INNOVATION VS COMPETENCY? UNLOCKING THE PATH OF ENTREPRENEURIAL ORIENTATION TO INDONESIA'S MSME PERFORMANCE

Abstract This study aims to analyze the factors influencing the business performance (BP) of MSMEs in Indonesia, through the lens of the Resource-Based View (RBV) and Dynamic Capability Theory (DCT). This study addresses the gap by examining the effect of Entrepreneurial Orientation (EO) on BP through Innovation Capability (IC) and Entrepreneurial Competency (EC), and by testing the moderating role of External Environment (EE) in these relationships. The research adopts a quantitative approach using survey data collected from 340 relocated MSME actors. Data were analyzed with Partial Least Squares Structural Equation Modeling (PLS-SEM). The main findings reveal that EO does not directly affect BP, but significantly influences it through the mediators IC and EC. Both IC and EC were found to have a positive effect on BP. Furthermore, EE acts as a negative moderator, weakening the relationship between IC and BP as well as EC and BP, but does not moderate the EO–BP relationship.