The Effect of Entrepreneurial Orientation and Absorptive Capability on the Collaborative Capability of Small and Medium Enterprises: The Moderating Role of Government

ABSTRACT : This study examines the effect of Entrepreneurial Orientation and Absorptive Capability on the collaborative capability of micro, small, and medium enterprises (MSMEs), with the role of government as a moderating variable. Collaboration among MSMEs is increasingly recognized as a strategic mechanism for enhancing competitiveness, innovation, and sustainability. However, empirical evidence regarding the influence of internal strategic capabilities and the conditional role of government intervention in shaping inter-firm collaboration remains limited, particularly in the context of developing economies. This research adopts a quantitative approach using primary data collected from MSME owners and managers. The data were analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) to examine both direct and moderating relationships among the variables. Entrepreneurial orientation is measured through dimensions of innovativeness, proactiveness, and risk-taking, while absorptive capability reflects the ability to acquire, assimilate, and apply external knowledge. The role of government is assessed through policy support, facilitation, and capacity-building programs. The results indicate that entrepreneurial orientation has a positive and significant effect on MSMEs’ collaborative capability, suggesting that entrepreneurial behavior encourages firms to engage in cooperative relationships. Absorptive capability also shows a significant positive influence on collaborative capability, highlighting the importance of internal learning and knowledge utilization in successful collaboration. However, the findings reveal that the role of government does not significantly moderate the relationships between entrepreneurial orientation, absorptive capability, and collaborative capability. This study contributes to the literature by emphasizing the dominance of internal strategic capabilities over external intervention in fostering inter-MSME collaboration. The findings provide practical insights for MSME managers to strengthen entrepreneurial orientation and absorptive capability, while suggesting that government initiatives should focus on creating an enabling environment rather than acting as a direct reinforcing mechanism.