SMEs’ Strategies for Improving Financial Performance Through Competitive Advantages

Abstract

This study aims to examine the direct effect of entrepreneurial orientation and innovation on competitive advantage and the impact of competitive advantage on the performance of SMEs. Furthermore, this study will also examine the indirect influence of entrepreneurial orientation and innovation variables on financial performance through competitive advantage. This is quantitative research using a survey method. The respondents are SMEs owners in the field of cultivation industry in Jember regency, Indonesia. This study uses the Structural Equation Model (SEM) as a data analysis technique, which is assisted by Warp PLS software. Statistical results show that entrepreneurial orientation and innovation have a direct effect on competitive advantage. Other results show that there is a direct effect of competitive advantage on financial performance. A company is said to have a competitive advantage if it can outperform other companies to create higher economic value. The results of the indirect effect test show that entrepreneurial orientation also has an indirect effect on financial performance through competitive advantage. Furthermore, the results of this study also prove that innovation affects financial performance through competitive advantage.