Sustainability Leverage, Customer Orientation and Firm Performance—An Empirical Study of Small Medium Enterprises in Indonesia

ABSTRACT This research explores how resource‐based views (RBV) and institutional pressures affect sustainability practices in SMEs and examines the impact of customer orientation on their performance. Evidence linking sustainable practices to enhanced SME performance is limited. A total of 305 SMEs participated in the survey, and the data were analyzed using AMOS—Structural Equation Modeling. Model 1 examines the impact of institutional theory and RBV, showing that barriers impeding sustainability have no significant mediating effect on environmental practices but a negative impact on social practices. To determine the influence of customers on firm performance, Model 2 was conceptualized, showing the mediating effects of social and sustainable practices between motivation and firm performance. The results indicate that environmental practices are unlikely to provide opportunities for increased performance, given their negative mediating effect. This research makes several valuable contributions to SME literature on sustainability in developing countries, which are useful for practitioners.