Environmental Uncertainty as a Moderator of Entrepreneurship Orientation and Innovation Capability during the Pandemic: A Case of Written Batik SMEs in Yogyakarta

Abstract

Background: Written batik is one of Indonesia's cultural heritages that must be preserved. During the Covid-19 pandemic, written batik producers in Indonesia experienced increasing challenges due to the uncertainty of the business environment. Innovation is a solution to the problems faced by SMEs during a pandemic to survive. This study aims to examine the effect of entrepreneurship orientation on innovation capability. This study also examines the role of moderating environmental uncertainty in strengthening the effect of entrepreneurship orientation on innovation capability. Methods: The research was conducted at the centre of small and medium-sized batik companies Giriloyo, Bantul, Yogyakarta, Indonesia. Respondents of this study were 130 small and medium companies selected by random sampling. The questionnaire is used as a primary data collection tool. WarpPLS has been used to analyze the effect between variables in this study. Results: Entrepreneurial orientation is an important aspect in improving the innovation capabilities of SMEs. Environmental uncertainty during the COVID-19 pandemic has strengthened the effect of entrepreneurial orientation on innovation capabilities. Conclusions: The findings of this study indicate that entrepreneurial orientation has a significant effect on innovation capabilities. Environmental uncertainty significantly strengthens the effect of entrepreneurship orientation on innovation capability.