INTRODUCTION
SMEs play an essential role in the issue of
creative economic growth in ASEAN countries, Indonesia (Afriyie et al., 2020). SMEs are called drivers of the creative economy
sector that focus on implementing the Indonesian government's Sustainable
Development Goals (SDGs) until 2030 (Anjaningrum & Rudamaga, 2019). This long-term decision cannot be separated from
the significant contribution to the National GDP. The
contribution of the creative economy sub-sector to the national Gross Domestic
Product (GDP) reached IDR 1,211 trillion, with exports
reaching US$20 billion and presenting 18.1 million job opportunities in 2019 (Kemenkraf, 2019). In the 2020 OPUS Report, the creative economy ranks
itself as the third largest contributor to National GDP in the world (Kementerian Pariwisata dan Ekonomi Kreatif, 2021).
The creative
economy is a new economic concept that makes competition dynamics difficult for
SMEs today (Desiana et al., 2022). This is
because they do not only compete in terms of price and quality but prioritize
information and creativity, as shown by innovation in creating unique products
marketed and increasing value creation for customers (Chollisni et al., 2022; Puspaningrum, 2020). Meanwhile,
Indonesia is only ranked 115th with a value of 0.202 in the Global Creativity
Index, below several ASEAN countries such as Singapore, which is ranked 7th
with a value of 0.896 and other ASEAN countries such as Vietnam, the
Philippines, Laos, Cambodia, Malaysia and Thailand (Setiawan, 2018). Moreover, until 2021, Indonesia only ranks 87 out
of 132 in the Global Innovation Index (WIPO, 2021). This indicates
that businesses in Indonesia still have a low level of innovation.
Innovation
Capability is the key to how SMEs can thrive in the era of digitalization and
the global crisis of the Covid 19 Pandemic by properly managing the resources
owned by the company (Bagheri, 2017). Innovation Capability has an
essential role in creating a competitive advantage. This ability is essential
in developing further resources for a business's sustainability (Burvill et al., 2018; Carayannis et al., 2014). Innovation Capability is needed, especially in the
successful development of new products (Bertello et al., 2022; Mendes et al., 2021; Zou et al., 2021). Weak innovation
capability will further complicate the company's efforts to convert ordinary
resources into rare processes that are difficult to imitate (Bagheri, 2017; Kabue & Kilika, 2016).
This is the reason why businesses in Indonesia,
especially SMEs, which are the drivers of the creative economy, need human
resources who are aware of the importance of collaboration between
organizations on ideas, development, commercialization of innovative new
products, and combining resources effectively to increase innovation (Salo et al., 2018; Setiawan, 2018; Siswanto et al., 2020).
Human capital
is one of the pillars that will affect the level of innovation in Indonesia.
Indonesia ranks 91 out of 132 based on the quality of its human capital (WIPO, 2021). Khouroh et al. (2019)
argues for the importance of SMEs to have human resources who have an
entrepreneurial orientation or high entrepreneurial orientation. This is
because they put forward the aspect of daring to take risks, act proactively
and always be innovative in decision-making to produce efficient market
offerings (Rofiq et al., 2020). It can be
assumed that entrepreneurial orientation affects innovation capability (Makhloufi et al., 2021).
Knowledge is also
the key to innovation. Thus, SMEs need to pay attention to their absorptive
capabilities. This ability makes SMEs faster and more precise in understanding
superficial understanding and integrating new knowledge with existing
knowledge, and applying this knowledge to achieve advantages such as exploring
new opportunities for customers or developing product innovations (Jim�nez-Barrionuevo et al., 2019; Tzokas et al., 2015; Zhai et al., 2018). They will respond more quickly to their business
environment by making a difference between competitors, especially by utilizing
technology (Chollisni et al., 2022; Cuervo-Cazurra & Rui, 2017; Silva et al.,
2016; Tjahjana et al., 2020). Thus, it can be concluded that absorptive
capability affects marketing performance (Cui et al., 2018; Liu et al., 2018).
