Building the Performance of Surabaya's MSMEs through Competitive Advantage: A Study of Process Innovation and Digital Transformation

Abstract

This study  to analyze the influence of process innovation and digital transformation on the performance of MSMEs, with competitive advantage as a mediating variable. The study population was MSMEs assisted by the Surabaya City Trade Office and Cooperatives & Micro Enterprises Office. Primary data were collected through an online questionnaire from 115 respondents and analyzed using the SEM-PLS approach, with the assistance of the SmartPLS application. The results show that digital transformation and competitive advantage have a positive effect on MSME performance. Process innovation does not directly affect performance, but has a positive effect on competitive advantage. Competitive advantage is proven to mediate the relationship between process innovation and performance. These findings provide a theoretical contribution in strengthening the relationship model between innovation, competitive advantage, and performance as proposed in Porter's theory of competitive advantage and organizational innovation theory. Practically, these results serve as a strategic reference for MSMEs in increasing competitiveness through optimizing process innovation and digital transformation