Fostering SME Competitiveness: Mediation of Government Support and Environmental Dynamism in Indonesian Special Economic Zones

Small and medium-sized enterprises (SMEs) are pivotal to economic development in emerging economies such as Indonesia, yet they continue to face structural constraints that undermine their competitiveness. This study examines how entrepreneurial orientation (EO), digital transformation (DT) and resource availability (RA) influence SME competitiveness, while also investigating the mediating roles of government support (GS) and environmental dynamism (ED). The research was conducted in two strategic special economic zones (SEZs) in Indonesia—Mandalika and Sanur—where SMEs play an essential role in supporting tourism and regional growth. Using a quantitative approach, data were collected from 250 SMEs via structured questionnaires. The analysis was conducted using partial least squares structural equation modelling (PLS-SEM) through SmartPLS 4.0. The findings reveal that DT and RA have significant direct effects on SME competitiveness, while EO shows no significant direct relationship. However, GS mediates the relationship between all three variables and competitiveness, indicating that institutional support is vital in transforming internal strengths into competitive outcomes. Additionally, ED significantly mediates the relationship between DT and competitiveness, but not for EO or RA. Practically, this study highlights the need for SME managers to prioritise DT and actively leverage government programmes. Policymakers are encouraged to design targeted support mechanisms to enhance SMEs’ innovation and market responsiveness. The study offers important insights for advancing the theoretical discourse on SME competitiveness, particularly in policy-sensitive and tourism-driven economic contexts.