Untuk Meningkatkan Kinerja Pada Kantor Jasa Penilai Publik Rija Husaeni Dan Rekan Competitive Advantage Strategies To Increase Performance At Rija Husaeni Public Assessment Services Office. Jurnal Apresiasi Ekonomi, 9(3), 379–392. https://doi.org/10.31846/jae.v9i3.427
Kallmuenzer, A., Mikhaylov, A., Chelaru, M., & Czakon, W. (2025). Adoption and performance outcome of digitalization in small and medium‑sized enterprises. Review of Managerial Science, 19(2024), 2011–2038. https://doi.org/10.1007/s11846-024-00744-2
Kiyabo, K. (2020). Entrepreneurial orientation , competitive advantage , and SMEs ’ performance : application of firm growth and personal wealth measures. Journal of Innovation and Entrepreneurship, 9(12), 1–15. https://doi.org/10.1186/s13731-020-00123-7
Kraft, C., Lindeque, J. P., & Peter, M. K. (2023). The digital transformation of Swiss small and medium-sized enterprises : insights from digital tool adoption. Journal of Strategy and Management, 15(3), 468–494. https://doi.org/10.1108/JSMA-02-2021-0063
Kurniasari, F., Lestari, E. D., & Tannady, H. (2023). Pursuing Long-Term Business Performance : Investigating the Effects of Financial and Technological Factors on Digital Adoption to Leverage SME Performance and Business Sustainability — Evidence from Indonesian SMEs in the Traditional Market. Sustainability (Switzerland), 15(12668), 1–20. https://doi.org/10.3390/su151612668
Kusa, R., Duda, J., & Suder, M. (2021). Journal of Innovation. Journal of Innovation & Knowledge, 6, 234–245. https://doi.org/10.1016/j.jik.2021.06.001
Lestari, I., Astuti, M., & Ridwan, H. (2019). Pengaruh Inovasi dan Orientasi Kewirausahaan Terhadap Keunggulan Bersaing UMKM Kuliner. Jurnal Riset Manajemen Dan Bisnis (JRMB) Fakultas Ekonomi UNIAT, 4(1), 111–118. https://www.academia.edu/download/103199910/125.pdf
Lestari, S. D., Leon, F. M., Widyastuti, S., & Brabo, N. A. (2020). Antecedents and Consequences of Innovation and Business Strategy on Performance and Competitive Advantage of SMEs. Journal of Asian Finance, Economics and Business, 7(6), 365–378. https://doi.org/10.13106/jafeb.2020.vol7.no6.365
Lestari, W. A., Budianto, A., & Setiawan, I. (2020). Pengaruh Inovasi Dan Kualitas Produk Terhadap Keunggulan Bersaing (Suatu Studi Pada Payung Geulis Mandiri Tasikmalaya). Business Management and Entrepreneurship Journal, 2(1), 38–48. https://jurnal.unigal.ac.id/bmej/article/view/2451
Mishrif, A., & Khan, A. (2023). Technology adoption as survival strategy for small and medium enterprises during COVID ‑ 19. Journal of Innovation and Entrepreneurship, 12(53), 1–23. https://doi.org/10.1186/s13731-023-00317-9
Otache, I., Usang, O., & Usang, E. (2022). Innovation capability and SME performance in times of economic crisis : does government support moderate ? African Journal of Economic and Management Studies, 13(1), 76–88. https://doi.org/10.1108/AJEMS-08-2021-0362
Pontoh, G. T., Syamsuddin, S., Irwan, R. U., & Astari, F. (2021). Analisis Enterprise Resource Planning (ERP) Terhadap Business Model Inovation (BMI). Jurnal Bisnis Strategi, 30(1), 54–65. https://doi.org/10.14710/jbs.30.1.54-65
Putri, M. K., & Najib, M. F. (2024). Pengaruh adopsi teknologi digital dan value creation terhadap SME performance pada UMKM cafe di kota Bandung. JPPI (Jurnal Penelitian Pendidikan Indonesia), 10(2), 677–692. https://doi.org/10.29210/020243028
Ragnedda, M., Ruiu, M. L., & Addeo, F. (2020). Measuring Digital Capital: An empirical investigation. New Media and Society, 22(5), 793–816. https://doi.org/10.1177/1461444819869604
Ramdan, M. R., Ashykin, N., Aziz, A., Abdullah, N. L., Samsudin, N., Singh, G., Singh, V., Zakaria, T., & Fuzi, N. M. (2022). SMEs Performance in Malaysia : The Role of Contextual Ambidexterity in Innovation Culture and Performance. Sustainability (Switzerland), 14(1679), 1–18. https://doi.org/10.3390/su14031679
Rochayatun, S. (2023). Competitive advantage as a mediating variable of corporate social responsibility program s ’ effect on SME sustainability Keyword s. Journal of Social Economics Research, 10(2), 34–46. https://doi.org/10.18488/35.v10i2.3323
