Strengthening Adaptive Capability and Networking Capability to Enhance Innovation and Business Performance of Small and Medium Enterprises (SMEs) in Indonesia

Small and Medium Businesses (SMEs) in Indonesia have been significantly impacted by the COVID-19 pandemic, especially in Sidoarjo Regency. The purpose of this study is to look into how networking and adaptive capabilities can help SMEs innovate and perform better as a business. Data were collected from 100 SMEs using purposive sampling with a quantitative approach. This study's data analysis method was structural equation modeling (SEM) based on partial least squares (PLS). The findings indicate that adaptive capability has an indirect impact on business performance through innovation, emphasizing the essential role of innovative practices. Networking capability, on the other hand, directly and indirectly impacts performance by facilitating resource exchange, reducing transaction costs, and enhancing supply chain reliability. This study highlights the critical importance of developing adaptive and networking capabilities to drive innovation and sustain performance. It also provides insights into how small and medium enterprises (SMEs) can act strategically in navigating dynamic environments to maintain their competitive advantage and resilience.