However, it is
not only the quality of entrepreneurial knowledge that must be improved to
increase innovation. However, it must be realized that to increase innovation
output, SMEs need to build synergies from external parties such as similar
industries, competing companies, partner organizations, governments,
universities, suppliers, and customers (Saragih & Tan, 2018). SMEs need to
exchange ideas and share experiences to work together to find new ideas and
insights in the innovation process in order to be able to compete with local
and imported creative products (Chollisni et al., 2022; Hussein et al., 2019). Thus, SMEs
must balance with solid network capabilities because the network is also one of
the pillars that can improve innovation capabilities (Han & Shah, 2020; WIPO, 2021). Networking capability is maintaining business
relationships at every stage of the relationship life cycle (Mitrega et al., 2012). This ability
is often associated with the positive success of a business in creating
marketing innovations to get maximum performance and support the development of
business value chains (Medase & Barasa, 2019).
These two
capabilities will be used as opportunities to answer the digitalization era's
challenges and get out of the Covid-19 pandemic crisis. SMEs must have literacy
skills from data and technology or from humans who will develop individual
characters to collaborate, be adaptive, and be innovative (Cui et al., 2018). Especially for
the Sanan Tempe Chips Industry Center, which is the location of the tempe chip
business actors. Tempe chips themselves are innovative products that are a
priority for the development of the creative economy in the culinary sector of
Malang City (Perwal Malang No 12, 2018). Their sales have declined due to losing out to
similar business competitors who are more technologically savvy and able to use
it effectively and efficiently. It is easier for competitors to innovate
products because it is easier to understand the desired product than tempe
chips SMEs in Sanan. There are still many traditional entrepreneurs who only
rely on tourist visits, and the lack of knowledge of technology makes it
difficult for them to innovate during the Covid-19 pandemic.
�The importance of innovation capability as one
of the demands in the creative economy is vital to study, especially in the SME
group. It is mainly related to the importance of increasing capabilities
related to the external environment. Thus, this study aimed to determine the
effect of entrepreneurial orientation on innovation capability. As well as
knowing the mediating role of absorptive capability, networking capability and
the impact on innovation capability.
Figure 1. Conceptual Framework
Hypothesis
Hypothesis 1:
Entrepreneurial Orientation has a significant effect on innovation capability
Hypothesis 2:
Entrepreneurial Orientation has a significant effect on the absorptive
capability
������������������� performance
Hypothesis 3:
Entrepreneurial Orientation has a significant effect on networking capability
Hypothesis 4:
Absorptive capability significantly affects innovation capability
Hypothesis 5:
Networking capability significantly affects innovation capability
Hypothesis 6:
Entrepreneurial Orientation has a significant effect on innovation capability
������������������� mediated by absorptive
capability
Hypothesis 7:
Entrepreneurial Orientation has a significant effect on innovation capability
������������������� mediated by networking
capability
METHOD
This type of research is explanatory research. The
research location is in the Sanan Industrial Center with the research subject
of Tempe Chips SMEs business owners. Of the 140 questionnaires distributed,
only 89 questionnaires could be processed. This is because researchers use
criteria such as SMEs that have been operating for a minimum of 2 years, not
status as acquisition SMEs, have a minimum of 2 product variants, use machine
assistance in the production process, and carry out production and marketing
activities. The number of eligible samples in the study is 30 to 500 (Sugiyono, 2018). The entrepreneurial orientation variable is
measured by innovativeness, risk-taking and proactiveness (Lumpkin & Dess, 1996). Absorptive
capability is measured through the following dimensions: acquisition,
assimilation, transformation and exploitation (Zahra & George, 2002). Networking Capability (Anser et al., 2021) consists of 4 (four) dimensions: coordination,
relational skills, partner knowledge and internal communication. Innovation
Capability is measured through the dimensions: of product innovation, process
innovation and market innovation (Rajapathirana & Hui, 2018; Rakthai et al., 2019). Data analysis was used to test the hypothesis in
this study using Partial Least Square (PLS).
