Knowledge sharing and absorptive capacity in improving the innovation performance of MSMEs handicrafts in Indonesia

Knowledge sharing in MSMEs refers to sharing information, skills, or experiences between business owners, employees, customers, or other parties such as mentors, business communities, or educational institutions. This study aims to analyze the relationship between innovation performance and knowledge-sharing outcomes within handicraft MSMEs in Medan, Indonesia. It highlights the role of absorptive capacity as a crucial intermediary, emphasizing its importance in enhancing the connection between shared knowledge and improved innovation performance. A quantitative methodology is applied in alignment with the study’s objectives, as the research involves numerical and statistical data. Methods for collecting the data included interviews and questionnaires. The total population for this study comprises 165 managers/owners of handicraft MSMEs in Medan, Indonesia. The analysis is conducted using the SEM-PLS technique. The findings indicate that knowledge-donating and knowledge-collecting, as pillars of knowledge sharing, are key in bolstering absorptive capacity and advancing innovation performance. This relationship is statistically supported with a p-value of less than 0.05. Indirectly, knowledge-donating significantly affects innovation performance through absorptive capacity (p < 0.05), and knowledge-collecting significantly affects innovation performance through absorptive capacity in handicraft MSMEs in Medan, Indonesia (p < 0.05). Based on this study’s results, MSMEs in the craft sector can increase innovation by building a culture of knowledge sharing internally among employees and externally with business partners, communities, or clients. AcknowledgmentThe study was funded in 2024 under the Basic Research - Regular (PF-R) category by the Republic of Indonesia’s Ministry of Education, Culture, Research and Technology. The administration of the Faculty of Economics and Business, as well as the staff of the Institute for Research and Community Service (LPPM) at Universitas Muhammadiyah Sumatera Utara, were also thanked, along with the other levels of administration at the university.