Digital Capability and Business Model Innovation as Determinants of MSME Competitive Advantage in the Digital Economy Era

Abstract

This study aims to analyze the influence of digital capabilities on digital business model innovation and SME competitive advantage, as well as to examine the mediating role of digital business model innovation in the relationship between digital capabilities and SME competitive advantage in the digital economy era. Employing a quantitative approach with a survey method, data were collected from 240 SMEs that have adopted digital platforms in Indonesia through a structured questionnaire. Data analysis was conducted using Partial Least Square-based Structural Equation Modeling (PLS-SEM) with SmartPLS 4.0 software. The findings indicate that: (1) digital capabilities positively and significantly influence digital business model innovation (β = 0.612; p < 0.001); (2) digital capabilities positively and significantly influence SME competitive advantage (β = 0.341; p < 0.01); (3) digital business model innovation positively and significantly influences SME competitive advantage (β = 0.478; p < 0.001); and (4) digital business model innovation partially mediates the influence of digital capabilities on SME competitive advantage (indirect effect = 0.292; p < 0.001). These findings reinforce the Dynamic Capability View (DCV) and Resource-Based View (RBV) theories in the context of Indonesian digital SMEs, while providing strategic implications for national SME digitalization policy development.