ENHANCING SME COMPETITIVE ADVANTAGE: THE ROLE OF INNOVATION, STRATEGIC FLEXIBILITY, AND GOVERNMENT SUPPORT

Abstract This study develops an understanding of the competitive advantage factors in MSMEs located in the Berau Regency of East Kalimantan, Indonesia. Using an explanatory research design and a quantitative approach, this study examines whether intellectual capital, managerial competencies, and digital literacy predict competitive advantage, with the mediating role of innovation speed and strategic flexibility. In addition, government support is examined as a moderating variable. Data were collected through a sample of 165 owners and managers of MSMEs, selected through proportional area random sampling, and a Likert-scale questionnaire. The data analysis technique used is SEM-PLS. The results prove that intellectual capital, managerial competence, and digital literacy significantly enhance innovation speed and strategic flexibility, which have been the key factors that drive a firm to achieve the state of sustainable competitive advantage. However, further optimization is needed in government support for fully tapping the innovative potentials of MSMEs. Such findings offer useful insights to stakeholders while strategizing for strengthening MSME competitiveness by responding to globalization and digital transformation challenges and opportunities opened by regional economic growth. The present research will contribute to enhanced knowledge about MSMEs and their resilience in an increasingly dynamic and competitive business environment.