Mediating role of competitiveness between process innovation and financial performance: Internationalization moderation

Abstract

This study focuses on investigating the relationship between process innovation and financial success through firm competitiveness and the effect of internationalization as moderation on this association. Innovation becomes one of the most important parts for companies because it will create a competitive advantage and indirectly improve the company's financial performance. This study used a sample of 389 Craft Micro, Small and Medium Enterprises (MSMEs) in West Java, Indonesia. SEM Analysis Moment of Structural (AMOS) 24 is used to test the path and multigroup analysis during the data analysis process. The empirical evidence of this study indicates that process innovation and company competitiveness have a substantial positive relationship with the financial performance of MSMEs. Furthermore, efforts to improve the performance of MSMEs come directly from process innovation and business competitiveness. Indirectly, firm competitiveness does not mediate the connection between process innovation and financial performance. Besides, this study also found that internationalization significantly moderates the impact of firm competitiveness on financial performance. We use a sample of companies that include ultra-micro companies, where they are not yet familiar with a good financial recording system or an efficient production process. Therefore, craft SMEs must be able to make a good financial record (for accessing funds from banks) so they can transform into modern tools and optimize their process innovation by improving their production processes. Thus, SMEs can more easily reach international markets for better financial performance.