Salah, O. H., & Ayyash, M. M. (2024). E-commerce adoption by SMEs and its effect on marketing performance: An extended of TOE framework with ai integration, innovation culture, and customer tech-savviness. Journal of Open Innovation: Technology, Market, and Complexity, 10(1), 100183. https://doi.org/10.1016/j.joitmc.2023.100183
Saputra, D. R., Syahyono, S., Siwi, D. A. I., & Rosidin, K. Q. (2025). Pengaruh Inovasi terhadap Kinerja Bisnis UMKM Mie Ayam dengan Keunggulan Bersaing sebagai Variabel Mediasi. ECo-Fin, 7(2), 586–596. https://doi.org/10.32877/ef.v7i2.2079
Saruchera, F., & Mpunzi, S. (2023). Digital capital and food agricultural SMEs: Examining the effects on SME performance, inequalities and government role. Cogent Business and Management, 10(1), 4–22. https://doi.org/10.1080/23311975.2023.2191304
Shahadat, M. M. H., Nekmahmud, M., Ebrahimi, P., & Fekete-Farkas, M. (2023). Digital Technology Adoption in SMEs: What Technological, Environmental and Organizational Factors Influence SMEs’ ICT Adoption in Emerging Countries? Global Business Review, 27(January), 1–28. https://doi.org/10.1177/09721509221137199
Sharfaei, S., Ong, J. W., & Ojo, A. O. (2022). The Impact of Industry Forces on International SME Performance in Iran: The Mediating Effect of Competitive Advantage. Administrative Sciences, 12(132), 1–16. https://doi.org/10.3390/admsci12040132
Soegihono, L. F., & Yuniawan, A. (2023). Pengaruh Inovasi Terhadap Performa Usaha Melalui Keunggulan Bersaing Pada UMKM Syariah di Kota Semarang. Jurnal Ilmiah Ekonomi Islam, 9(3), 4762–4771. https://doi.org/10.29040/jiei.v9i3.11411
Sugiyono. (2018). Metode Penelitian Kuantitatif, Kualitatif dan R&D. Alfabeta.
Surahman, Shee, H., Fitrian, Z., Adi, A. S., & Yudaruddin, R. (2023). The effect of digital transformation and innovation on SMEs’ performance in times of COVID-19. Problems and Perspectives in Management, 21(4), 84–100. https://doi.org/10.21511/ppm.21(4).2023.07
Susanti, E., Mulyanti, R. Y., & Wati, L. N. (2023). MSMEs performance and competitive advantage : Evidence from women ’ s MSMEs in Indonesia MSMEs performance and competitive advantage : Evidence from women ’ s MSMEs in Indonesia. Cogent Business & Management, 10(2), 1–16. https://doi.org/10.1080/23311975.2023.2239423
Suwandi, S., Tjahjadi, B., & Ardiyanto, A. (2023). Innovation and Firm Performance in Indonesian Companies: Is Management Experience Important? AKRUAL: Jurnal Akuntansi, 14(2), 262–275. https://doi.org/10.26740/jaj.v14n2.p262-275
Tiwasing, P. (2021). Social media business networks and SME performance : A rural – urban comparative analysis. Growth and Change, 52(February), 1892–1913. https://doi.org/10.1111/grow.12501
Türkeş, M. C., Stăncioiu, A.-F., & Bănacu, C.-S. (2024). The intention to use ChatGPT in office work in Romania: Between utility and hedonic motivation. Amfiteatru Economic, 26(67), 783–800. https://www.ceeol.com/search/article-detail?id=1258141
Ullah, I., Khan, M. R. D. A., Bakhritdinovich, K. M., Jacquenmod, J., & Bae, J. (2023). Factors Affecting Digital Marketing Adoption in Pakistani Small and Medium Enterprises. Logistics, 7(3), 41. https://doi.org/10.3390/logistics7030041
Wongsansukcharoen, J., & Thaweepaiboonwong, J. (2023). Effect of innovations in human resource practices , innovation capabilities , and competitive advantage on small and medium enterprises ’ performance in Thailand. European Research on Management and Business Economics, 29(1), 100210. https://doi.org/10.1016/j.iedeen.2022.100210
Zahara, Z. (2024). Competitive Advantage as Mediating Role to Enhance MSMES Performance. Journal of Small Business Strategy, 34(2), 109–117. https://doi.org/10.53703/001c.121131
Zhang, H. (2022). Does combining different types of innovation always improve SME performance? An analysis of innovation complementarity. Journal of Innovation & Knowledge, 7(3), 100192. https://doi.org/10.1016/j.jik.2022.100192
.png)
.png)
.png)
.png)