RESULTS AND DISCUSSION
A. Convergent Validity
Table 1
Convergent validity
|
Outer Loading
|
Keterangan
|
|
AC1
|
0,889
|
Valid
|
|
AC2
|
0,927
|
Valid
|
|
AC3
|
0,925
|
Valid
|
|
AC4
|
0,821
|
Valid
|
|
EO1
|
0,898
|
Valid
|
|
EO2
|
0,864
|
Valid
|
|
EO3
|
0,847
|
Valid
|
|
IC1
|
0,859
|
Valid
|
|
IC2
|
0,837
|
Valid
|
|
IC3
|
0,844
|
Valid
|
|
NC1
|
0,855
|
Valid
|
|
NC2
|
0,885
|
Valid
|
|
NC3
|
0,857
|
Valid
|
|
NC4
|
0,903
|
Valid
|
Based on Table 1, it is known that the table each research variable
indicator has an outer loading value > 0.7. This shows that there is no
indicator variable whose outer loading value is below 0.5, so all indicators
are declared feasible or valid for research and can be used for further
analysis.
B. Discriminant
Validity
Table 2
Discriminant validity
|
|
Absorptive Capability
|
Enterpreneurial Orientation
|
Innovation Capability
|
Networking Capability
|
|
AC1
|
0,889
|
0,124
|
0,605
|
0,651
|
|
AC2
|
0,927
|
0,169
|
0,633
|
0,707
|
|
AC3
|
0,925
|
0,156
|
0,559
|
0,587
|
|
AC4
|
0,821
|
0,042
|
0,419
|
0,516
|
|
EO1
|
0,122
|
0,898
|
0,398
|
0,272
|
|
EO2
|
0,163
|
0,864
|
0,308
|
0,225
|
|
EO3
|
0,095
|
0,847
|
0,343
|
0,184
|
|
IC1
|
0,534
|
0,302
|
0,859
|
0,690
|
|
IC2
|
0,579
|
0,373
|
0,837
|
0,700
|
|
IC3
|
0,485
|
0,352
|
0,844
|
0,590
|
|
NC1
|
0,608
|
0,202
|
0,649
|
0,855
|
|
NC2
|
0,647
|
0,350
|
0,754
|
0,885
|
|
NC3
|
0,576
|
0,159
|
0,660
|
0,857
|
|
NC4
|
0,608
|
0,190
|
0,666
|
0,903
|
Based on
table 2, the results obtained show that the indicators used in
this study have good discriminant validity in compiling their respective
variables.
C. Reliability
Table 3
Reliabilit
|
Variable
|
AVE
|
Cut Off
|
Cronbach ��
Alpha
|
Cut
�Off
|
Composite Reliability
|
Cut
Off
|
Description
|
|
Absorptive
Capability
|
0,795
|
0,5
|
0,914
|
0,6
|
0,939
|
0,7
|
Reliable
|
|
Enterpreneurial
Orientation
|
0,756
|
0,5
|
0,840
|
0,6
|
0,903
|
0,7
|
Reliable
|
|
Innovation
Capability
|
0,717
|
0,5
|
0,803
|
0,6
|
0,884
|
0,7
|
Reliable
|
|
Networking
Capability
|
0,766
|
0,5
|
0,899
|
0,6
|
0,929
|
0,7
|
Reliable
|
Table 3 shows that the variables absorptive capability,
entrepreneurial orientation, marketing performance and networking capability of
the AVE value have a value of more than 0.5, the Cronbach Alpha value is more
than 0.6, and the composite reliability value is more than 0.7. Thus, there is
no problem of reliability/unidimensionality in the formed model, so this study
has a high level of reliability.
D. Hypothesis testing
Table 4
Hypothesis testing
|
Direct Effect
|
|
|
Original Sample (O)
|
T Statistics (|O/STDEV|)
|
P Values
|
Results
|
|
Absorptive Capability
-> Innovation Capability
|
0,184
|
2,263
|
0,024
|
Supported
|
|
Enterpreneurial Orientation
-> Absorptive Capability
|
0,145
|
1,291
|
0,197
|
Rejected
|
|
Enterpreneurial Orientation
-> Innovation Capability
|
0,220
|
3,349
|
0,001
|
Supported
|
|
�Entrepreneurial orientation -> Networking
Capability
|
0,264
|
2,842
|
0,005
|
Supported
|
|
Networking Capability
-> Innovation Capability
|
0,597
|
6,174
|
0,000
|
Supported
|
|
Indirect effect
|
|
Original Sample (O)
|
T Statistics (|O/STDEV|)
|
P Values
|
Results
|
|
Enterpreneurial Orientation
-> Absorptive Capability
-> Innovation Capability
|
0,027
|
1,024
|
0,306
|
Rejected
|
|
Enterpreneurial Orientation
-> Networking Capability
-> Innovation Capability
|
0,158
|
2,665
|
0,008
|
Supported
|
The results of hypothesis testing in the table above can be seen:
1. Hypothesis 1 (There is an influence between Entrepreneurial Orientation on
Innovation Capability)
The t-statistics value of
entrepreneurial orientation towards innovation capability is 3,349 > 1.96 or
it can be seen from the p-value which is 0.001 < 0.05. Thus H1 is accepted.
