The Role of Innovation Capability in MSME Sustainability During the Covid-19 Pandemic

Abstract

Micro, Small, and Medium Enterprises (MSMEs) are business activities capable of expanding employment and providing the economic services for society widely, and also play roles in equalizing and increasing people's income, encouraging economic growth, and realizing national stability. Micro, Small and Medium Enterprises (MSMEs) also play an essential role in improving the community's economy at the city and regency levels. This study aims to analyze the empirical evidence that the capabilities and environmental factors carried out by MSMEs have a positive effect on innovation, both product innovation and process innovation. The method used in this study is the Structural Equation Model PLS analysis. The population in this study is the total number of MSMEs which registered with the Department of Trade and Industry in 2020 as many as 31591 businesses. The data collection technique is done by distributing questionnaires. Measurement models are assessed by testing the reliability of each item, converging validity and discriminant validity. The results of the analysis show empirical evidence that innovation capability and environmental factors carried out by the MSME sector have a significant positive effect on innovation, both product innovation and process innovation. This study concludes that innovation capability and environmental factors in the MSME sector can increase innovation and have an impact on the sustainability of MSMEs. The contribution of this research is that the capability of innovation and environmental factors can increase the innovation made by MSMEs.

Dynamic Capabilities and Innovation Implications for Business Sustainability

“…Thus the fourth hypothesis is tested and proven. This research is in line with research that has been conducted by Eikelenboom & Gjalt de Jong (2019); Sari et al (2022); de Cabral (2010) which states that sustainability innovation has a significant direct or indirect influence through sustainable competitive advantage on company performance.…”

Analysing the Role of Technological Innovation in Improving the Operational Efficiency of MSMEs

“…The integration of various components can enhance the overall efficiency of the supply chain, resulting in reduced lead times and mitigated nonconformance risks. Technological innovation plays a multifaceted function, extending beyond infrastructure and business processes, by enhancing the human capital of MSMEs (Sari et al, 2022). Digital learning platforms, such as online training, webinars, and other online resources, have the potential to facilitate the acquisition of novel skills and information among employees of MSMEs (Ausat et al, 2022).…”