Digitalization, Product Innovation, and SME Sustainability:  The Mediating Role of Competitive Advantage in Local Wisdom-Based Enterprises

Lalu Agustino; Muhammad Ridhonie; Muhammad Nawawi

doi:10.63922/ijebir.v5i04.4653

Lalu Agustino Universitas PGRI Kalimantan, Indonesia.
Muhammad Ridhonie Universitas PGRI Kalimantan, Indonesia.
Muhammad Nawawi Universitas PGRI Kalimantan, Indonesia.

DOI: https://doi.org/10.63922/ijebir.v5i04.4653

Keywords: digitalization;, product innovation, competitive advantage, SME sustainability, local wisdom

Abstract

The sustainability of small and medium-sized enterprises (SMEs) has become an increasingly important issue amid rapid technological change and intensifying market competition. This study examines the effects of digitalization and product innovation on the sustainability of local wisdom-based SMEs, with competitive advantage serving as a mediating variable. Drawing on the Resource-Based View (RBV) and Dynamic Capabilities Theory, the study investigates how digital and innovation capabilities contribute to sustainable business performance.A quantitative approach was employed using survey data collected from 200 owners and managers of local wisdom-based SMEs in Banjarmasin, Indonesia. The data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM). The results reveal that digitalization significantly influences competitive advantage (β = 0.412, p < 0.001) and SME sustainability (β = 0.265, p < 0.001). Product innovation also exerts significant positive effects on competitive advantage (β = 0.438, p < 0.001) and sustainability (β = 0.187, p = 0.001). Furthermore, competitive advantage has the strongest direct effect on sustainability (β = 0.523, p < 0.001) and partially mediates the relationships between digitalization, product innovation, and sustainability. The findings suggest that the sustainability of local wisdom-based SMEs depends not only on the possession of unique cultural resources but also on the ability to transform these resources into market value through digitalization and continuous innovation. This study contributes to the literature by integrating RBV and Dynamic Capabilities Theory to explain how competitive advantage functions as a strategic mechanism linking organizational capabilities to sustainability. The findings also provide practical guidance for SME owners and policymakers seeking to foster sustainable local economic development.

