Towards an Advanced Economy Through Batik SMEs: The Strategic Role of Green Innovation and Knowledge Management in Local Competitiveness

This study explores the potential of the East Java Bakorwil II batik industry, a creative cultural sector hindered by weak branding, low design innovation, and minimal adoption of environmentally friendly practices.The research aims to design a model highlighting the role of green innovation as a mediating factor in strengthening the competitive advantage of local batik products.Using quantitative Partial Least Squares Structural Equation Modeling (PLS-SEM), 154 batik industry players participated in the study, with ethical clearance obtained.The results indicate that green innovation significantly mediates the relationship between knowledge management and competitive advantage (O = 0.282; T = 4.482; p = 0.000), and brand image and competitive advantage (O = 0.239; T = 4.648; p = 0.000).The study also finds significant direct effects of knowledge management on green innovation (O = 0.507; T = 8.338; p = 0.000), brand image on green innovation (O = 0.431; T = 7.078; p = 0.000), and green innovation on competitive advantage (O = 0.555; T = 5.723; p = 0.000).However, the direct effect of brand image on competitive advantage was not significant (p = 0.088).This study contributes to the understanding of how integrating green innovation and knowledge management can enhance the competitiveness of batik MSMEs, offering practical implications for strengthening their market position through sustainable strategies.