The effect of innovation on increasing business performance of SMEs in Indonesia

Abstract

The purpose of this study is to analyze the effect of innovation on SME business performance, which is motivated by the important role of SMEs in national economic growth should be accompanied by a significant increase in business performance. But in reality SME competitiveness is still low in the global market due to low innovation. This study uses an explanatory quantitative survey method. There are 231,181 SMEs in the manufacturing industry sector in West Java, Indonesia as a population with a sample of 346 respondents. Data collection uses a Likert scale 1-5 questionnaire. Data analysis using SEM. The analysis shows that innovation has a positive and significant effect on business performance. The implication of this research is that the performance of SME businesses can be improved through increased product innovation, process innovation, and distribution innovation.