References

Amankwah-Amoah, J., Khan, Z., Wood, G., & Knight, G. (2021). COVID-19 and digitalization: The great acceleration. Journal of Business Research, 136, 602–611. https://doi.org/10.1016/j.jbusres.2021.08.011
Barney, J. B. (1991). Firm resources and sustained competitive advantage.
Bouwman, H., Nikou, S., & de Reuver, M. (2020). Digitalization, business models, and SMEs: How do business model innovation practices improve performance of digitalizing SMEs? Telecommunications Policy, 44(9), 102008. https://doi.org/10.1016/j.telpol.2020.102008
Ceptureanu, S. I., Ceptureanu, E. G., Popescu, D. I., & Orzan, O. A. (2020). Eco-innovation capability and sustainability driven innovation practices in Romanian SMEs. Sustainability, 12(17), 7106. https://doi.org/10.3390/su12177106
Chatterjee, S., Chaudhuri, R., & Vrontis, D. (2021). Does data-driven culture impact innovation and performance of a firm? An empirical examination. Annals of Operations Research, 1–29. https://doi.org/10.1007/s10479-020-03887-z
Chatterjee, S., Chaudhuri, R., & Vrontis, D. (2022). Big Data Analytics in Strategic Sales Performance: Mediating Role of CRM Capability and Moderating Role of Leadership Support. Euromed Journal of Business, 17(3), 295–311. https://doi.org/10.1108/emjb-07-2021-0105
Elkington, J. (1997). Cannibals with forks: The triple bottom line of 21st century business. Capstone Publishing.
Ferasso, M., Beliaeva, T., Kraus, S., Clauss, T., & Ribeiro-Soriano, D. (2020). Circular economy business models: The state of research and avenues ahead. Business Strategy and the Environment, 29(8), 3006–3024. https://doi.org/10.1002/bse.2554
Garcia, R., & Calantone, R. (2002). A critical look at technological innovation typology and innovativeness terminology: A literature review. Journal of Product Innovation Management, 19(2), 110–132. https://doi.org/10.1016/S0737-6782(01)00132-1
Haase, H., & Franco, M. (2015). When Small Businesses Go International: Alliances as a Key to Entry. Journal of Business Strategy, 36(3), 37–45. https://doi.org/10.1108/jbs-03-2014-0032
Hair, J. F., Hult, G. T. M., Ringle, C. M., Sarstedt, M., Danks, N. P., & Ray, S. (2021). An Introduction to Structural Equation Modeling. 1–29. https://doi.org/10.1007/978-3-030-80519-7_1
Hanaysha, J. R., Al-Shaikh, M. E., Joghee, S., & Alzoubi, H. M. (2022). Impact of innovation capabilities on business sustainability in small and medium enterprises. FIIB Business Review, 11(1), 67–78. https://doi.org/10.1177/23197145211042232
Hayes, A. F. (2022). Introduction to mediation, moderation, and conditional process analysis: A regression-based approach (3rd ed.). Guilford Press.
Henseler, J., Ringle, C. M., & Sarstedt, M. (2015). A new criterion for assessing discriminant validity in variance-based structural equation modeling. Journal of the Academy of Marketing Science, 43(1), 115–135.
Jie, S., J., A., Zaheer, K., & Xiaojun, W. (2020). COVID‐19 Pandemic in the New Era of Big Data Analytics: Methodological Innovations and Future Research Directions. British Journal of Management. https://doi.org/10.1111/1467-8551.12441
M, K. K. dan U. K. (2024). Perkembangan data usaha mikro, kecil, menengah (UMKM) dan usaha besar (UB) tahun 2023–2024. Kementerian Koperasi dan UKM Republik Indonesia.
Makhloufi, L., Laghouag, A. A., Sahli, A. A., & Belaid, F. (2021). Impact of entrepreneurial orientation on innovation capability: The mediating role of absorptive capability and organizational learning capabilities. Sustainability, 13(10), 5399. https://doi.org/10.3390/su13105399
Matarazzo, M., Penco, L., Profumo, G., & Quaglia, R. (2021). Digital Transformation and Customer Value Creation in Made in Italy SMEs: A Dynamic Capabilities Perspective. Journal of Business Research, 123, 642–656. https://doi.org/10.1016/j.jbusres.2020.10.033
Nadkarni, S., & Prügl, R. (2021). Digital transformation: a review, synthesis and opportunities for future research. Management Review Quarterly, 71, 233–341. https://doi.org/10.1007/s11301-020-00185-7
OECD/Eurostat. (2018). Oslo manual 2018: Guidelines for collecting, reporting and using data on innovation (4th ed.). OECD Publishing. https://doi.org/10.1787/9789264304604-en
Porter, M. E. (1985). Competitive advantage: Creating and sustaining superior performance. Free Press.
Priyono, A., Moin, A., & Putri, V. N. A. O. (2020). Identifying Digital Transformation Paths in the Business Model of SMEs During the COVID-19 Pandemic. Journal of Open Innovation Technology Market and Complexity, 6(4), 104. https://doi.org/10.3390/joitmc6040104
Rosati, F., & Faria, L. G. D. (2019). Addressing the SDGs in sustainability reports: The relationship with institutional factors. Journal of Cleaner Production, 215, 1312–1326. https://doi.org/10.1016/j.jclepro.2018.12.107
S., K., Paul, J., Norbert, K., Alexandra, W., Nuria, C., & N., R.-T. (2021). Digital Transformation: An Overview of the Current State of the Art of Research. SAGE Open. https://doi.org/10.1177/21582440211047576
Sarstedt, M., Radomir, L., Moisescu, O. I., & Ringle, C. M. (2022). Latent class analysis in pls-sem: a review and recommendations for future applications. Journal of Business Research, 138, 398–407. https://doi.org/10.1016/j.jbusres.2021.08.051
Selatan, B. P. S. P. K. (2024). Kalimantan Selatan dalam Angka 2024. BPS Kalsel.
Teece, D. J. (2018). Dynamic Capabilities as (Workable) Management Systems Theory. Journal of Management & Organization, 24(3), 359–368. https://doi.org/10.1017/jmo.2017.75
Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509–533. https://doi.org/10.1002/(SICI)1097-0266(199708)18:7<509::AID-SMJ882>3.0.CO;2-Z
Vecchio, P. D., Mele, G., Siachou, E., & Schito, G. (2021). A Structured Literature Review on Big Data for Customer Relationship Management (CRM): Toward A future Agenda in International Marketing. International Marketing Review, 39(5), 1069–1092. https://doi.org/10.1108/imr-01-2021-0036
Verhoef, P. C., Broekhuizen, T., Bart, Y., Bhattacharya, A., Dong, J. Q., Fabian, N., & al., et. (2021). Digital transformation: a multidisciplinary reflection and research agenda. Journal of Business Research, 122, 889–901. https://doi.org/10.1016/j.jbusres.2019.09.022
Warner, K., & Wäger, M. (2019). Building dynamic capabilities for digital transformation: an ongoing process of strategic renewal. Long Range Planning, 52(3), 326–349. https://doi.org/10.1016/j.lrp.2018.12.001
Wernerfelt, B. (1984). A resource-based view of the firm. Strategic Management Journal, 5(2), 171–180. https://doi.org/10.1002/smj.4250050207