Namely, entrepreneurial orientation affects innovation capability. EO is an
important resource that reflects a strong ability to adapt to business changes
innovatively (Makhloufi et al., 2021). SMEs with a high entrepreneurial orientation tend to be
the first to introduce new products, use new processes and technologies, and be
pioneers in responding to customer needs, which leads to outpacing rivals and
making it more difficult for competitors to understand them. With high EO, they
will be more willing to take risks to invest in technological innovation. This
is because SMEs believe investing in new technology will improve innovation
capabilities and business performance, considering all possible circumstances (Wang & Hu, 2020; Wang
et al., 2014).
2.
Hypothesis 2 (There is an
influence between Entrepreneurial Orientation on Absorptive Capability)
The t-statistics value of
entrepreneurial orientation toward absorptive capability is 1.291 < 1.96, or
it can be seen from the p-value, which is 0.197 < 0.05. Thus H2 is rejected.
Namely, entrepreneurial orientation does not affect absorptive capability. This
result is inconsistent with research (Cuervo-Cazurra & Rui,
2017), which states that this capability can help companies make
a difference between competitors with the same knowledge. However, it supports
research from (Huang & Rice, 2017) that investment in absorptive capability in the short
term may not result in direct benefits from innovation. The absorptive
capability will give maximum effect if used in the long-term decisions of a
business.
3.
Hypothesis 3 (There is an
influence between Entrepreneurial Orientation on Networking Capability)
The t-statistics value of entrepreneurial orientation toward networking capability
is 2.842 > 1.96, or it can be seen from the p-value, which is 0.005 <
0.05. Thus H3 is accepted. Namely, entrepreneurial orientation affects
networking capability. Business actors with high entrepreneurial orientation
will tend to utilize network resources to fulfill their ambitions of improving
their business performance (Jiang et al.,
2016; Nuryakin, 2010). With a high entrepreneurial orientation, SMEs are more
proactive in their actions and continue to learn to explore and join in more
network search activities to fulfill their ambitions of improving their
business performance (Kollmann & St�ckmann, 2014). The results of this study strengthen previous research
from (Jiang et al., 2018; Yoon et al., 2018) that entrepreneurial
orientation affects networking capability.
4.
Hypothesis 4 (There is an
influence between Absorptive Capability on Innovation Capability)
The t-statistics value of absorptive
capability on innovation capability is 2.263 > 1.96, or it can be seen from
the p-value, which is 0.024< 0.05. Thus H4 is accepted that its absorptive
capability affects innovation capability. Makhloufi et al. (2021) �states that higher
ownership of entrepreneurial orientation allows business actors to continuously
maximize market opportunities due to their activeness in accessing new
information and knowledge. Exploration related to the search, discovery,
discovery and creation of knowledge outside of business activities is used as a
source of investment for the creativity needed by small businesses to innovate (Ferreira et al., 2020). Thus, this process will be maximized if the exploitation
is related to repetition, implementation, refinement, and efficient use of
existing knowledge.
5.
