Exploring the effect of SME internal capabilities on firm performance: A perspective of resource advantage theory of competition

Firm performance is a business achievement through pro-growth capabilities and strategies. This paper aims to determine SME internal capabilities that can improve firm performance in Indonesia employing the resource advantage theory of competition. The research sample includes small and medium enterprises from the beauty product, food and beverage, and textile industries, the three primary industries that help Indonesia achieve a green economy. The respondents are managers or business owners who understand and handle overall business activities. Using convenience sampling techniques, 194 respondents were obtained and analyzed via partial least squares (PLS) with SMART PLS Ver 4.0 software. Empirical findings prove that service-dominant and responsive marketing orientations positively affect firm performance. Service-dominant orientation does not affect exploitative operational ambidexterity. However, exploitative operational ambidexterity has a significant positive effect on firm performance. The firm-specific marketing ecosystem does not affect firm performance. However, the firm-specific marketing ecosystem positively affects exploitative operational ambidexterity. Further findings indicate that responsive marketing orientation has a stronger relationship to exploitative operational ambidexterity. This paper offers managerial implications for business owners or managers who must modify service-dominant orientation and firm-specific marketing ecosystem to be more adaptive, innovative, and competitive to achieve superior firm performance.