Hypothesis 5 (There is an
influence between Networking Capability on Innovation Capability)
The t-statistics value of networking
capability for innovation capability is 6.174 > 1.96, or it can be seen from
the p-value of 0.000 < 0.005. Thus H5 is accepted. Namely, networking
capability affects innovation capability. Indications of the influence of
social capital affect the innovation ability of SMEs. The ability to build a
formal and informal network greatly influences the distribution of knowledge,
especially high technology knowledge (Purwati et al., 2020). This will help accelerate and minimize the costs of
exchanging information as a source of ideas and creative thinking. The
networking capability will assist business actors in controlling the main
resources that will be improved to be integrated into the new network (Burt & Soda, 2021;
Nuryakin, 2020). Collaboration in the network will review various
disciplines to access extensive knowledge, especially regarding new product and
service technologies, to improve their business innovation capability (Wang & Hu, 2020).
6.
Hypothesis 6: Absorptive
Capability mediates the effect of Entrepreneurial Orientation on innovation
capability
Based on the results of hypothesis
testing, it is known that entrepreneurial orientation affects innovation
capability, which is mediated by absorptive capability. seen from the
t-statistics value 1.024 > 1.96, p-value 0.000 < 0.05. So, there is no
significant effect between entrepreneurial orientation and innovation
capability mediated by absorptive capability. Thus H6 is rejected and does not
support the research results (Makhloufi et al., 2021). However, this study supports the statement that the
effect of mediation will not be significant if it is only used in the
short-term decision process. In addition, absorptive capability cannot
influence the innovation of a business because business actors tend to focus on
existing knowledge. Moreover, do not dare to take risks to explore new
knowledge and combine it with existing knowledge (Seo
et al., 2015).
7.
Hypothesis 7: Networking
Capability mediates the effect of Entrepreneurial Orientation on Innovation
capability
As seen from the table above,
entrepreneurial orientation's effect on innovation capability is mediated by
networking capability. It can be seen from the t-statistics value of 2.665 >
1.96 and p-value of 0.008 < 0.05, then H7 is accepted. Entrepreneurs who proactively engage
in environmental scanning and resource/opportunity-seeking actions of
organizations and institutions with which they have or wish to build
corporate-corporate relationships can be characterized as valuing an open
systems mindset that seeks to proactively pursue entrepreneurial initiatives
within established networks (Jiang et al., 2018). SMEs actively involved in open innovation strategies
such as networking or technology acquisition and combining it with absorptive
capability will have a better influence on innovation. With a strong networking
capability, SMEs will be more effective in reducing the negative impact of
purchasing technology (Huang
& Rice, 2017). �
CONCLUSION
Based on the
study's results, the following conclusions can be drawn: entrepreneurial
orientation significantly affects innovation capability. With entrepreneurial
orientation, SMEs will be more vital in adapting to their environment and able
to innovate with high creativity than their competitors. EO affects the ability
of innovation activities through learning, creation of new ideas, routines and
practices, information flow, and product design improvement processes.
Entrepreneurial orientation has no significant effect on absorptive capability.
Entrepreneurial orientation does not affect absorptive capability if SMEs only
focus on exploiting existing knowledge without being balanced with exploring
new knowledge. Entrepreneurial orientation has a significant effect on
networking capability. Entrepreneurial-oriented companies will take advantage
of their network and build new networks to reproduce helpful information for
product development.
The
absorptive capability has a significant effect on innovation capability. The
higher the absorptive capability, the higher the innovation capability it has.
Absorptive capability can make it easier to identify market needs and needs by
exploring the knowledge needed to create creative ideas. Networking capability has
a significant effect on innovation capability. This capability can create
network collaboration that can accelerate the
distribution of knowledge, especially high-tech knowledge.
The effect of
entrepreneurial orientation on innovation capability cannot be mediated by
absorptive capability because absorptive capability will have a maximum effect
on innovation capability in long-term needs. The absorptive capability will be
vital for SMEs if there is an efficient collaboration between new and existing
knowledge. Entrepreneurial orientation has a more significant effect on
innovation capability through networking capability. Active companies continue
to seek external information and build a new network to develop new products to
meet market demands. Active network collaboration built by business actors also
helps distribute new knowledge from various fields of science as a source of
creative idea investment for SMEs.
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THE INFLUENCE OF
ENTREPRENEURIAL ORIENTATION AN INNOVATION
CAPABILITY BY ABSORPTIVE AND NETWORKING CAPABILITY: A CASE STUDY OF TEMPE CHIPS SMES IN MALANG